Week 5, Step 4: Ordering and Understanding Your Appraisal
So your offer has been accepted, the loan documents have been drafted, reviewed, signed and sent off to the lender. As we wait for your conditional loan approval, there is another pivotal element that needs to be addressed. That is your appraisal.
The appraisal is the estimated value of your home that the lender will use. Whether you are buying a new home or refinancing, an appraisal is always required (unless it’s a streamline refinance).
This might seem straight forward to some, but like most things that seem simple there is always a little more to the story. A couple things that are important to understand is how an appraisal is made, and what it means when a property’s appraisal comes in low.
Appraisers can use a couple of different ways to determine value, however the most common is by using comparable sales. This is important to keep in mind. You may be looking to refinance your home, have an estimated value in mind, but if your neighbor bob has the exact same home and recently sold it below value, that recent sale can negatively affect your refinance.
Another element that revolves around low value that is important to keep in mind is a low appraisal on a home that you may be purchasing. At first this might not seem like a bad thing at all. Someone is telling you the home cost less, the home was for sale for 500k and it just appraised for 450k. That means you get it for 450k right? Generally the answer here is no, and the truth is a low appraisal can end up costing you more out of pocket. The truth is even though the home appraised for 450k you agreed to buy it at 500k. The seller may not reduce the price of the home and you may have to come up with the difference out of pocket.
So it is important to understand how the process works and how it affects the overall outcome of your purchase. But just as you’re getting all wrapped up in your appraisal, you get word from the lender, your loan just received a conditional approval! Awesome, but what does that mean to you?…
