Navigating home loans and property appraisals can be tricky, especially for military homebuyers. That said, property appraisals are important in determining the value of the home and influencing various other homebuying factors ranging from interest rates to eligibility criteria. The process can seem overwhelming but we’ll help you understand the intricacies of appraisal criteria, whether you’re buying your first home or choosing a place to retire.
For servicemembers, there are three main loan options to consider: VA, FHA, and conventional loans. The following information will help you decide between the three.
Getting a mortgage to buy a home is an exciting yet often stressful process. As a buyer, you want to make sure you understand all the requirements so there are no surprises down the road. One key question homebuyers have is: does a conventional loan require an appraisal?
The short answer is yes. Conventional loans virtually always require an appraisal before closing on the purchase.
In this comprehensive guide we’ll explain everything you need to know about conventional loan appraisals. Topics include
- What is a home appraisal?
- Why do conventional loans require appraisals?
- What does the appraiser look for?
- How much does an appraisal cost?
- Can you waive the appraisal?
- How long does an appraisal take?
- What if the appraisal value is low?
- Conventional appraisal vs. FHA appraisal
What Is a Home Appraisal?
A home appraisal is an estimate of the property’s market value, A licensed appraiser will visit the home and make an unbiased assessment of how much it’s worth,
Appraisers consider:
- Square footage
- Number of bedrooms/bathrooms
- Overall condition
- Special features like a pool or renovated kitchen
- Recent sales prices of similar homes nearby (called “comparable properties” or “comps”)
They use these factors to determine how much a typical buyer would pay for the home in its current condition on the open real estate market. This is the appraised value.
Lenders require appraisals so they don’t lend more than what the home is truly worth. This protects their investment in case the borrower defaults.
Why Do Conventional Loans Require Appraisals?
There are two key reasons conventional mortgages virtually always require an appraisal:
1. Protect the lender
Appraisals ensure the lender doesn’t loan more than what the home is worth. If the borrower defaults, the lender can sell the home and recover their money back.
If there was no appraisal, the lender risks loaning too much. For example, say a buyer wanted to borrow $400,000 for a home. But without an appraisal, the lender doesn’t realize the property is only worth $350,000.
If the buyer defaults, the lender is stuck. They can’t get their $400,000 investment back because the house is only worth $350,000.
Requiring an appraisal protects lenders from this kind of loss.
2. Validate the purchase price
Appraisals also ensure home buyers don’t overpay.
The sellers set the asking price. But it may be above what the home is truly worth.
The appraisal serves as an unbiased second opinion on the property’s value. This prevents buyers from overpaying.
It also ensures buyers can qualify for a loan. Lenders limit the amount you can borrow based on the home’s appraised value – not the contract purchase price.
What Does The Appraiser Look For?
When inspecting the home, here are some factors the appraiser considers:
- Location: Desirability of the neighborhood and proximity to amenities
- Age and condition: Upgrades like a renovated bathroom can increase value. But deferred maintenance and flaws like a cracked foundation can decrease value.
- Square footage: Size of the home based on interior measurements
- Bedrooms/bathrooms: Number of bedrooms and baths compared to similar homes nearby
- Special features: Things like granite counters, hardwood floors, a pool, or sauna
- Basement & exterior: Whether the home has a basement. Plus the size of the lot and exterior materials.
- Garage/carport: Number of cars that can be parked on the property
- Comps: Prices of recently sold comparable homes in the same area
The appraiser will also check public records to verify the home’s size and ownership.
Importantly, the appraiser is not doing a home inspection looking for problems and defects. They simply form an opinion of value based on the home’s observable condition on that day.
How Much Does an Appraisal Cost?
Appraisal fees are typically $300-$500 for a single-family home. They tend to cost more in larger metro areas.
The exact appraisal cost depends on:
- Appraiser’s experience level and overhead expenses
- Home’s location, size, and sales price
- Complexity of the appraisal assignment
As the buyer, you’ll pay this fee during closing. The lender will order the appraisal on your behalf once your loan application is underway.
The cost is well worth it for the peace of mind. The appraisal brings transparency to the transaction and ensures you don’t overpay.
Can You Waive The Appraisal?
It is possible to waive the appraisal with a conventional loan, but only under certain conditions.
You’ll have the best shot if you:
- Make a down payment of at least 20%
- Have excellent credit (scores above 740)
- Are not buying a fixer-upper home needing repairs
The lender must have confidence you’re at low risk for default. They’ll review factors like your income, assets, employment history, and debt-to-income ratio.
But even with pristine finances, most lenders will not waive the appraisal if you put less than 20% down. It’s too risky for them.
You can ask your loan officer if an appraisal waiver is possible. But chances are, you’ll need the appraisal.
How Long Does an Appraisal Take?
A standard appraisal takes about 1 week from start to finish. Here’s the typical timeline:
- Days 1-2: You or your lender order the appraisal. The appraiser is assigned and contacts you to schedule a visit.
- Day 3: The appraiser inspects the property (allow 1 hour)
- Days 4-5: Appraiser analyzes recent comparable sales and writes the report
- Day 6: The appraisal report is submitted to your lender for review
- Day 7: The lender contacts you with the appraised value
Rush appraisals can sometimes be done in 3-5 days for an extra fee. But 1 week is standard.
What If The Appraisal Value Is Low?
It’s not uncommon for an appraisal to come back lower than the contract sales price. What happens next depends why.
There are two main possibilities:
1. The home was overpriced
If the appraiser believes the home is genuinely worth less than its listing price, the lender will only loan based on the appraised value.
