Your Uncle’s New Guide to Appraisal For Conventional Loans

Before a lender can offer you the terms for a conventional loan, the market value of the home must be evaluated by an appraiser. This is done with the purpose of protecting the institution that is lending from making a loan whose value is higher than that of the property, thereby putting the money of the investor and the depositor at risk.

Though there may be different ways in which one can find out the appraised value of a house, the standard and most common approach is the use of the standard model. By use of this model a conventional loan has to meet four appraisal requirements.

The first and most important part of appraisal is collection of basic information. This involves collection of information about the square footage of the house and amount of rooms. In addition, the appraiser may also look as the age, condition and the cost of operating the home.

The appraiser will also discern the state of the property. This involves determining how much the house is valued at its current state. If the home does not meet the standards of the appraiser, it may difficult to use it for a conventional loan since the lender will assume risk for the repairs.

Comparison is also a vital factor that the appraiser will look at. The price of a home does not exist in a vacuum. It is determined by the sale price of other properties that may be situated in the area. Finally, the appraiser will have to determine the market value. If the appraised value is less compared to the market value the lender will most likely not make the loan. This is because the lender will start losing money the moment the borrower defaults on payment. In all cases, the market value should be the same or lower than the appraised value.