What Is a Home Appraisal? | Cleveland Bradley County Teachers Federal Credit Union
Most home purchases require a home appraisal be done to determine the property’s value as part of the mortgage process. It’s a crucial step mandated by law for many federally backed mortgages.
But just what is the appraisal and what can it mean in the mortgage process? And is it meant as a protection for you, the lender or both? Read on to learn about this common and often-misunderstood part of buying a home.
Who Is the Appraisal For?
While the appraisal is required by the lender in most cases, it’s really a protection for both parties. The check is meant to ensure the purchase price is fair. The bank doesn’t want to lend more money than the house is worth and you don’t want to end up on the hook for more than the property value from the start.
Part of the housing crisis that started in the late 2000s was homeowners who were underwater on their loans, which is to say they owed more than their property was worth. With their houses now liabilities, rather than assets, they had no equity in the properties. Plus, they were making payments they may never recoup if their homes sold for less than they’d paid on them.
A good appraisal can help keep you from being in that kind of mess from day 1. While it can’t predict the future, it at least ensures you aren’t underwater at the start of the loan.
Though the appraisal is likely to be required by the lender, you as the buyer will pay for it and it will typically cost a few hundred dollars. You’ll get a copy of the appraisal report that, along with the home inspection, can give you a clear picture of the condition of the property.
If the property isn’t valued at the purchase price, it can put the sale in jeopardy, but it doesn’t mean your application will necessarily be immediately rejected.
What Does the Appraisal Include?
The appraisal is all about establishing value, so it’s largely about finding comparable properties in the area that recently sold. That, along with the characteristics of the neighborhood and trends in the local market, are the external factors most often considered in appraisals.
After that groundwork is in place, the appraiser will turn his or her attention to the property itself. Among the factors the appraiser will consider are:
- The size and condition of the lot
- The heated square footage (often written as HSF) of the home
- Age and condition of the home
- Types of building materials used, including in external structures such as decks
- Included appliances and fixtures
- Features such as working fireplaces and pools that can impact the value
While the appraisal has some similarities to the home inspection, which is a check meant for the buyer’s benefit, there are some significant differences. For instance, an appraiser may indicate there’s a structural issue, but an inspector will likely try to find the source of the problem and indicate the fix that may be required.
All of us here at Cleveland Bradley County Teachers Federal Credit Union are committed to helping you build a better financial future. If you’re ready to make the move to homeownership or looking for a new place, give us a call to get a partner in the mortgage process.