Often a home buyer that is qualified for a mortgage will find their dream home is still out of their reach. Where their dreams are shattered is in the appraisal process. When calculating loans, mortgage lenders must base the loan on the appraised value of the home which can be different than the price listed by the realtor. The appraisal is just as important as your credit rating and can kill a home sale even if you are pre qualified. Common reasons why the appraisal is different than the estimate include:
• There is a problem with the property. These problems could have been unknown to the homeowner. The house could have a faulty and dangerous heating system.
• The price is not comparable to other homes in the area that are similar in age, size, neighborhood or condition.
• The home could have unintentionally been overpriced. Unfortunately, this mistake could cost you your dream home.
The Appraisal Process
Before you start thinking of the appraisal as the Big Bad Wolf, consider that he or she must go through a process. As mentioned earlier, the neighborhood and the price of other properties that are comparable are a factor in the appraisal. The appraisal must also honestly assess what it would cost to rebuild the home.
Usually the appraiser is selected by the mortgage loan officer. He or she will do a through inspection of the home inside and out. Research will be done on how much that home has been valued in previous years and what other homes are worth in the area.
What happens if the appraisal is higher or lower than expected?
Get a copy of the report and read over it thoroughly. If the appraisal is not what you expected, you can ask for a review. Many bank and mortgage loan officers ask for a review automatically. Your other options are:
• You can try to renegotiate the price with the seller.
• You can make up any differences with a larger down payment.
• Ask your lender to override the report or at least, get another opinion.
Avoiding the surprise
If for any reason you are worried about the appraisal, you can prepare and avoid the surprise of a low appraisal. Most realtors offer a Comparative Market Analysis. Known in the industry as a “comp,” this report will list recent sales or homes in the area. Just keep in mind that the report may not take into the account the uniqueness of each home and any hidden deficiencies. No report can replace the appraisal when it comes to applying for the mortgage.
Working with your mortgage lender
Low appraisals happen but if you are working with an experienced mortgage loan officer, you can avoid disaster. An experienced lender will recognize an extremely high or low sales figure and can predict that the appraisal will likely not turn out in your favor. And if an appraisal does catch you by surprise, an experienced lender can help you with options including obtaining a different type of loan or increasing the down payment amount. An appraisal does not have to kill your dreams of owning your perfect home.
Author Resource:
Chriss Carr is the Vice-President of CFS-Mortgage. Founded in 1982, Phoenix-based CFS Mortgage Corporation is a closely-held mortgage banking firm licensed by the state of Arizona. http://www.cfs-mortgage.com
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