Here's a terrific infographic from Title Source and Ghergich & Co. about what you need to know about the basics of a home appraisal process if you're buying a home or thinking about buying a home. If you plan to finance your home purchase, your lender will require a home appraisal. By the way, if you are refinancing your current home, your lender will require a new appraisal, as well.
One often misunderstood aspect of home appraisals is that many home buyers believe if the home does not appraise for the contract price, the lender won't approve the loan. That's not correct... if you are otherwise qualified, the lender will approve your loan, but only up to the appraised value. That means the buyer brings the difference of any shortfall between approved loan amount and appraised value to the closing. (Something that may or may not be possible for many buyers.)
Another thing to keep in mind about home appraisals is that their primary purpose is to protect the lender's interest in your property... they are not necessarily to protect your interest in the property, despite the fact that you pay for the cost of the appraisal as part of your mortgaging costs.
Two more things to keep in mind about appraisals include the facts that appraisals are not an exact science and the value an appraiser puts on a home is what we refer to as a "snapshot in time." In other words, the snapshot (or value of your home) can change substantially in a very short period of time.
If you are financing a home with Private Mortgage Insurance, don't forget that when your loan to value ratio reaches 80-20% you can apply to cancel PMI and that this will require an appraisal. Your PMI won't go away on its own.
And if you're applying for a government-backed loan, such as an FHA, VA, or USDA loan you should know that each of these has specially certified/approved appraisers that must be used. Click here for more information about FHA and VA appraisal processes and how they compare to each other.
The American Society of Appraisers' website provides lots of additional information about appraisals, appraisers, etc. if you'd like to know more about this very important aspect of financing a home purchase.
Infographic on what home buyers need to know about the home appraisal process courtesy of Title Source and Ghergich & Co.
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Disclaimer: Nothing in this blog article is to be construed as legal advice, tax advice, or financial advice. For legal advice see an attorney. For tax advice or financial advice see a tax attorney, certified public accountant, or other qualified professional.