Why Does My Lender Need A Home Appraisal?

Most borrowers tend to concentrate more on whether they qualify for a loan based on income or credit, but an important part of the lending process is the appraisal of the property being purchased or refinanced. The lender will be concerned with the condition, type and value of the property. An appraisal is generally required on every real estate loan. The level of appraisal may vary -- from one as brief as the county tax assessor's valuation or as extensive as a lengthy, narrative report. The most common appraisal used for residential, single-family homes is called the "Uniform Residential Appraisal Report", developed jointly by Freddie Mac (Federal Home Loan Mortgage Corporation) and FannieMae (Federal National Mortgage Association). These two agencies publish the majority of lending guidelines for the mortgage industry. In most cases, the appraiser is required to inspect both the interior and exterior of the home. This inspection comprises the beginning of a comprehensive report on the value and type of home. The appraiser reports on the area -- whether it is urban, suburban or rural -- how much it has built up, average marketing time of homes in the area, etc. The appraiser describes the neighborhood and its various trends. The lot dimensions and zoning of the home are required on the report. The appraiser indicates the type of utilities, off-site improvements, lot shape, drainage, easements and any unusual characteristics of the lot. The home also is measured and described, indicating type of construction, number of rooms, foundation type, garage, insulation, interior details on flooring, doors, trim, and walls. The appraiser reports the type of appliances and heating or air conditioning systems with any additional amenities. The cost of constructing the home is also indicated on the appraisal report. This gives the lender an idea of the replacement value of the property and also is useful for an insurance agent as well in determining appropriate coverage for a home. The appraiser also will compare the home you are buying or refinancing with at least three other homes in the general neighborhood that are similar to yours and have sold within the last six months. The appraiser will research local multiple listing records as well as recorded documents through the county to obtain comparable home information. Your Realtor also may assist in this research. Often this can be difficult in neighborhoods where few houses have been sold in recent months. Each of the three homes, called comparables, is compared with the subject home, and the appraiser makes dollar adjustments, both up and down, to arrive at a final value of the home being appraised. For example, if your home has a finished basement, the appraiser will attempt to locate other homes that also have basements. If there are no homes in your neighborhood with basements that have sold recently, then the appraiser probably will make an adjustment. The value of a basement will be added to the value of the comparables with no basements to bring their value more in line with your home. Many times, depending on the type of home being appraised, the appraiser will attach additional pages describing various adjustments or market conditions that may influence the value of the home. As you can see the appraisal report is much more than just the initial visit to your home. It gives the lender a complete description of the property serving as security for the loan. Read the full story - click here.

Additional Resources:

• Three Approaches To Market Value
• How To Prepare For An Appraisal Inspection Appraisal , Real Estate , Appraiser, USPAP