Can an Appraisal Impact My Home Purchase?

An appraisal is a valuation that your lender orders before giving you a mortgage to purchase a property.

It provides an independent assessment of what the property is really worth.

In the event you are unable to make your mortgage payments, and your lender has to sell the property, the appraisal represents the true value of the home and will inform the sales price.

The lending company also requires someone to physically see the property and establish if there are structural problems or flooding risks that may impact its current or future value.

You pay for the appraisal

In the case of a purchase transaction, the appraisal is ordered and completed after you and the seller have signed a sales contract. The buyer will pay for the appraisal in advance.

Regardless of the outcome of the appraisal, this fee is nonrefundable. The lender will hire a third-party appraisal management firm to ensure the appraisal is independent, with little likelihood of bias in the report.

The property is inspected (with somewhat different criteria than a home inspection). The findings are then compared with similar properties in the same area.

After adjustments are made for differences such as the number of bedrooms and bathrooms and lot size, the appraiser comes up with a value.

Your real estate agent is also able to estimate the value of your property. He or she will have access to the same information that appraisers do, and an agent with experience should be able to come very close to the value submitted by the appraiser.

The lender, however, relies on the appraisal report, and that affects you: if the property is priced higher than its appraisal value, your lender is very unlikely to loan you the money to purchase it.

Of course, that also protects you, as you likely won’t want to pay more than the property is worth.

What Assets Can Be Used in the Mortgage Process?

Assets are funds that are used in the course of either purchasing or refinancing a property, and are put toward items such as down payments, closing costs, and, depending on the mortgage program, some type of financial reserve.

Assets can come from a variety of sources: your checking and savings accounts, IRAs, and company retirement plans are the most frequently used sources of funds.

However, what many buyers don’t realize is that there are a number of things that one may think of as assets that can’t be used in the mortgage process.

These include valuable items such as cars, boats, jewelry, and art collections. They could be turned into cash, if necessary, to make a mortgage payment, but they and other valuables are excluded from a lender’s definition of an asset.

Other sources of assets you can tap into include gifts from donors, which include close relatives (by marriage or blood).

You can use a gift as an asset if the donor first signs a lender-provided gift letter, indicating that there is no expectation of repayment of the funds being used in the transaction.

Then the funds must be sourced: the donor is required to prove that he or she has the ability to donate the money. Usually this entails showing the lender a bank statement or other correspondence from the bank that indicates what the average balance in the account has been over a period of time. This will confirm that the gift amount wasn’t deposited just prior to the gift being made.