One of the first steps in obtaining a mortgage loan is getting the appraisal. The appraisal is an independent report completed to determine the subject properties value. If you are applying for 100% financing and the purchase price is $150,000, in theory you should be able to borrow $150,000. One exception to this is of the appraisal is less than the $150,000 purchase price. If the appraisal is $148,000, you would need to pay $2,000 down even if you were obtaining a no money down home loan.
The appraisal is part of the application process and typically is an out of pocket expense paid by the applicant. The charge for the appraisal can range from $300-$650 and is a non refundable charge. While we have no application fees, it is possible to order an appraisal and learn from the report that the property can not be financed due to an unacceptable value or repairs that are needed.
Appraisals are conducted by highly-trained professionals who are licensed and/or certified to determine the value of a home fairly, objectively and without bias in the state where the property is located.
Property (Appraisal), Credit, Income
When you apply for a mortgage, you are representing yourself with your credit report and your income documents. The property is represented by the appraisal report. The bank will usually require you to order the appraisal through a company that they have a relationship with. A company that has provided accurate and honest appraisal reports to the lending institution.
Can I Get a Refund For the Money Spent On am Appraisal?
No. The appraisal is one part of your loan application and although the lender can place the order for you, it is the responsibility of the applicant to pay for the report. When you sign a sales contract, you and your real estate agent are representing that you are paying a fair price for the property and depending on the loan program you choose, that the property is in acceptable living condition.
What Condition Does The Property Need To Be In?
FHA, USDA, and VA loan programs all have specific property requirements that must beet in order to obtain a home loan. Some of the more common issues are;
- Utilities not being on at time of inspection
- The heating system is functioning properly
- No permanent heat source that is operated by a thermostat
- Water not being turned on
- Chipped paint – any flaking or chipped paint typically needs to be scraped or painted prior to closing
- No safety hand rails on stairs or steps
When the appraisal report is completed and the property needs repair, the repairs must be completed prior to closing. A second appraisal is then needed to prove that the repairs are completed. The second inspection can result in additional fees and out of pocket costs.
An experienced and knowledgeable real estate agent will typically know what is required and advise you accordingly. Rarely do we see cases where a real estate agent was unaware of the needed repairs and therefore the clients are always well prepared. The bank will always do it’s best to review the property through listing images and other data available but this does not guarantee a property will pass inspection. A property listing is typically the best photos available to help sell the property which makes it difficult for a bank representative to know if a property will be acceptable to FHA, VA, or USDA.
To avoid property condition issues as much as possible always seek advice from your real estate representative or ask your mortgage representative to take a closer look. By taking the right steps up front, you can put yourself in the best position possible to have a smooth loan process.
Feel free to call (518) 324-5544 if you have any additional questions. Our goal is to help educate you on the home buying process.
For more information on the appraisal process we recommend reading this article from Zillow.com