The home buying process involves a few steps, including preapproval, finding the right property, qualifying for a home loan, and, of course, closing. So, what is a home appraisal? How does it fit into the home buying process—and why are appraisals necessary? Let’s find out.
What is Included in a Home Appraisal Report?
By definition, a home appraisal is a fair estimate of the value of a property conducted by a third-party licensed real estate appraiser. An appraisal contains detailed information about a home, including:
Square footage
Land/property size
Location of the home
Condition related to cleanliness, age, odor, and more
Curb appeal
Age of appliances
Functionality of major home systems (furnace, AC, water heater, etc.)
Quality of improvements/additions
Extra amenities
After a thorough, in-person inspection, the appraiser will compile an appraisal report, which includes notes on the above factors and, most importantly, lists the official market value estimate of the property.
Do I Need a Home Appraisal Before Buying?
Unfortunately, you cannot skip an appraisal if you’re purchasing the home with the help of a loan. Your mortgage lender will use the appraisal report to ensure that the amount of the loan is appropriately suited to the value of the home.
If the appraisal is lower than the purchase price, the lender may require a larger down payment to make up the difference or may not approve the loan altogether. For the same reasons, a home appraisal is also valuable when a homeowner wants to refinance the home or take out a home equity line of credit, or “second” mortgage.
However, home appraisals don’t just protect mortgage lenders. After receiving an appraisal on a property, you may realize the home’s value is less than you anticipated. This information benefits you and prevents overpayment on a property that may not be quite worth it in your future financial plan.
If you’re ready to get a jump-start on the home-buying process, start now. Find out just how much money you can receive to spend toward the home of your dreams.
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