The Importance of Home Appraisals in the Home Buying Process

If you're in the market for a new home, the appraisal is a critical factor to consider during the mortgage process. A home appraisal is an impartial, fair assessment of a home's worth, and is typically required before closing. It's essential to be well-informed about this step, so here are some answers to important questions about the home appraisal process:

What is the purpose of a home appraisal?

The appraisal is used to evaluate the current market value of a property based on its location, features, and condition. It also helps lenders ensure that they are lending an accurate amount based on the home's value.

Some additional points to keep in mind:

• Home appraisals are typically carried out by a licensed appraiser who has expertise in evaluating real estate. They will look at a range of factors to determine the value of the property, including the size of the home, the number of bedrooms and bathrooms, and the condition of the property.

• The appraisal report will include a detailed description of the property, as well as a list of comparable homes in the area that have recently sold. This information helps the appraiser arrive at an accurate estimate of the home's value.

• Lenders typically require a home appraisal as part of the mortgage approval process. This is because the appraised value of the home is used to determine how much the lender is willing to lend. If the appraised value is lower than the purchase price, the buyer may need to come up with additional funds to cover the difference.

• Homeowners can also order an appraisal if they are thinking about refinancing their mortgage or selling their home. An appraisal can give them a better idea of how much their home is worth, which can help them make informed decisions about their finances.

Why do I need an appraisal?

Mortgage Brokers, like Onshore Mortgage, LLC. require an appraisal to meet the Lenders underwriting requirements. The appraised value must match your purchase price or you will need to negotiate your purchase price lower or pay the difference known as an “appraisal gap”. When you receive a property appraisal, a value is assigned to make sure that the Lender is not providing a loan for more than the property's worth. This is because if you default on the loan, the lender will have to sell the property to get as much money as possible back for the investors in the loan. Although no one expects this to happen, mortgage investors prepare for worst-case scenarios. If you're a homebuyer, the appraisal ensures that you don't overpay for your home and that you know its current market value. The appraisal process includes safety checks to ensure that the property is ready for occupancy. Ultimately, the appraisal will provide you with valuable information and peace of mind when purchasing your new home.

Who appraises the home?

A licensed certified home appraiser is chosen by and independent and impartial third party known as an AMC (Appraisal Management Company). They will assess a property's value based on state regulations, industry standards, and ethical and performance standards set by groups like the Uniform Standards of Professional Appraisal Practice (USAP).

What do appraisers look for?

The appraisers assess the state of all structures that are usually part of or attached to the home. This includes general features such as age, square footage, lot size, number of bedrooms and bathrooms, and floor plan functionality; interior features such as walls, flooring, windows and doors, appliances, plumbing, and lighting; exterior features such as the foundation and roof's structural integrity, decks and porches, garage, and permanent amenities (e.g. pool or sprinkler system); and location features such as nearby schools, recently sold homes, public utilities, and zoning classification.

The main objective of an appraiser is to allocate a fair market value to your property. To achieve this, they begin by assessing the condition and amenities of your home. Once the inspection is complete, the appraiser searches for comparable recent sales of similar properties, with the term "similar" being a crucial factor. Comparable properties must resemble each other, such as comparing four-bedroom colonial homes with other four-bedroom colonials, rather than a three-bedroom ranch property. Comparable sales are also ideally located in the same neighborhood or nearby areas, with some exceptions for regions where homes are spaced farther apart. Typically, up to three comparable properties are used for assessment. Based on this evaluation, the appraiser combines all the information to assign a fair market value to your property.

How is the appraisal paid for?

In most cases, the homebuyer covers the appraisal fee as part of their mortgage closing costs, unless the lender specifies otherwise. At Onshore Mortgage, LLC. , the appraisal payment is  paid upfront and will be the only charge POC (paid outside of closing) before your closing.

How long does the appraisal take?

The appraiser usually spends one to two hours on the property. Once completed, they write up a report of their findings, which are then sent to their AMC (Appraisal Management Company) for initial review. Once the appraisal has cleared the AMC's quality control it is then forwarded to the Lender and other relevant parties. This process typically takes six to ten business days. During the appraisal process, the appraiser will be taking a look at various aspects of the property. They will be examining the condition of the property, its location, and any unique features that it may have. Additionally, they will be looking at at least 3 recent sales in the area to determine the market value of the property.

It is important to note that sometimes the appraisal process may take longer than expected due to various factors such as the complexity of the property or the appraiser's workload. In such cases, it is always advisable to keep in touch with Onshore Mortgage to get regular updates on the progress.
Once received, you should thoroughly review the report as it can affect the outcome of the transaction. If there are any discrepancies or issues with the report, it is advisable to bring them up to your loan officer as soon as possible.

Can I purchase a home without an appraisal?

An appraisal waiver is an option that some homebuyers can take advantage of when purchasing a property. Essentially, it allows you to forego the appraisal process, which can help expedite underwriting time and save some money. Appraisal waivers are offered through Fannie Mae and Freddie Mac. These waivers, also known as property inspection waivers (PIWs), represent a streamlined approach to home valuations. In certain cases, based on their automated underwriting system's evaluation of your creditworthiness and the property's characteristics, these agencies may grant an “appraisal waiver”. This means that a traditional in-person property inspection may not be required for the mortgage to be approved. By utilizing extensive property data and advanced algorithms, Fannie Mae and Freddie Mac aim to provide a more efficient and cost-effective option for eligible homebuyers. However, not all buyers are eligible for an appraisal waiver, and it's important to carefully consider the pros and cons before deciding whether or not to pursue one. If you're unsure whether an appraisal waiver is the right choice for you, it's always a good idea to consult with a trusted mortgage professional.

The appraisal is a crucial part of the mortgage process, providing valuable information to both you and the Lender about the property you're buying. If you have any questions about appraisals or other steps in the home buying journey, don't hesitate to contact Onshore Mortgage, LLC. today!