Many people know that it is necessary to have a home appraised before they sell or purchase it. The licensed professional who performs the appraisal considers the sale prices of other similar properties in the area. Additionally, they inspect the condition of the home.
Without an appraisal, financial institutions do not know whether or not the value of the home meets or surpasses the loan amount. Thus, an appraisal is performed to allow a buyer to secure a first mortgage on a property.
Nevertheless, there are additional lending situations that require an appraisal. Here are a few of them.
The Refinancing of a Home
When you refinance your home, a lender pays off the balance of your previous mortgage and replaces that loan with a new one. Since the value of your home may have changed since the property was assessed for the first mortgage, the refinancing lender will require that a new appraisal be performed.
Many homes increase in value over time. However, if a neighborhood declines or property values in an area simply drop, the value of the house may be lower than the original assessment. Thus, the refinancing lender needs to know the home's current worth.
If the value of the home has increased, the homeowner may end up with extra cash in hand after refinancing. However, the homeowner can choose to forgo the payout and refinance only for the balance of the previous mortgage.
Home Equity Loans
An equity loan is actually another mortgage. The loan amount is based on the amount of home equity that is available. The equity is the positive difference between the value of the home and the amount owed on a current mortgage.
If a home has substantially increased in value, the amount that can be requested in a home equity loan is also higher. However, if the home's value has not increased, the amount of the equity loan would generally not exceed the difference between what is currently owed for the home and the original mortgage amount.
In some cases, a homeowner may seek to use their home as collateral for loans that are not mortgages. Before lending large sums of money, financial institutions sometimes require that the loan be secured by a property. If a home is used as collateral, the lender requires an appraisal to verify the value of the property.
To have your home checked out, schedule a consultation with a real estate professional in your local area. A real estate service can provide more information regarding home appraisals.