Appraisal Basics

House appraisals and inspection are typical parts of the process of purchasing a home.

While this house evaluation and inspection can provide a bit of peace of mind they offer no guarantee that the home is free of defects. Even though professionals are in charge of examining the home to provide documentation for the various entities, the buyer has an obligation to themselves to do their own evaluation of the homes condition.

Mortgage lenders use the information found on the house appraisals and the inspection document to determine the estimated value of the home, and to justify the amount of money that is reasonable to loan on the property. For the first time home buyer, this estimate of value can make or break a mortgage deal.

I've seen it where this value estimate came back far below the price of the house. Now the first time home buyer has to either make up the difference in the down payment or renegotiate with the seller.

The appraisal will include information about other homes that were sold in the near vicinity of the home they are evaluating while the inspection provides information about the current condition of the home including the roof, and appliances such as the air conditioning system.

How House Appraisals Work

These reports created on a home are estimations of what an interested party could expect to pay for the property. Here is the way this process can work.

• The combination of the home buyer, seller and the mortgage lender use the services of a licensed appraiser to obtain an accurate estimate of the true value of the home in question. The lender will only authorize the amount of money to loan according to this home value estimate even if that is lower than the contracted price of the home. This leaves the buyer and seller with the choice between renegotiating another price and cancelling the contract.

• Residential real estate appraisals include the number of bedrooms and bathrooms, condition, location and an estimate of the remaining useful life of the home as well as other factors that would affect the value of the home. They take measurements and make diagrams with photos of properties and use these to prepare their reports.

It is this value that allows lenders to determine what they are willing to loan on the home.

How This Affects the Down Payment?

The lender, that the first time home buyer has started the mortgage process with, will not approve a loan that is higher than this home value estimate. So if you really want the house, you have to add the difference to your down payment. For many this presents a problem. That is why the first time home buyer should be concerned with how this estimation of value comes back. Especially since it can affect the loan.

So understanding the process can be helpful to you, the first time home buyer.

Learn what methods are used to figure this estimate of value by reading House Value Methods.

Why would a lender need this estimate when deciding on a loan for you? Value Assessment Needed to Obtain a Loan gives an awesome explanation on how this process works.

Understand why this assessment is ordered at Why do Lenders Need to Order This?

FHA has their own set of rules. FHA Appraisal Guidelines explains those standards in a nice way for your.

Help the Assessor gives some suggestions to help this process proceed in a timely fashion.

Assessment Helps Establish the Market Price explains what is involved in developing the market price on a home.

There are Other Reasons to order an appraisal. Learn what these are and how they benefit you.

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