An appraisal report is often a requirement if you want to take out a mortgage to purchase a home. But how does this document affect your mortgage? In this article, we take a closer look at the importance of an appraisal report, and how it can affect your mortgage.
What's in an appraisal report?
Before we discuss mortgage impact, it's good to know what exactly an appraisal report is. This report establishes the value of the home by a certified appraiser. In doing so, the appraiser looks at the home's condition, location, market conditions and comparable homes in the neighborhood.
Why is an appraisal report needed?
Banks and other mortgage lenders want to be sure that the home you want to buy represents a certain value. They use this value as collateral for the loan. With an appraisal report, they have independent confirmation of this value.
Impact on maximum mortgage
The appraised value of a house affects how much you can borrow at most. If the purchase price is higher than the appraised value, you will have to contribute the difference yourself. This is because some mortgage lenders will not finance more than the appraised value of the home.
Interest Advantage
Some mortgage lenders offer interest rate discounts based on the ratio of the mortgage amount to the appraised value. The lower the loan in relation to the value of the house, the lower the risk to the bank and therefore the lower the interest rate can be.
Negotiating position on purchase
An appraisal report can also come in handy during negotiations with the seller. If the appraised value is lower than the asking price, you have a strong argument to pay less.
An appraisal report plays a crucial role when taking out a mortgage. Not only does it determine the maximum loan you can get, but it can also affect the interest rate and your negotiating position. So a properly done appraisal by a licensed appraiser is very important. Take the time to find a good appraiser and be prepared for the possibility that you may have to put in your own money if the appraised value is lower than the purchase price.
