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What a lender looks for during an appraisal

5 Minutes

Whether you’re buying, refinancing or selling a home, one unavoidable step in the process is a home appraisal. While there’s not much you can do to prepare for one, you can go into it knowing exactly what a lender is looking for and why it’s happening.

What is a home appraisal?

A real estate appraisal is a professional estimation of a property’s value by a licensed specialist, who is not affiliated with the buyer, seller or mortgage lender. Their job is to assess the property in question and research homes in the area that have recently sold to verify the value of the home.

Often confused with a home inspection, an appraisal is ordered by the lender to make sure the asking price of the home is reasonable and that the loan they are about to make is as safe an investment as possible.

Inspectors care about the function of the home. Appraisers care about the value of the home. But both are typically paid for by the buyer.

What matters to the appraiser

and the lender?

During an appraisal, a lender wants to know about three major factors of the home: the condition of the property, the type of upgrades made since the last time it sold, and what the surrounding area is like.

Condition of the Property

The most important thing a lender looks for during an appraisal is the overall condition of the property. Can someone reasonably live in the home with no improvements or adjustments? If so, the appraiser then begins to take stock of the home’s basic condition. This includes verifying the number of rooms the listing states, checking for health and safety issues, and making sure vital functions of the property, like HVAC and cooling systems, work properly.

Some questions an appraiser aims to answer during this check include:

  • How many bedrooms does the house have?
  • What year was the home built?
  • Is there lead paint anywhere?
  • Do all of the entry and exit points open up to stable patios, stairs or decks?
  • Is there mold or other health hazards in the home?

All findings, including all health and safety concerns, are reported in official documents submitted to the lender. What happens if the home is not deemed livable?  It is likely the value of the home will become subject to improvements and/or repairs. When this happens, a final inspection is required to verify that the work needed to make the home liveable again is complete.

Upgrades An upgrade is a permanent change that cannot be moved with the seller at closing. Custom window treatments are not an upgrade, but newly installed energy-efficient windows are. Improvements around the property also count, so things like garages, patios, pools and basements can increase the home’s value as well. While upgrades hold slightly more weight if your home is undergoing an appraisal for refinancing, during a purchase, appraisers still take into consideration upgrades made to a property since the last time it sold  The Neighborhood and Beyond  After visiting a property, appraisers begin to research what the housing market is like in the surrounding areas. They check how much nearby homes sold for recently and if there are any factors affecting the home’s value that might be difficult or impossible to change. Local zoning laws, urban planning and possible eminent domain issues affect the overall value of a property.

Why do you need an appraisal?

Anytime you apply for a mortgage or refinance your home, whether for a lower interest rate or for a cash-out refinance, you will need an appraisal unless you qualify for an appraisal waiver. For the purchase of a new or new-to-you home, an appraisal gives a baseline evaluation of the property and what it’s worth so the lender can make a well-informed loan decision.
When you’re refinancing, an appraisal determines whether or not you are maintaining your home to the lender. Putting off routine repairs and upkeep may cause a lender to be overly cautious about lending more money.

Preparing for a Home Appraisal

Whether you’re buying, selling or refinancing, there isn’t much you can do to prepare for a home appraisal at the time one is ordered since they are looking at the overall condition and value of the home.  As a buyer, you can do your own research of the area and comparable homes in case of an appraisal appeal. As a seller, you can attend the appraisal and point out upgrades you may have made. If you own a property you think you might sell one day, stay up to date with routine maintenance, and make upgrades as needed. Ultimately, the appraisal process prevents the buyer and lender from paying more than a house is actually worth.

Are you interested in moving or using your home equity?

A credit union provides personalized service and more flexible options for refinancing your home and mortgage loans in general. Connect with one of our mortgage loan officers to learn more about how you can prepare for your next move.

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