For example:
- Home’s list price: $500,000
- Appraised value: $450,000
- Buyer’s down payment: $40,000 (8% of list price)
The lender will only lend up to $410,000 in this scenario – not the $460,000 the buyer wanted.
The buyer must make up the $50,000 gap or negotiate a lower sales price with the seller.
2. The appraiser made a mistake
Sometimes the appraiser selects poor comparable homes or overlooks upgrades. This skews the valuation lower than it should be.
If you have evidence the appraisal is off, your lender can order a second opinion. You may have to pay for this re-inspection to prove the home is worth more.
Conventional Appraisal vs FHA Appraisal
FHA loans are government-backed mortgages that require a much more rigorous home appraisal than conventional loans.
Key differences include:
Conventional Appraisal
- Checks home’s basic livability and safety
- Compares similar homes that recently sold nearby
- Takes 1 week and costs $300-$500
FHA Appraisal
- Uses Minimum Property Standards set by HUD
- Checks for 100+ safety and quality issues
- Can take several weeks and cost more
- Often requires sellers to make repairs before closing
The bottom line: FHA appraisals are more stringent in order to reduce risks for the government. Conventional appraisals are solely to verify the home’s market value.
So in many cases, a home will easily pass a conventional appraisal but require repairs before closing an FHA loan.
The Bottom Line
Virtually all conventional mortgages require an appraisal to verify the purchase price represents fair market value.
This protects home buyers from overpaying and lenders from loaning more than what the home is worth.
Waiving the appraisal may be possible with 20% down and pristine finances. But even high-quality borrowers should expect the appraisal to be required in most cases.
In the end, the cost is minor, and the appraisal brings valuable peace of mind to all parties involved in the real estate transaction.
Frequency of Entities:
Conventional loan appraisal requirements
What Is a Home Appraisal?
Between submitting your offer and finalizing the purchase, an appraiser will evaluate the home to back up the sales price you will pay for the home. If you are getting a mortgage, the appraisal will ensure the soundness of your lender’s investment in your purchase.
This part of the home loan process is a visual inspection meant to document the condition of the property, location, and any costly or major defects observed. It provides an overview of the property and of anything nearby that may impact its value. The examination focuses solely on visible issues and doesn’t delve into specifics.
The VA appraisal process helps determine a propertys fair market value. The VA randomly selects the appraiser to maintain impartiality and ensure an unbiased property assessment.
If the appraiser anticipates the appraised value on a VA appraisal will be lower than the sale price, they can request additional information, such as comparable sales data, to reassess the propertys value under provisions of the Tidewater Initiative — a benefit only available to VA borrowers. This process could lead to a formal Reconsideration of Value (ROV) if the appraisal comes in lower than expected.
VA Minimum Property Requirements (MPRs)
Minimum Property Requirements (MPRs) ensure that the purchased property is suitable for safe and secure living. The specifications vary, but they are always focused on the residential aspect of the property.
To meet VA MPRs, the property must typically be a single-family dwelling unit – but it can include a dwelling with two to four units to ensure that it accommodates residential living and appeals to a broad range of potential buyers.
Properties cannot exceed four units, and if they do, there are specific requirements for shared spaces such as communal laundry facilities. This limitation ensures that the property maintains a residential character and doesnt transition into a larger-scale commercial or multi-unit property.
The property must also have at least 75% residential space. This includes dedicated areas for living, sleeping, cooking, and dining. There should also be at least one bathroom, ensuring the space covers all basic living needs. Finally, there must be adequate, year-round access to the property by foot or car from a public or private street.
The real estate market is determined by several factors that shape the perceived worth of a property.
There are two fundamental elements in assessing market value:
- Subjective factors are influenced by location, property condition, and overall appeal. The neighborhoods desirability, proximity to amenities, and the propertys aesthetic and functional qualities all contribute to subjective evaluations.
- Valuation approaches provide a quantitative analysis of the home’s value. The Sales Comparison Approach involves assessing a propertys value based on recent sales of comparable properties in the vicinity. The Cost Approach considers the replacement cost of the property minus depreciation. An alternative option called the Income Approach evaluates income potential for income-generating properties.
What’s the difference between a FHA and conventional appraisal?
FAQ
Can a loan be approved without an appraisal?
What type of inspection is required for a conventional loan?
What’s the difference between an FHA appraisal and a conventional appraisal?
Is an appraisal always required for a mortgage?
What is a conventional appraisal?
Unlike government loan programs, conventional appraisals do not have specific standards that homes must meet. The important metric for a conventional appraisal is that the loan amount requested by the borrower fits with the appraised value of the home. Loans backed by the Federal Housing Administration (FHA) require an inspection and an appraisal.
Do you know the conventional loan requirements?
Here are the key **requirements** for a conventional loan: 1.**Credit Score**: Most conventional loans require a **minimum credit score of 620**.However, some lenders may have slightly different requirements.
Do conventional loans require a home appraisal?
Yes, conventional loans usually require a home appraisal to calculate the value of the property being bought or refinanced. The appraisal is a separate assessment of the property’s value by a professional appraiser, who takes into account factors such as the property’s location, size, condition, and similar sales in the area.
What is the difference between FHA & conventional appraisals?
FHA is more specific about property requirements. For FHA loans, homes must adhere to Minimum Property Requirements (MPRs) set by the Department of Housing and Urban Development, or HUD. FHA appraisers are trained to spot MPR deficiencies. Conventional loan appraisers do not have to hold a property to HUD’s exact standards.