So, your loan application is in full swing and your loan officer mentions that an order for an appraisal has been submitted. You may be wondering, what is an appraisal? And what does that mean for my home financing?
First off, an appraisal is not an inspection. Appraisals are a professional opinion on the value of the home and property. An appraisal will not check the functionality or condition of a home. That is saved for the inspection, in which a different licensed professional will check things like wiring, plumbing, foundation stability, etc.
An appraisal is completed by a licensed professional known as an appraiser. To protect the integrity of the report, the appraiser is an independent contractor with no stake in the outcome of the transaction. The appraiser will determine the value of the property by looking at a variety of factors including the selling price of similar homes (a.k.a., comps) and the overall quality of the property.
The appraisal is an important part of the home buying process as it will help determine how much financing the lender can provide. If the appraisal report comes back lower than the selling price, the lender may not be able to offer financing. The buyer may need to cover the difference, change loan products or negotiate with the seller to lower the selling price. If the appraisal comes back at or above selling price, the loan process will continue on to the next step.
Want to know more about appraisals, homebuying 101 or how to begin your journey home? Contact one of our home loan experts to get started today!