Understanding the intricacies of conventional loan appraisal requirements is essential in real estate financing. Appraisal requirements serve as a critical component in the process of securing a conventional loan, influencing the terms, eligibility, and overall success of the loan application.
At Rob’s Mortgage Loans, we recognize the significance of providing accurate and reliable information to our clients. With 3 decades of experience in the mortgage industry, we are committed to guiding borrowers through the complexities of conventional loan appraisal requirements, ensuring they navigate the process with confidence and clarity.
This article aims to provide a comprehensive overview of conventional loan appraisal requirements in 2024. From defining conventional loans and elucidating their significance in real estate transactions to delving into the intricacies of the appraisal process and its pivotal role in loan approval, we will cover a wide array of topics essential for borrowers seeking financing through conventional loans.
Purchasing a home is likely one of the biggest financial decisions you’ll make in your life. When applying for a conventional loan to finance your home purchase, the property must undergo an appraisal to ensure its value matches the purchase price. This helps protect both the buyer and the lender.
As a buyer, you want to ensure you’re not overpaying. And the lender wants confirmation they aren’t lending more than the property is worth.
The appraisal process can seem mysterious for first-time homebuyers, But having an overview of what the appraiser inspects can help buyers know what to expect
In this comprehensive guide, we’ll cover everything you need to know about the conventional loan appraisal checklist. We’ll look at:
- What a home appraisal is
- When the appraisal happens
- Who orders the appraisal
- What’s included in a conventional loan appraisal
- How it differs from a home inspection
- What happens if repairs are required
- Tips for preparing for an appraisal
Let’s dive in!
What is a Home Appraisal?
A home appraisal is an estimate of the property’s market value conducted by a licensed, third-party appraiser.
Appraisers rely on their expertise along with recent sales data of comparable properties to determine a home’s value. The appraised value protects both the buyer and lender by confirming the purchase price is in line with the property’s true market value.
Appraisals are required anytime you purchase a home using financing, whether it’s a conventional loan, FHA, VA, or USDA loan.
When Does the Appraisal Happen?
For a purchase, the appraisal typically takes place after the buyer’s offer is accepted by the seller but before closing.
The buyer orders the appraisal through their lender, who then assigns an appraiser. From acceptance to completed appraisal usually takes 1-2 weeks.
For a refinance, the appraisal happens early in the process as part of loan approval. The homeowner orders the appraisal through their lender.
Who Orders The Appraisal?
The buyer orders the appraisal through their lender, even though the buyer pays for it. The appraisal fee is part of closing costs, averaging $300-$500 depending on the property location and size.
It’s the buyer’s responsibility to pay for the appraisal upfront. If the deal falls through, the buyer is still responsible for reimbursement.
What’s Checked During a Conventional Loan Appraisal?
The appraiser will visit the home and take photos of the interior and exterior. They’ll note the home’s condition, quality and layout of the rooms, property size, and any upgrades or improvements.
Aspects reviewed include:
- Overall condition
- Foundation
- Roof, gutters
- Siding, paint, trim
- Windows, doors
- Plumbing, electrical
- Heating and cooling systems
- Living areas like kitchen, baths, bedrooms
- Basement, attic
- Garage, outbuildings
- Yard, landscaping
- Swimming pools
- Views
The appraiser will also measure the home’s square footage to confirm it matches public records.
Next, they’ll research recent sales of at least three comparable homes in the neighborhood. Comps should be similar in size, age, and condition.
By comparing the subject property to the comps, the appraiser calculates an estimated market value.
The appraisal protects the buyer from overpaying and confirms for the lender it’s not over-lending.
How is an Appraisal Different Than a Home Inspection?
While they sound similar, a home appraisal and home inspection serve different purposes:
Appraisal – Estimates the home’s market value, typically required by lenders.
Inspection – Evaluates the home’s physical condition, typically paid for by the buyer.
Inspectors take a more in-depth look, testing systems and components for defects. Appraisers simply visually assess the property’s condition during a walk-through.
So while an appraisal will note glaring issues, only an inspection fully evaluates the home’s bones and mechanics. Buyers are advised to get both.
What if Repairs Are Required?
If the appraiser notices something concerning, like a cracked foundation or roof leak, they’ll call it out in the report. This puts a “subject-to” condition on the property valuation.
