Anyone applying for a home loan after signing a purchase contract may think that agreeing on the price of the home with the seller means that the sale will close as planned. In fact, the mortgage lender will require that an independent appraisal be done before a loan is approved. The reason is the appraisal value of the home will determine the maximum amount of a mortgage loan. The home value is the only collateral the lender has in the event the borrower defaults on the mortgage. The independent appraiser will review and document other home sales in the area as well as the condition of the home being appraised in arriving at a value. There may be adjustments up or down in arriving at the estimated value of the home. Here are some common facts and myths about appraisals:

Myth: The primary purpose for an appraisal is to make sure the buyer doesn’t pay too much for a home.
Fact:  While the appraisal provides valuable information to the home buyer and seller, the primary purpose of the appraisal is to protect the mortgage lender. Lenders will generally not loan more than the appraised value of a home.

Myth: If the appraisal value of the home is less than the purchase price, the buyer will not be able to purchase the home.
Fact:  The buyer can still purchase the home if the appraisal is lower than the agreed purchase price. The seller can reduce the purchase price and/or the buyer can increase the down payment, which means they will have to borrow less. An escrow account can also be set up and funded for repairs that will increase the value of the home after the repairs are made. In some cases the appraiser may reconsider the valuation if new evidence becomes available to support a higher valuation.

Myth: FHA loan appraisal requirements are much more extensive than non-FHA loans.
Fact:  The appraisal requirements for both FHA loans and non FHA loans are very similar.

Myth: The home buyer cannot see the appraisal report.
Fact:  The home buyer is entitled to a copy of the appraisal report obtained in connection with a loan application so long as the buyer has paid for the appraisal. Your mortgage lender will provide instructions for obtaining a copy.

Myth: A mortgage lender will always require that an appraisal be completed before making a loan.
Fact:  In certain situations, a mortgage lender may not require an appraisal, however a property inspection waiver will be offered at a nominal cost to the borrower.

Myth: A home appraisal is the same as a home inspection.
Fact:  A home appraisal is not a substitute for a home inspection. The appraiser formulates an estimated value of the home for the mortgage lender, while the home inspector determines the condition of the home and informs and educates the buyer about the major structural items and components of the home.

Applying for a home mortgage is a relatively easy process. However the information needed to obtain home loan approval in a timely manner requires a coordinated effort by the borrower and lender. The mortgage loan application is prepared by lender with the borrowers input and takes about 30 minutes to complete. The lender then gives the application to a loan processor, who organizes the information. The processing of the application may require additional information for verifying employment, bank balances or other information. This information is often obtained at the time of application and can help speed up loan approval.

During loan processing, some of the items requested may include the purchase contract for the home, if the home loan is being obtained to buy a home. Updated bank statements or investments that may have changed in value may also be requested. If a borrower is self employed or is in a specific career (Doctors, Nurses, Police & Fire, Teachers, Military & Veterans, Pharmacists & Dentists), then tax returns and/or Profit and Loss statements for the past 2 years may also be required. Depending on the personal home loan needs of the borrower and down payment amount, evidence of past mortgage or rent payments, divorce settlement papers, and gifts provided by a relative or a non-profit down payment assistance program may also be needed.

Simultaneously, an independent appraisal of the home is ordered. The appraisal is needed by the lender to establish the maximum amount a lender will loan based on the home’s appraised value. The loan processor is assembling and organizing the borrower’s financial information in an organized manner to present to an underwriter. The underwriter will review the information to determine if the borrower meets the guidelines for making the home loan. Once approved, a commitment letter is provided which states that the lender will make the loan based on the specific conditions determined in underwriting.

The whole process generally is completed in 30 days or less. Speeding up the mortgage process is a simple easy three step process.

Applying for a home mortgage is a relatively easy process. However the information needed to obtain home loan approval in a timely manner requires a coordinated effort by the borrower and lender. The mortgage loan application is prepared by lender with the borrowers input and takes about 30 minutes to complete. The lender then gives the application to a loan processor, who organizes the information. The processing of the application may require additional information for verifying employment, bank balances or other information. This information is often obtained at the time of application and can help speed up loan approval. 

During loan processing, some of the items requested may include the purchase contract for the home, if the home loan is being obtained to buy a home. Updated bank statements or investments that may have changed in value may also be requested. If a borrower is self employed or is in a specific career (doctors, nurses, police & fire, teachers, military & veterans, pharmacists & dentists), then tax returns and/or Profit and Loss statements for the past 2 years may also be required. Depending on the personal home loan needs of the borrower and down payment amount, evidence of past mortgage or rent payments, divorce settlement papers, and gifts provided by a relative or a non-profit down payment assistance program may also be needed.

Simultaneously, an independent appraisal of the home is ordered. The appraisal is needed by the lender to establish the maximum amount a lender will loan based on the home’s appraised value. The loan processor is assembling and organizing the borrower’s financial information in an organized manner to present to an underwriter. The underwriter will review the information to determine if the borrower meets the guidelines for making the home loan. Once approved, a commitment letter is provided which states that the lender will make the loan based on the specific conditions determined in underwriting. 

The whole process generally is completed in 30 days or less. Speeding up the mortgage process is a simple easy three step process.