If you’re in the market for a home, you’ve probably realized that there are a lot of things that go on between a seller accepting your offer and the final handshake on closing day.
One of the most nail-biting parts of the mortgaging process is waiting for an appraisal to be completed. An appraisal is a professional determination of your new home’s value. Basically, an appraiser’s job is to ensure whether or not your new home is worth what you’re paying for it.
Appraisal guidelines are a little different for different types of loans. If you’ve got your sights set on a conventional loan, there’s some good news coming your way: the appraisal guidelines are among some the simplest.
What is a Conventional Loan?
Conventional loans are exactly what they sound like—conventional. Conventional loans are mortgages offered by private lenders and are the most popular type of mortgage used today. Conventional loans boast great rates, lower costs, and home buying flexibility.
For these reasons, they are the loan of choice for about 60% of all mortgage applicants. Not only do conventional loans enjoy a reputation for being safe, but there are also a variety of options to choose from with various down payment requires.
To determine a home’s worth, conventional loan appraisal guidelines are based on three factors:
- Basic Home Info
Conventional loan appraisals start with a collection of basic information about the home, including the square footage, number of rooms, etc. After that, the appraiser looks at the age and the condition of the home to establish a general price for the property.
- The Condition of the Property
An appraiser will categorize a home in one of two ways: “as-is” or “subject-to.” Homes that don’t meet the appraiser’s standards are placed in a “subject-to” status, which means certain areas of the home must be repaired before the financing can proceed. These repairs can be covered by the buyers of the home, or the sellers of the home, or both. Appraisals that are completed “as is” are good to go!
- Comparable Homes
A conventional loan calls for three comparative evaluations (also called “comps”) of similar properties within the same area. If the appraised value of the home is substantially lower than the comps, the lender may hesitate. A discrepancy between the price of the home you’re buying and the comps may be evidence of falling property values in that neighborhood or problems with the property.
At the end of the day, the appraised value must equal or exceed the price of the home in order for a lender to finance the property. If the appraised value is shy of the purchase price the buyers and sellers may need to renegotiate, or the buyer may have to pony up more dough at closing, or the buyer may need to walk away from that particular property.
If you have any questions about appraisals for conventional loans, contact me today! I know that getting a mortgage is one of the biggest financial decisions you’ll ever make and the importance of getting it right. As a mortgage loan officer, my number one focus is to make one of life’s biggest decisions a lot less stressful by simplifying the process and getting you into your new home as quickly as possible!