Why Does an NJ Mortgage Lender Require a Home Appraisal?
The simple answer to this question is that a good appraisal is the best reassurance that the NJ mortgage lender won’t lose money in the mortgage transaction. Therefore, every mortgage transaction will require an NJ mortgage lender to obtain one. In fact, a healthy appraisal is one of the most crucial elements in the mortgage lending process; it can kill a deal as easily as a low credit score. But what exactly is an appraisal? How is obtained? And what do you need to know? This article will try to succinctly answer these questions.
What Exactly Is An “Appraisal?”
The Uniform Standards of Professional Appraisal Practice (USPAP) defines an appraisal as “the act or process of developing an opinion of value.” This assessment is a determination of your property’s market value, or in other words, what the house will most likely sell for in the open market.
It is conducted by a third party professional who is hired to give their opinion, based on a few vital factors, regarding the value of a particular property. In most cases, the appraisal is performed for an NJ mortgage lenders when a loan needs to be approved for a homebuyer.
The actual appraisal, which is produced for the NJ mortgage lender, is a detailed report that reviews such items as:
- Details about the property, along with side-by-side comparisons of at least three similar properties.
- An evaluation of the overall real estate market in the area.
- Statements about the issues the appraiser feels are harmful to the property’s value, such as poor access to the property, or living on a busy road.
- Notations about seriously flawed characteristics of the home, such as a crumbling foundation.
- An estimate of the average sales time for the property.
Two Types of Appraisals Used by an NJ Mortgage Lender
- Sales Comparison Approach: This type of appraisal compares the property in question, for the NJ mortgage lenders, to three or four similar homes that have sold in the area – often referred to as “comparables” or “comps.”
- The Cost Approach Appraisal: This type of appraisal is used more for new properties and is based on reproduction costs. The appraiser estimates for the NJ mortgage lender the cost to replace the structure if it were destroyed.
The Most Important Question of All: Cost
Cost! Great question, and an important part of the NJ mortgage lender process. In the vast majority of NJ mortgage lending/loan scenarios, the buyer pays for the appraisal, generally at the time of the original mortgage application. The application fee is usually between $300 and $500. This fee is usually in addition to the credit check fee ($40-60) that is also collected at the time of the application.
So what if the appraisal is too low? Another great question! If the appraisal is lower than the maximum amount the NJ mortgage lender is willing to finance, then the loan cannot proceed unless either the seller lowers the price or the buyer increases amount of their cash down payment. Furthermore, appraisals are not locked in stone, and therefore there may be some room to negotiate the final appraisal numbers. However, if the appraisal comes in considerably lower than what you have offered to pay for the home, your first thought should be that you are paying too much.