Mortgage Appraisal (Tips/ Guidelines)
What happens during home appraisal? What if the house I’m buying appraises for less than my offer?
What Are Home Appraisals?
When you’re financing a home, your mortgage lender is going to require that the house is appraised (by an FHA appraiser, for instance).
An appraisal is a best guess of a home’s current market value, based on the specific details of the home in question, and current market data on the sale prices of similar homes immediately near yours.
What Does an Appraiser Do (Exactly)?
A home appraiser does a lot of surveying and research.
When it comes to the house you are buying, the appraiser will book an appointment to evaluate the home. The appraiser will do things such as:
- Take the entire square footage of the home, room by room.
- Document the current state of the home and how well it’s been maintained.
- Document any upgrades the home has, and estimate when they were performed.
- Measure the lot size of the home.
After your appraiser has all this data about your home, the real work starts. He or she will look at the Multiple Listing Services, or MLS for short, which is the master database of all houses currently for sale and recently purchased in your area.
The appraiser who is appraising the value of your to-be-purchased home will start looking for what we in the industry call “comps,” that is, homes that are comparable in location and size to the home you’re buying. For example, if you’re buying a 1,500 square foot 3 bedroom, 2 bath home, the appraiser is only going to compare your home’s value to that of homes around the same size. A 2,500 4 bedroom, 3 bath house – even if it’s just down the street – wouldn’t be considered a comp.
By looking at comparable homes in the neighborhoods immediately near yours, the appraiser will determine what the current market value is for the price per square feet. With this number in hand, he or she will multiply the price per square feet by how many square feet your home is, and thus, determine it’s appraised value.
What if the Appraisal is Less Than My Purchase Price?
Some homebuyers think if the appraised value comes in for less than the purchase price, which is the only amount your mortgage lender will cover, that the homebuyer needs to come up with the difference. This isn’t true. Instead, your real estate agent will help you negotiate with the seller’s real estate agent to lower the purchase price of the home to the newly appraised value.
This happens in 99% of the cases. Why? Because once a home is appraised at a certain value, it’s very difficult to get the value of the home up in a short time period. Since lenders only cover the appraised value of the home, this means the buyer knows that nobody but a cash buyer not requiring an appraisal will come up with the difference between the appraised value and original contract price.
To some it up, if your home appraises for less than your offer, your purchase price is most likely going to go down, as will your monthly mortgage payment!
How Do I Find a Mortgage Lender?
If you’re looking to buy a home and you need a mortgage lender, we can help. Fill out our online quote to get connected to a mortgage lender who services your area. After you fill out the form, the lender you’re matched with will contact you directly.