Home Appraisal: How Do Appraisals Affect Your Mortgage?

In this article:

• What is a Home Appraisal
• How Do Appraisals Affect Your Home Loan?
• When Do You Get an Appraisal?
• How Much Does an Appraisal Cost?
• What Do Appraisers Look for?
• How to Increase the Appraised Value of Your Home

What is a Home Appraisal?

During an appraisal, an expert evaluates your home and property and gives you an estimate on how much it is worth. Appraisals are conducted by professionals who are licensed by the state -- they have to take courses and do an internship to get licensed -- to do evaluations of homes. Here's what you need to know about appraisals.

How Do Appraisals Affect Your Home Loan?

When buying a home, your appraisal can play a role in determining if your lender will approve your loan. All lenders order an appraisal during the mortgage process in order to assess the home’s market value and make sure the borrower is not attempting to borrow more money than the house is worth.

If your appraisal comes in below the purchase price of your home, you may need to pay the difference in cash, lower the purchase price, or get a second opinion.

Your home appraisal can also affect your home loan during a refinance. It can play a big role in the interest rate that you get, since the appraisal helps determine your LTV (loan-to-value) ratio. For example, if the LTV ratio is 75% or lower, you could get a lower rate, because the loan is seen as less risky to the lender. If the value of the home increases after you close on your home purchase, you may be able to refinance to a lower interest rate.

When Do You Get an Appraisal?

Often, your mortgage lender will require you to get an appraisal on the home you want to buy before they will lend you the money to buy it. This helps them ensure the property could sell for the amount of money they are lending you. So, if the asking price of the home is significantly higher than the appraisal value, the lender might not lend you the money. If you are refinancing your home, your lender will likely want an appraisal for the same reason. Also, you may want to get an appraisal on your home if you're thinking about selling it: This can help you determine how much to ask for the home.

How Much Does an Appraisal Cost?

The average appraisal costs about $400, but that figure varies depending on the size and value of the home (appraisals typically cost more for larger and more valuable homes). The cost will also vary depending on the type of appraisal -- if the appraiser has to go into the home (this is the most common type of appraisal) rather than just drive by the property (this type of appraisal is typically only done when the value of the home is pretty certain already), this will cost more.

What do Appraisers Look for When They Value Your Home?

To determine the value of the home, the appraiser will look at the size and type of the home and property, the condition the home and property and the overall real estate market in the area (what are similar homes selling for?). The appraiser will note things including any flaws to the property (a leaky roof or cracked foundation), the area around your home (is this home in a development?) and even the estimated time it would take to sell the property. Basically, the appraiser is trying to determine the fair market value for your home, so most anything that would lower or increase the price someone is willing to pay for your home may be considered.

What Can You Do to Increase the Appraised Value of Your Home?

The condition of your home affects its appraised value. So, you can increase the value of your home if you do repairs and improvements. Fix anything that's broken, and consider doing some improvements such as updating the kitchen or bathroom. Also, make sure the home and yard are clean and uncluttered when the appraiser comes by. If that doesn't significantly improve the appraisal value of the home, consider getting another appraisal.