When you are dealing with mortgages, a lot of the terms that you will hear may seem confusing. You may not understand all the terminology that is used by bankers and mortgage lenders. In fact, one of the most frequently asked questions is "What is an appraisal and what does it mean to me?"
What Is an Appraisal?
Appraisals are mentioned most when you are hoping to buy or sell a home. Your financial institution will typically not lend you money if you do not have an appraisal on the home that you are buying or selling. The truth is, an appraisal is a way for the financial institution to know how much the home is worth before they lend you the money for it.
In most cases, the appraiser's services will be paid by the seller of the home. They are the ones who have to prove that their home is worth the money. It may seem like a headache for you, but it protects the loan company and you from a potentially bad investment.
A Good Investment or a Waste of Money?
One great example of a bad investment would be if you are trying to buy a home that has an asking price of $500,000.00. You would not be making a good investment if the appraisal value of it is only $100,000.00. You have to think about what will happen if you decide you want to sell it in a year or two. Your asking price would need to be closer to the lower price. This could ultimately mean that you will have lost money and you wouldn't be able to sell it for enough money to pay off the loan. Everyone would be in a financial bind. You are better off to have to have an asking or selling price that is within close range of the appraisal.
What Do Appraisers Look For?
Whether you are buying or selling a home, at some point an appraiser will be involved. Often, it will happen after a buyer is interested in the home. The appraiser will look at every aspect of the home to make sure that the asking price is fair for the potential homeowners. During their inspection, they will look at several things. This includes:
The Exterior of the Home
Does it have a solid foundation? Are the walls in good condition and does the roof have missing shingles? They will look for damages that may potentially make the home unlivable in the future. A leaky roof, termite damage, and water damage can all equal big issues for the future homeowner.
The Property Size and Location
It is easy to see why a home that is on a small lot will sell for less than one that is on a larger piece of land. Often, a larger property will mean that there are more rooms inside of the home, but a new homeowner may want the option to expand. A home's value can go up if there is room for flexibility on a property. Also, some areas that may be considered popular are going to be worth more than a new home in a bad location.
The Home's Interior Condition
The interior of a home is where people will live. The appraiser will want to see that the windows open and close properly. They want to know that the plumbing and the electrical are solid. They will inspect around the tubs, toilets, and sinks to make sure that there are no future problems coming for the homeowner. Cabinets in the kitchen shouldn't be hanging off the walls and the walls should not appear to sag since this will lessen the home's appraisal value.
What Makes This Home Special?
It may seem odd, but an appraiser wants to see the things you have done to take care of your home. Do you have a swimming pool? Have you recently updated your kitchen floors or added new appliances? Does the home come with an existing security system or insulated windows? Your appraiser will not let anything escape their attention and every positive or negative aspect of the property will change how much value it has.
A homeowner who may be hoping to sell their home will often go through and change what they can to make the home appraise at a higher value. This is a good idea if you are hoping to get more money out of it, but it does mean you have to invest money to get the appraisal value up.
What Does It Mean for You?
An appraisal is a big deal for both homeowners and home buyers. There are things you can do to increase your appraisal value before you sell and there are things that you can look for as a buyer to help you discover whether you are getting a fair price or not.
At First Savings Mortgage, we understand what it is like to be where you are. We want both sides to reach a happy ending. Therefore, if you want to know more about what to expect when you are selling or buying a home, please feel free to discuss appraisals with an expert loan officer at First Savings Mortgage.