Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Home Appraisal
A home appraisal process in simple terms is a type of home valuation through inspection and comparison of the said home with other recently sold homes from the area.
It is necessary to get the home evaluated through an appraisal before you can buy, sell or refinance a mortgage loan.
The appraisal also helps you get an estimate of the amount you can borrow from a lender.
On one hand, appraisals protect you from paying more than the value of the property while buying it, and on the other hand, they protect the lender from giving a borrower more money than the value of the home.
Home appraisals are required to be carried out by a third-party licensed appraiser having no connection to any one of the buyers, sellers, or lenders.
This is to ensure the appraisal process is carried out fairly and the final valuation of the property is not influenced by any of the parties.
Home Inspection vs Home Appraisal
Although appraisal and home inspection both take place before the home is bought, there are some differences between the two processes.
A home inspection is not mandatory, but it is recommended that you do it, while an appraisal is mandatory and required by the lender.
Thus, it is the borrower or homeowner’s responsibility to find an inspector and schedule an inspection while the lender schedules the appraisal for the homeowner.
Another difference between the two processes is that a home inspection determines the condition of the home, while an appraisal determines the value it.
In simpler terms, an appraisal is a process to determine the value of the home by research based on similar homes that were recently sold in the area and is a more surface-level review.
While a home inspection is an inspection of the condition of the home to determine if there are any problems or ‘defects’ in it, using special equipment.
4 Steps Appraisal Process
From the date of the actual inspection to the day you get the appraisal report, the complete appraisal process of a home can take one or more weeks.
Before the appraisal process of a particular home can start, you are required to put an offer for the home and have it accepted, and after you have signed the purchase agreement, the lender can order an appraisal on the home, and the appraisal process of begins.
1. Lender orders the Appraisal
The home appraisal process starts when the lender orders the appraisal on the home. After the order, an appraiser comes and inspects the home.
2. The Appraiser comes for inspection
The appraiser inspects particular parts of the home for certain reasons depending on the loan type.
The appraiser also inspects the home to make sure features like the heating and electrical work properly and there are no safety concerns.
Loans such as FHA and VA loans have more specific criteria for appraisal compared to other loans and several issues are required to be resolved before the buyer has moved in.
3. Appraiser creates a report
The appraiser, after completing the home inspection, reviews the comparables and comes up with a reasonable market value of the home.
A report containing a detailed description of the home along with its unique and basic features and the condition of the home is then created by the appraiser.
The report can also include information supporting the appraiser’s evaluation and findings and also general information about the market and location of the home, details of the properties used as comparables, etc.
The homeowner or borrower is also provided with a copy of this report for his/her own record.
4. Finalizing the Loan terms
The lender finalizes your loan terms after the appraisal has been done and the purchase price of your home has been officially set.
A Closing disclosure with details of down payment, closing costs, and the terms of the mortgage are provided to the borrower who can then close on the loan.
If the home appraisal process seems to you like too much hassle, there is a way you may be able to bypass the process.
Although it only happens in some rare cases, it is possible to use a waiver and skip the appraisal process when working with Freddie Mac and Fannie Mae.
The Cost of Appraisal
The average national cost of an appraisal is around $335 with a majority of appraisals costing between $200-$600. The cost of an appraisal, however, depends on a number of factors like:
- The type of the home.
- The size of the home.
- The condition of the home.
- The location of the home.
- The amount of work and time required.
All these factors determine the amount of time and effort that will go into the appraisal process which in turn determines the total cost of the process.
A home with unique characteristics will be difficult to evaluate it becomes hard to find other homes to compare it to.
It may also require extra research if the home is situated in a remote area where there are no other homes nearby, let alone similar hone, to compare the property to.
Conclusion
A home appraisal is one of the most important elements of the entire home buying process for the buyer, seller, and lender as well.
The importance of having the home evaluated before you buy or sell it cannot be stressed enough as even a small factor can affect the value of the home.
