Banks require an appraisal on a home before they’ll approve a mortgage loan. The reason for this is the property is the underlying asset that serves as collateral for the loan. If you lose your home to foreclosure, your lender will sell the property to repay the loan. Lenders will only approve a mortgage when the property appraises for the full sales price of the home or more.
The Mortgage Appraisal Process
An appraiser determines a home’s appraised value by looking at factors such as square feet, number of bedrooms, number of bathrooms, the location of the property, age of the property, and any improvements made as well as market conditions. The appraiser then compares the data on your home to other comparable properties’ data and the market to arrive at your home’s value.
While your mortgage lender will order the appraisal, you are responsible for paying for the cost of the appraisal. However, according to federal regulations, the appraiser cannot discuss the appraisal with you unless the bank gives written permission. Per the requirements of The Consumer Financial Protection Bureau, your lender will provide you with a copy as soon as the mortgage company receives it or at least three days before your closing. Although you can waive your right to receive a copy of the appraisal, it’s wise to review it so that you are clear on the details that your lender is using to determine the amount of your home loan.
You and your realtor should review the report to see which homes were chosen for comparison purposes. You should also make sure the appraisal includes accurate information and considers intangible things, such as a sought-after school district.
When Your Mortgage Appraisal Differs from the Sale Price
If the appraisal comes in higher than what you offered, you have the benefit of immediate equity in the home. If the appraised value is lower, you and the seller will have to adhere to the negotiated contract. However, if your contract is contingent on an appraisal, you may withdraw your offer and get your earnest money back.
If you waived the house appraisal contingency or want to purchase the home anyway, you can renegotiate the contract if the seller is willing. If not, you can move forward a couple of different ways.
- Challenge the home appraisal with documentation from your realtor. However, any communication with the appraiser must go through the lender. According to federal regulations the appraiser cannot directly discuss the appraisal with you since it was ordered by the bank.
- Put down additional money to make up the difference between the appraised value and your purchase price.
- Ask the seller to finance the difference between the appraisal and the sale price.
Information for Lenders
With over 25 years of experience, Stafford Appraisals specializes in appraising homes in Collin County and Denton County. Contact Stafford Appraisals for a direct lender fee schedule or to order an appraisal.