An appraisal is an independent assessment of a house’s value. A lender wants to know how much a property is worth before it approves a mortgage or allows a current owner to refinance or tap into home equity.
What’s Involved in a Home Appraisal
Appraisals can be conducted in several ways. Sometimes an appraiser comes inside the house to conduct an inspection and measure its square footage. In other cases, an appraiser drives by the house and only looks at the exterior. An even simpler version is conducted using software that gathers local real estate data and calculates a home’s value.
The property that’s being appraised is compared to similar houses in the area that have sold recently. Other factors, such as the home’s location and the condition of the neighborhood, can influence the property’s appraised value.
Why You’ll Need an Appraisal to Buy a House
A lender doesn’t want to give a homebuyer more money than a house is worth. To avoid that scenario, a lender requires an appraisal before granting final mortgage approval.
If the house appraises for an amount that’s equal to or greater than the sale price, the deal can proceed. If it appraises for a lower amount, the seller can reduce the price, or you can pay the difference in cash or walk away.
Why You’ll Have to Get an Appraisal Before You Refinance
If you currently own a house and you want to refinance your mortgage, the lender will most likely require you to get the property appraised. That will help the lender make sure that the new loan amount is in line with the house’s current market value.
Why You’ll Need an Appraisal to Access Home Equity
You might want to take out a home equity loan or a home equity line of credit to finance home improvements, pay off credit card debt, or cover another large expense. The amount of money that you’ll be able to use is calculated by comparing your home equity to the property’s value. The lender will have to know how much the house is currently worth to figure out how much money or credit to give you.
Who Pays for an Appraisal
Fees for appraisals vary. In the case of a potential home purchase, the buyer generally pays the fee. If a current owner wants to refinance a mortgage or take out a home equity loan or line of credit, the owner pays the appraisal fee.