Make Sure The Home Is Appraised

If you’re getting a mortgage to purchase your home, your lender will require the home to be appraised before they agree to release your funds. A home appraisal provides an estimate of how much a home is actually worth based on comparable sales in the area, market trends, public records and a comprehensive inspection of the property.

Generally speaking, home appraisals help you ensure that the purchasing price of the home is in line with the home’s true value. Therefore, these home valuations are a protective measure for lenders. By insisting that a home be appraised before money is lent, lenders can make sure that they’re not lending more money than the house is worth.

Whenever a buyer obtains a loan to purchase a house, the house itself is used as collateral. If the buyer is unable to keep up with monthly mortgage payments and defaults on the loan, the buyer would go into foreclosure, and the lender would sell the loan to recover the money lent.

However, if a lender didn’t require a home appraisal and mistakenly provided the buyer with more money than the home was worth, the lender would be at risk. If the buyer defaulted on the loan and the lender had to sell the house, it’s likely that the lender would not be able to recoup all the money that was initially lent.

So, when you get the home appraised, keep in mind that the lender will only provide funds to cover the appraised value of the house. If the appraisal comes in below the purchasing price, you’ll have to either renegotiate price or come up with the difference – which is one of the many reasons having a mortgage contingency (or appraisal contingency) is in your best interest.