5. Appraisal and Loan Approval
Appraisal and Loan Approval
The end of your buying journey is in sight, but there are still a few steps before you get the keys to your new home. We work closely with your loan officer to make sure that you're not overpaying for the home and that you can get a loan with the terms and conditions that you want.
What Is An Appraisal?
Mortgage lenders require appraisals on most properties to make sure they’re not giving a mortgage for more than a house is worth. An appraisal determines the “fair market value” of a property based on recent sales of similar properties. Cash buyers can also order an appraisal and make the sale contingent on the property appraising at or above the contract price.
Appraisals are usually done after any inspection issues are negotiated. Your loan officer will order the appraisal when you and your attorney are confident that you're moving forward.
A licensed appraiser will schedule an appointment with the seller. The appraiser will visit the home to take pictures and measurements.
The appraisal will compare the property to similar active listings, under contract, and sold. The appraiser calculates the value of amenities and improvements that increase the property's value, and deficiencies or problems decrease the property’s value.
The buyer doesn't attend the appraisal. Your loan officer will send you a copy of the appraisal as soon as it's complete.
What If The Appraisal is Low?
If the appraised value is lower than the contract price, then the buyer can:
- Put more money down to make up the difference.
- Ask the seller to adjust the purchase price.
- Cancel the purchase without penalty.
If either the buyer or seller feels that the appraiser made an error, the appraisal can be re-evaluated. The loan officer can ask that the appraiser verify that the information in the appraisal is correct (like square footage, updates, and amenities), or requests that the appraisal be recalculated to include additional comparable sales in the analysis.
Do All Houses Need an Appraisal?
Under federal regulations passed in 2019, some home sales of properties priced under $400,000 will not need a traditional appraisal. Instead, lenders can do an in-house evaluation of the property value using an automated valuation system. All loans that are guaranteed by FHA, VA, HUD, Fannie, and Freddie Mac will still require an appraisal. Your lender will tell you if your loan type and the property you're purchasing will qualify for the in-house evaluation, and if it does, the pros and cons of forgoing the appraisal.
When the appraisal is complete, and all your other documents are in order, the package goes to the lender’s underwriting for approval of your mortgage loan. Final approval of the loan usually takes several days to a week. You and your attorney need to stay on top of these important final steps so that you can close on the scheduled date. You must have a "clear to close" issued by your lender a minimum of three business days before the closing. This allows you time to review and sign the Initial Closing Disclosure before the actual closing day.
To learn more about the contingencies - "the "contract escape routes" - during the contract period see here.