Don’t Pinch Pennies on Your Appraisals

Yes, buying or refinancing a home can be a very an expensive process, but there are certain areas that you should not cut corners on.  This includes when you are scheduling a property appraisal.  In order to make sure you get the most complete assessments of a property’s value, you should choose an appraiser based on many factors besides just cost, and here’s why.

Don’t Pinch Pennies on Your Appraisals

Understanding the Appraisal Process

An appraisal involves determining the current fair market value of your property based on a variety of factors.  Most commonly, this begins with an appraiser gathering information about current comparable properties, or comps, in the local area.  These are homes that are deemed similar to yours that have recently been listed for sale or purchased in the area.  Normally, homes are deemed to be comps if they have similar metrics, such as total square footage, the number of bedrooms and bathrooms, and being located in the same general neighborhood.

Appraisers may then either participate in a drive-by appraisal, which has them take a quick assessment of the property without actually going inside the property, or a full appraisal which involves a complete viewing of the exterior and interior of the home.  Which form of appraisal is required may vary depending on the requirements that are set by your lender.

Mortgage Approvals

Many loans are contingent on the assessed value of the home.  For example, if a home is considered worth less than the amount offered, it is possible your request for a loan will be rejected.  While this may sound like a negative, if you are looking into buying a new property, a lower appraisal can actually work in your favor if it is obtained from a company that garners respect in the area, such as Real Estate Appraisers Austin.  This can give you the ammunition necessary to return to the negotiating table in order to get a better price, or can provide a way to back out of the deal if the appraisal created a less than favorable outlook on the property.

Appraisals are also an important part of the refinancing process, especially if you are looking to have the requirement for private mortgage insurance, or PMI, removed from your loan.  PMI is generally required whenever a property that has been financed has less than 20 percent equity based on the amount remaining on the loan.  It provides the lender with a level of security should a property owner with limited equity default.  In order to have PMI removed from your current loan, or not required in a new loan, your appraisal will need to affirm that your homes is valued at least 20 percent higher than the amount remaining on your mortgage.

Home Equity Loans and Lines of Credit

Appraisals can also affect the outcome of requests for home equity loans or lines of credit.  Since these financial products are based on the current value of your home, as compared to your remaining mortgage, an appraisal is used to determine what amount a financial institution would be comfortable lending.  Requirements may vary depending on the type of financing.  While loans are considered installment debts, with a definitive beginning and end date, home equity lines of credit, or HELOCs, function as revolving debts, similar to that of a credit card.