What are Mortgage Financing Appraisals?

The home appraisal is an essential step of the mortgage loan process. Most lenders will order an appraisal before approving the loan requested by the buyer. The appraisal helps the lender determine whether the loan amount matches the fair market value of the home.

Why Mortgage Financing Appraisals Are So Important

Say you wanted to buy a house for $200,000. You have the cash for a down payment of 50,000 (25% of the home’s value) but need the bank to cover the rest. In this case, the mortgage loan you would seek would total $150,000 (the remaining 75% of the home’s value).

But just because someone lists a house at $200,000 doesn’t necessarily mean it’s worth that. Market values in real estate constantly fluctuate, and it is this fluctuation that causes so much negotiating on home purchase prices – and also a reason why mortgage loan appraisals are necessary.

If a buyer overpays for a property, then they accrue more risk. That risk transfers over to the lender, who may not be able to make their money back in the event of a foreclosure. On the other hand, if the appraised value of the property is considerably lower than the agreed-upon purchase price, the buyer can use that information to renegotiate with the seller or get out of the contract.