Home Appraisal During Mortgage Process Guidelines
This BLOG On Home Appraisal During Mortgage Process Guidelines Was UPDATED On December 13th, 2018
A home appraisal is required for both a purchase mortgage loan as well as a refinance mortgage loan.
- A home appraisal is an appraiser’s opinion on the value of the subject home
- The most common appraisal that is used by lenders is the comparable approach appraisal
In this article, we will cover and discuss Home Appraisal During Mortgage Process Guidelines.
When Is A Home Appraisal Ordered During Mortgage Process?
Ordering a Home Appraisal During Mortgage Process is done after the home inspection.
- Home Buyers will have contingency clauses for a home inspection and home appraisal on their home purchase contracts
- Homebuyers can cancel the purchase contract if the home inspection and/or home appraisal does not come to the satisfaction of buyers
- If the home inspector comes back with a bad inspection report, the buyer can cancel the contract and get their earnest money back
If the home appraisal does not come in at value, the home buyer can do two things:
- Re-Negotiate the home sales price
- Do an appraisal rebuttal
The only cost outside closing that home buyers need to come up with prior to closing are home inspection and appraisal costs. Home inspections are voluntary and not required by lenders. However, home appraisals are mandatory.
Comparable Approach Appraisals
Most lenders depend on the comparable approach appraisal.
- Comparable approach appraisals are based on similar and like properties that are similar to the subject property within a mile radius
- An appraiser will look for homes that are similar to the subject property in square footage, style, number of bedrooms, number of bathrooms, and amenities
- The comparable properties need to be properties that are sold and recorded and not homes that are just listed
- The comparable homes do not be exactly the same
- Comparable homes used to compare the subject property can be larger or smaller
Adjustments will be made to substantiate the value of the subject property.
Comps Need To Be Close By
Another important factor the appraiser considers is the distance of comparable sales compared to the subject property.
- The distance plays an important factor
- Most appraisers will look for comparable sales within a mile radius of the subject property
- However, if there are no comparable sales within a mile radius, the appraiser needs to go further out to find comparisons to the subject property
- There are cases where an appraiser needs to go out several miles of the subject property to find comparable
To justify such comparable sales, the appraiser will justify his subject property value by positive or negative adjustments with the location of the comparable sales compared to the subject property.
Appraisal Review Of Home Appraisal During Mortgage Process
Once the appraisal is completed, it is turned in to the mortgage lender’s appraisal review department.
- The home appraisal is then scrutinized and reviewed by the appraisal review underwriter
- In the majority of the cases, there are no problems with appraisals
- However, there are cases where appraisals come in lower than the purchase price of the home
- In such cases, the home buyer can renegotiate the purchase price
- If the value of the property is not increased, homebuyers need to put more money down
- Mortgage lenders will go by the appraised value of the home in determining loan to value
In the event the mortgage lender does not like the appraisal, a second appraisal or field review will be required.
Field Review Stage Of Home Appraisal During Mortgage Process
If the mortgage lender does not feel comfortable with the home appraisal, he or she can request a field review appraisal.
- A field review is normally a drive-by and is a second opinion of the first home appraisal
- In order for the underwriter to issue a clear to close, the appraisal needs to be signed off and in cases of field reviews, the field review needs to justify the first appraisal
What Happens To Appraisal When Changing Lenders?
There are times where home buyers need to change lenders if they get a last-minute mortgage loan denial or go through stress during the mortgage process.
- The good news with FHA Loans is that if borrowers change lenders during the mortgage process, the FHA Home Appraisal gets transferred to the new FHA Lenders when the borrower FHA Case Number gets transferred
- This is not the case with Conventional Loans
- If the homebuyer decides to change loan programs from FHA to Conventional, most Conventional Lenders will honor an FHA Loan Home Appraisal
If the borrower is transferring a conventional loan to an FHA Loan, then the Conventional Appraisal needs to be changed to an FHA Appraisal.