Tuesday, June 3, 2014 - Article by: Justin Fitzhugh - Nations Lending Corporation -
When you find the property you want to purchase, the lender will require the property to be appraised. Appraisers are independent contractors who must follow rules and regulations, and sometimes, the lender may allow you to choose your own appraiser. The appraisal of the property will dictate the amount of money the lender is willing to lend out you. The lender is required to give you a free copy of the propertys appraisal if you ask for it (1).
Sometimes, the selling value of a property is dramatically different than the appraised value, and this may confuse the borrower. So it is paramount borrowers understand selling value is different from market value.(2)
Generally, sellers want as much money as they can get, or at least, as much money as they have invested for their property. But market value rules, and this is determined by recent transactions within the propertys local market, for a given lookback period. It is the job of the appraiser to determine this value. Given that the property will secure the mortgage, it is the lenders interest to ensure it limits the loan amount to no more than the market value. If the borrower were to default on the mortgage, the lender would take ownership of the house, and sell it in hopes of recuperating at least the market value when it was initially financed. This why the appraisal of the property will determine the maximum amount a creditor is willing to lend.
The appraiser will look for 3 similar transactions within the lookback period I mentioned above. This period is dictated by the loan program you apply for. For example, if you apply for an FHA loan, the appraiser will adhere to the FHAs property appraisal rules; which right now limit the lookback period to 12 months. But when there are no similar transactions within the propertys local market, the appraiser will mashup recent transactions to estimate a market value for the unique property. The appraiser will have to justify his estimate by explaining how he/she came up with the number
In rural towns, or suburbs with scattered properties, the appraiser may need to review larger areas to find previous similar transactions.
The type of property you want to finance has a great impact in the appraisals valuation. These are some examples of of property types that require an appraisal methodology different than the single family home:
Aside from helping a lender establish the market value, the appraisal of your property also benefits you. By knowing the starting value of the property you buy, you can track the increase in value, and evaluate the potential impact of investing in improvements.
Nations Lending Corporation is a full Eagle Lender who offers mortgage branch opportunities in 47 states. Contrary to a net branch company, when you join our team youll experience team oriented support tailored to help you excel in the purchase market. Contrary to the mortgage net branch, our branch partners have access to all government sponsored products. Please visit our website to learn more.
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