Buying a house? You’ll probably need a mortgage. But before you get that loan, the lender will want to know the house’s real value. That’s where an appraisal comes in. Let’s break down why this step is so important.
What’s an Appraisal?
An appraisal is like a health check for your future home. A trained person looks at the house to say how much it’s really worth. They consider things like the home’s condition, where it’s located, and how much similar homes have sold for.
Why Do Lenders Want an Appraisal?
The lender wants to make sure they’re not lending you more money than the house is worth. If things go south and you can’t pay back the loan, the lender might need to sell the house to get their money back. The appraised value helps them know how much they can safely lend you.
How Does the Appraisal Affect You?
Loan Amount
The appraisal helps the lender figure out the Loan-to-Value (LTV) ratio. That’s just the loan amount divided by the house value. If the house value comes in low, you might get a smaller loan or pay higher interest.
No More Extra Insurance
If you pay less than 20% for the down payment, you usually need extra insurance. A good appraisal can sometimes get you out of needing that, which saves you money.
Interest Rates
A higher house value might get you a better interest rate. That’s because the lender takes on less risk.
What Rules Do Lenders Follow?
Lenders listen to Fannie Mae and Freddie Mac for appraisal rules. These groups say what the trained person needs to look for in a good appraisal. You can learn more from Fannie Mae and Freddie Mac.
In Conclusion
An appraisal is more than a box to tick off; it’s a big deal. It can change how much money you get, the interest rate, and whether you need extra insurance. So understanding it can make the loan process way easier. It puts you one step closer to getting your dream home.
Sherrie Xiao
