When Is an Appraisal Ordered in the Loan Process?

If you’re in the process of applying for a loan, you may be wondering when an appraisal is ordered. Here’s a quick rundown of when appraisals are typically ordered in the loan process.

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Appraisals 101

An appraisal is an estimate of a property’s value. Appraisals are ordered by lenders during the loan process to protect their investment. The appraisal report is used to determine whether the loan amount requested by the borrower is appropriate given the property’s market value.

What is an appraisal?

An appraisal is basically an estimate of a home’s worth. Mortgage lenders usually order them during the loan process to make sure they aren’t lending more money than the home is worth. Appraisals can also be useful for homeowners who want to know how much their house has increased in value so they can price it accordingly when they sell. And, in some cases, a homeowner might order an appraisal to refinance a mortgage.

Who orders appraisals?

The purpose of an appraisal is to estimate the value of a property. This estimate is used when a lender is determining how much money to lend or if the property will be used as collateral for a loan.

An appraisal is usually ordered by the lender when a borrower applies for a mortgage to buy a home or refinance an existing loan. The borrower pays for the appraisal at the time of application. The cost of an appraisal varies depending on the type and location of the property, but it typically ranges from $300 to $400.

Some government-insured or -guaranteed loans, such as Federal Housing Administration (FHA) or Veterans Affairs (VA) loans, require appraisals as part of their loan process. For these types of loans, the appraiser must be approved by the lender and meet certain qualifications.

When is an appraisal ordered?

An appraisal is typically ordered when you apply for a conventional loan to purchase a home or refinance an existing mortgage. The appraisal report is used by the lender to determine whether the property meets the guidelines for loan approval. In some cases, such as with a reverse mortgage, an appraisal may not be required.

The appraiser will visit the property and compile a report that includes an estimate of the property’s value. The appraiser will consider many factors, including the location, condition of the property, recent sales of similar properties in the area, and more.

The lender will use the appraised value to help determine whether to approve the loan and, if so, for how much. If the appraised value is less than the agreed-upon purchase price, the buyer and seller may need to renegotiate the price or come up with another solution.

The Loan Process

An appraisal is an important part of the loan process because it determines the value of the property that is being used as collateral for the loan. The appraised value is used to determine the loan to value ratio, which is used to determine the risk of the loan. If the appraised value is lower than the purchase price, the borrower will have to make up the difference in order to get the loan.

Pre-approval

The loan process begins with a pre-approval and continues until the loan funds are disbursed to your home’s seller. Your loan officer will be your main contact throughout the process, but you’ll also work with a loan processor and possibly other professionals, depending on your loan type.

During pre-approval, your loan officer will collect financial information and run a credit check. Based on this information, they’ll give you an estimate of how much money you can borrow and what kind of interest rate to expect. They may also order an appraisal, which is an estimate of your home’s value. Appraisals are generally only required for loans that are more than 80% of your home’s value.

After pre-approval, you’ll need to find a home and make an offer. If your offer is accepted, your loan officer will begin collecting documentation to verify your financial information and finalize the loan details. Once everything is in order, they will send the loan to underwriting for final approval. Underwriting is when the lender reviews all of the information in your file to make sure you meet their guidelines for borrowing.

If everything is approved, you’ll be cleared to close on the loan. Closing is when the sale of your home is finalized and you officially become its owner. At closing, you’ll sign a bunch of paperwork and then the loan funds will be disbursed to your home’s seller. Congratulations! You’re now a homeowner!

Appraisal

An appraisal is generally ordered when you are applying for a loan that is secured by real estate — such as a mortgage. The lender wants to make sure that the property is worth at least as much as the loan amount. The lender will order an appraisal through a professional appraiser.

The appraiser will visit the property and take into account things like the size, location, age, condition and amenities. The appraiser will also look at comparable properties in the area — similar properties that have recently sold — to help determine the value of the subject property.

Once the appraisal report is complete, it will be sent to the lender. If the appraised value is equal to or greater than the loan amount, the loan process will continue. If the appraised value is less than the loan amount, the lender may still approve the loan, but they may require additional collateral from the borrower.

Loan approval

The loan approval process varies by lender, but there are some commonalities. Once you’ve submitted a loan application, the lender will order a credit report and an appraisal. The credit report shows the lender how you’ve handled debt in the past. The appraisal is an estimate of the property’s value.

The lender will also look at your employment history, income and assets. If everything looks good, the lender will approve the loan and you’ll be on your way to closing.

Types of Appraisals

There are two main types of appraisals: the drive-by appraisal and the interior appraisal. The drive-by appraisal is when the appraiser just drives by the property and gives it a value based on what they see. The interior appraisal is when the appraiser goes inside the property and looks at things like the condition of the home, the size, and any special features.

Desktop appraisals

A desktop appraisal is the most common type of appraisal that is ordered in the loan process. The appraiser will use MLS data and public information to generate a report that will be used to determine the value of the property. This type of appraisal is typically used for properties that are not unique, such as single-family homes, townhouses, and condominiums.

Drive-by appraisals

A drive-by appraisal is ordered when the collateral for the loan is a 1-4 family dwelling and the appraiser does not need to enter the property. The appraiser will photograph the property from the street and will include any other pertinent information in the report, such as recent sales of similar properties in the area.

Full appraisals

A full appraisal is when the appraiser visits the property, measures the interior and exterior, photos the property, and researches recent sales of similar properties in order to come up with a value for the subject property. This is a more in-depth analysis and generally requires more time than other types of appraisals. As such, it will also generally cost more than other types of appraisals.