Lenders require a professional, independent appraisal of the property you want to buy or refinance to ensure that it is worth at least as much as they are being asked to lend on it. If you are making a smaller down payment and have a lower credit score, the lender is going to be even more interested in making sure the property that will be collateral for the loan is worth lending the amount requested.

A professional, independent appraiser will usually visit your home and inspect its interior and exterior. Since the lender will typically not review a file until the appraisal has been completed it is important to get the appraisal done early in the loan process. So, once the appraisal has been scheduled make sure to be responsive to their request to gain access to the property. The sooner they can get in, the quicker your loan will be completed.

The appraiser will form an opinion on the probable market value of the property considering sales of similar homes in the area among other factors. He or she will prepare an appraisal report explaining the conclusion. With current declining market values in almost every market across the country, the appraisal process has become complicated.  In previous years, the appraiser may have been able to justify excluding certain properties from their report if they sold for lower prices due to foreclosure or a "short sale", as these were not considered the norm.  However, in the current environment, these sales do reflect the current market conditions and usually must be included.  The appraiser can and should make appropriate adjustments for poor condition or significant disrepair.

The lender wants to know first of all whether the property is worth at least as much as the loan amount. In the unlikely event the lender would have to foreclose, it wants to know it should be able to recoup at least the loan amount. But if your loan program depends on you borrowing, for example, 95 percent of the property’s value and no more, the appraisal can impact your eligibility for the loan that’s right for you. In a "close" case like that, the best solution is almost always to increase your down payment, or we can help find another solution such as another loan program that works.

An appraisal can cost from $200 to $500 or more for very complex properties. You as the borrower repay the lender for its cost in paying the appraisal fee upon settlement of the loan.