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Sellers, buyers, and refinancers should all be familiar with appraisals and how they fit in the homebuying/selling or mortgage process. Once the appraisal process is completed, there are a couple of scenarios that buyers and sellers can expect.
What Is a Home Appraisal?
A home appraisal is the primary way for someone to calculate the value of their home. It requires an unbiased and professional opinion on the value of a home, specifically when a home is being bought, sold, or refinanced through a mortgage.
Qualified appraisers will be licensed or certified and also be familiar with the area to form an accurate assessment of the home. They have the responsibility to create a report that considers the home itself and outside factors such as the current market trends, the area the home is located, recent sales of similar homes, etc. The home must be visually inspected, both inside and outside; appraisers look at the overall appearance and quality of the home, the number of bedrooms and bathrooms, the functionality of the layout and floor plan, the square footage, if repairs are needed, and any amenities the home offers. The report should have pictures of the home, any data or records used to evaluate the market or area, etc.
How it works for buyers
As one of the first steps of the closing process, lenders will order the appraisal while the borrower pays the appraisal fee. The appraisal affects the mortgage loan application of the buyer (or refinancer), not only because it’s part of the application process, but because if the appraisal comes in below the contract price, the loan transaction is interrupted and borrowers no longer qualify for that amount.
Lenders only want borrowers to borrow what they need because the home is the collateral for the loan, meaning if lenders loan more than what the house is worth, they would lose money if the borrower defaults on the loan or faces foreclosure. The silver lining of a low appraisal for borrowers is that they aren’t paying more than the house is worth, which can help with price negotiations.
How it works for sellers
Sellers also don’t want the appraisal to fall through because it usually means they won’t get as much money as they were expecting for their home. An all-cash buyer doesn’t require an appraisal (because they aren’t looking to qualify for a mortgage), but there’s no guarantee that you’ll get an offer from a cash buyer.
You can consider getting a second opinion from another appraisal, especially if you suspect the original appraiser is biased in any way. Sellers should also look into what may be lowering the value of their home, such as foreclosures or distressed sales in your area; it’s possible to have the appraiser reevaluate your home if your home is in far better condition than those other properties.
How Long Does An Appraisal Take?
The appraisal process usually takes 7-10 days from start to finish. The on-site appraisal usually takes 1-2 hours, but appraisers also have to research trends, make comparisons, and write the report. When the buyer will get the appraisal report varies, especially depending on the complexity of the home appraisal, the workload of the appraiser, etc.
How Much Does A Home Appraisal Cost?
A home appraisal usually costs the borrower or buyer several hundred dollars. More specifically, buyers should expect to pay around $300 and $450. The price will change depending on the size, location, and condition of the home as well as the hourly rate of the appraiser. Appraisers may also just use a flat fee rather than an hourly rate, but beware appraisers that want a percentage of the home’s value; this isn’t an ethical request.
What Next After the Appraisal?
Many people wonder, what happens if a house doesn't appraise? If the loan comes in under the contract price, you will either need to pay the difference in cash or negotiate with the seller to lower their price in order to keep the current term loans and not lose your good faith deposit. You can also dispute the appraisal if you believe something was evaluated unfairly or with bias.
If the appraisal comes in or above the contract price, then the loan proceeds like normal. The next step is the underwriting process, which is where the loan evaluation and conditions are finalized.
Mortgage Underwriting
The underwriter is the person who reviews the loan and makes sure that all the documents have been properly submitted. The underwriter is also who ultimately decides whether to approve or reject the loan by measuring the risk for the lender. To estimate the risk of a borrower, underwriters look at the borrower's credit report, debt-to-loan ratio, collections history, and anything else that indicates what kind of borrower you are.
Underwriting Conditions
A lot of the time, the loan is approved and borrowers move straight to closing. However, underwriters can approve, reject, or approve a loan with conditions. When a loan is approved conditionally, there may be some items or concerns that still need to be resolved or explained.
How long does it take after the appraisal to close?
Mortgage underwriting and other closing procedures can take anywhere from 2 weeks to 45 days. On average, lenders tell borrowers to expect a 30-45 day window to finish processing everything. Once you close on a home, you go in and sign all the necessary documents, discuss any questions you have for the lender, pay closing costs, and accept the keys to your new home.
What Lowers A Home Appraisal?
Certain factors that affect home appraisals are out of your control, such as a busy street or a disagreeable neighborhood. However, sellers can do their best to be prepared for appraisals, like having a clean and welcoming home, enhancing the curb appeal, making sure any repairs or maintenance has been completed, or doing anything else that makes your home more appealing.
Appraisals to Closing Costs: You’re Nearly There
Appraisals can be a stressful part of the home buying or selling process, but they often go through as expected. Once an appraisal is completed, borrowers are in the home stretch of getting the mortgage that they need for their home. From there, borrowers should communicate openly with their lender, follow up quickly if the underwriter reaches out, and refrain from making big purchases or withdrawals, which could raise a red flag for underwriters.
The appraisal is one of the last steps in the mortgage process; first, borrowers should learn about what they qualify for. Are you looking into getting a mortgage? Use our calculator to determine how much you can afford.
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