The lender will require repairs prior to closing. Either the buyer or seller can pay for repairs. But sellers often give a credit to the buyer at closing instead.
If repairs would be costly, the buyer may try to renegotiate the purchase price with the seller. But sellers are under no obligation to lower the price or pay for repairs.
Tips for Preparing for the Appraisal
While appraisers focus on value, not cleanliness, preparing for the visit can help maximize your home’s appraised value:
- Declutter – Clear countertops, tuck away clutter
- Clean – Sweep, mop, dust, tidy up
- Lighting – Open blinds, turn on lights
- Curb appeal – Mow, edge, prune landscaping
- Repairs – Fix leaky faucets, broken appliances, damages
You want the appraiser to see the home at its best to recognize all its value. But don’t make significant changes right before that could seem misleading.
Conventional Loan Appraisal Checklist Summary
When applying for a conventional mortgage, the home must be appraised to confirm its value supports the purchase price. While required by lenders, an appraisal also protects homebuyers from overpaying.
- Ordered by the buyer through their lender
- Takes place after the offer is accepted
- Appraiser visually inspects the home’s interior, exterior, and site
- Compares the property to recent sales of similar homes
- Estimates the market value in an appraisal report
- Value must support the purchase price
- Notes any condition issues for repairs
Understanding what the appraiser inspects, and how they determine value, can help buyers know what to expect during this important step of the homebuying process. An appraisal identifies value, while an inspection determines condition—so both are recommended.
While required by lenders, an appraisal brings value and transparency to buyers too. So rather than a hassle, view it as an opportunity to confirm you aren’t overpaying and are making a sound investment in your new home.
Step-by-Step Guide to Ensure Compliance with 2024’s Conventional Loan Appraisal Requirements:
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- Schedule a thorough inspection of the property to identify any issues or concerns.
- Gather all necessary documentation, including property records, permits, and renovation history.
- Address any visible defects or maintenance issues to ensure the property presents well during the appraisal.
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- Communication with the Appraiser:
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- Provide the appraiser with relevant information about the property, including recent upgrades or improvements.
- Be transparent about any known issues or concerns that may affect the property’s value.
- Answer any questions the appraiser may have about the property to facilitate an accurate assessment.
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- Review of Appraisal Report:
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- Review the appraisal report carefully to ensure all relevant information is accurate and complete.
- Verify that the appraiser has considered all relevant factors, including property condition, comparable sales, and market trends.
- Address any discrepancies or concerns with the appraiser or lender to ensure the accuracy of the appraisal.
Ensuring Smooth Loan Processing with Appraisal Compliance
Adhering to conventional loan appraisal requirements offers several benefits for borrowers. Firstly, it ensures that the property’s value aligns with the loan amount, reducing the risk of overvaluing or undervaluing the property. This, in turn, enhances the lender’s confidence in the loan’s collateral and may result in more favorable loan terms for the borrower, such as lower interest rates or down payment requirements. Additionally, compliance with appraisal requirements fosters transparency and trust in the lending process, providing borrowers with peace of mind and minimizing the likelihood of disputes or challenges down the line.
Appraisals and conventional loans
FAQ
What does an appraisal look for on a conventional loan?
What will fail a conventional loan appraisal?
What negatively affects a home appraisal?
Do appraisers look under sinks?
Should I go over a conventional loan appraisal checklist?
Reviewing a conventional loan appraisal checklist can be cost effective to prevent any extra fees associated with an appraisal. The property’s overall condition and quality rating, selected by an appraiser, reflects the property’s entirety.
What does a conventional loan appraiser check?
For conventional loans, lenders expect the appraiser to check the following: An appraisal is not the same as a home inspection. An appraisal determines value. An inspection determines condition. One snag that sometimes comes up during conventional (and other) loan appraisals is the “subject to” flag.
Can a conventional appraisal be financed?
A conventional loan appraisal can be used for financing when the property is in an eligible condition, as indicated by a rating between C1 and C6. Properties that are in an as is condition and do not have deficiencies are considered eligible.
What causes a conventional loan appraisal to be subject to?
A conventional loan appraisal can be subject to if there are deficiencies that affect the safety, soundness, or structural integrity of the property. For instance, an active roof leak or curled or cupped shingles may require a qualified professional inspection.