A home appraisal is an unbiased professional opinion of a home’s value and it is almost always used when purchasing a home. In a purchase, an appraisal is used to ascertain whether the home’s contract price is appropriate given the home’s current condition, location, and features.
Banks require home appraisals before approving a home loan in order to confirm that a home’s sale price is supported by its market value as most—if not all—banks do not issue a loan for more than the appraised value. Since the home serves as the collateral for the mortgage, banks want to make sure that homeowners are not over borrowing for a property.
In addition, home appraisals can protect the bank from getting stuck with a property that is worth less than they have invested. In cases of non-payment or failure to pay on the loan, if the home goes into foreclosure, the bank will recoup the money it lent the borrower by selling the home. It is in this unforeseen situation that the bank is protected against lending more than it might be able to get back. (Of course, during the Recession, home values decreased so much that it did not matter about the previous appraisal. Many homes were worth less than the amount of the loan and still are worth less to this day.)
Once you make an offer to purchase a home, your real estate agent and your mortgage lender will work together to schedule the home appraisal as soon as possible. In this way, you (the homebuyer) will have the “green light” to move ahead on the purchase of the home. Nobody wants to overpay for anything—not an item of clothing, not an automobile, and especially not a home. This is the purpose of the appraisal; your lender wants to confirm that the property has the value you are willing to pay.
If you would like the names of some professional mortgage lenders that can help you with your next purchase, please do not hesitate to contact the agents at Broadpoint Properties.