Appraisal Review In Mortgage Underwriting Process

Home Appraisal Review In Mortgage Underwriting Process

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers the home appraisal review in mortgage underwriting process by lenders. A home appraisal is ordered during the mortgage process and underwriting process. An appraisal normally takes a week to complete unless a rush appraisal is ordered, which costs more money. All lenders require a home appraisal to determine the value of the home. Lenders put a lien on the property if the borrower defaults on their mortgage loan. Angie Torres, the national operations director at Gustan Cho Associates, explains the home appraisal review in mortgage underwriting process:

If the homeowner defaults on the loan, the lender can start foreclosure proceedings. The subject property must be worth the amount the buyer pays for the home. The home appraisal will determine the value of the home. Most lenders will go by the value stated on the home appraisal report. However, there are times when the mortgage underwriter will question the home appraisal. That is when a home appraisal review in mortgage underwriting process is initiated.

A home appraisal review in mortgage underwriting process happens if the mortgage underwriter questions the validity of the value on the appraisal report. There are two home appraisals: a conventional mortgage loan home appraisal and an FHA home appraisal. An FHA appraisal can be transferred from one lender to another if the borrower gets denied by one lender and decides to take it to another lender. In the following paragraphs, we will discuss the home appraisal review in mortgage underwriting process by lenders.

Appraisals: The Critical Step to Making Informed Home Buying Decisions

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When buying a home, there are many factors to consider. From the location to the number of rooms, countless variables can impact your decision. However, one factor that will usually be needed when acquiring financing is appraisal. In the following paragraphs, we will discuss the home appraisal review in mortgage underwriting process by lenders. 

Lenders need to verify the value of the collateral they are taking on, which is the home itself. In the event borrowers default on their home loan, the lender needs to make sure the property has the value the borrower paid so they can recoup their losses.

Why is a home appraisal important? An appraisal is a critical step in making an informed home-buying decision. An assessment can make determining a property’s actual value more accessible. If a buyer pays for a property, they may need help to recoup their investment if they decide to sell. Additionally, if a lender approves a loan for an overvalued property, they may risk losing money if the borrower defaults.

What Is a Home Appraisal?

What is an Appraisal? An appraisal is a professional assessment of a property’s value conducted by a licensed appraiser. It is a critical step in making informed home-buying decisions as it provides an unbiased estimate of the property’s fair market value. This estimate contains several factors, such as the property’s location, condition, size, and comparable sales in the area. Lenders typically require appraisals before approving a mortgage to ensure they are lending on what the property is worth.

Ordering The Home Appraisal

An appraisal cannot be ordered by the client but by the mortgage lender through an Appraisal Management Company. Loan officers are not allowed to talk to the appraiser. It is illegal to try to influence an appraiser. All contacts from the lenders need to go through the Appraisal Management Company. Once all mortgage conditions have been met and before the lender issues a clear to close, an appraisal review is conducted by the mortgage lender’s appraisal review department.

Home Appraisal During The Mortgage Process

The appraisal process typically begins with the appraiser’s visually inspecting the property. During this inspection, the appraiser will evaluate the property’s condition inside and out. They will also assess any upgrades or renovations made to the property and note any deficiencies or issues that could affect its value. They will also consider the neighborhood and the local real estate market to determine the property’s value. Once the visual inspection is complete, the appraiser will research comparable sales in the area.

How Do Appraisers Determine The Home Value 

The appraiser will look at recently sold properties similar in size, condition, and location to the appraised property. This research will help the appraiser determine a fair market value for the property. Since an appraisal is an unbiased, professional evaluation of a property’s value, it is conducted by a licensed appraiser. It considers the area’s location, size, condition, and comparable properties. An appraisal aims to ensure that the buyer pays a fair price for the property and that the lender is protected from potential losses.

What Do Appraisers Look at Inspecting the Home During The Appraisal

 During an appraisal, the appraiser will typically inspect the property and note any features that may impact its value. They will also research comparable properties to determine how the property stacks up. Once the appraisal is complete, the appraiser will provide a report that outlines the property’s value.

An appraisal is an extensive process that requires the appraiser to visit the property, take photos, and gather information about the property’s amenities, finishes, and overall condition. The appraiser then compares the property to similar properties that have sold recently.

This is known as the ‘comparable sales approach. The appraiser will also consider the property’s location, size, and age. The appraiser will then provide a detailed report that includes the property’s value. It is important to note that the appraisal process differs from a home inspection. An appraisal is focused on the property’s value, while a home inspection is focused on the property’s condition.

Problems With Home Appraisals

Sometimes, the appraisal comes in lower than the contract purchase price. When this happens, the seller normally lowers the contract sales price, and the deal goes through. However, sometimes, the sellers will not budge on the contract sales purchase price. In situations like this, the purchase price needs to be negotiated, and the home buyer needs to determine the difference between the purchase price and appraised value as an additional down payment. Dustin Dumestre of Gustan Cho Associates says the following about going through a home appraisal rebuttal in the event the value on the appraisal report comes low:

If the home’s value does not increase after the appraisal rebuttal, the home buyer can still purchase the home but must determine the difference between the appraised value and the actual purchase price.  The mortgage loan will be based on the appraised value of the home.

An appraisal rebuttal is requested by the mortgage lender to the Appraisal Management Company. Most appraisal rebuttals are not successful. The realtors need to submit comparable justifying their appraisal rebuttal. The Appraisal Management Company will then review the appraisal rebuttal and see if the additional comparable submitted by the realtors would justify an appraisal value increase. If that is the case, the appraisal value gets readjusted, and a new value is submitted to the lender.

Mortgage Lender Not Agreeing With Appraisal

Mortgage Lender Not Agreeing With Appraisal

The appraisal review department of a mortgage lender cannot agree with the appraisal and order an appraisal field review, which is a second drive-by appraisal to justify the value of the first appraisal. If the appraisal field review aligns with the original appraisal, the deal can proceed to close. However, suppose the appraisal field review comes in at a lower value than the first appraisal. In that case, the lender can use the lower two appraisal values or a value between the original appraisal and the lower field review. If the appraisal field review comes in at a higher value, the lower of the two appraisal values normally is used.

Quality Control Appraisal Review In Mortgage Underwriting Process

There are also times when the appraisal review department will not agree with the appraised value of the subject property and cut the value deemed by the appraisal review department.  In such cases, the mortgage loan will be based on the new modified value the appraisal review department adjusted. Loan officers cannot talk to the appraiser if the appraisal comes in low during the mortgage process, comments Dustin Dumestre, a senior loan officer at Gustan Cho Associates. Here is what Dustin says:

The real estate agent representing the buyer or seller cannot speak with the appraiser during the appraisal process. This is because the agent has a vested interest in the outcome of the appraisal and could influence the appraiser’s opinion. Maintaining objectivity during the appraisal process is critical to ensure the assessment is as accurate and unbiased as possible.

In some cases, the borrower may be able to provide the appraiser with information that could impact the appraisal. For example, if the borrower recently made significant upgrades to the property, they may be able to provide the appraiser with documentation. However, this information should be provided to the lender, who can then pass that information along.

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