Mortgage Blog

How to get a home loan

Jim Quist is the president and founder of NewCastle Home Loans. He has 20+ years of mortgage lending experience as a business owner, mortgage underwriter, and loan officer. Jim's goal is to help people buy homes.

Jim Quist is the president and founder of NewCastle Home Loans. He has 20+ years of mortgage lending experience as a business owner, mortgage underwriter, and loan officer. Jim's goal is to help people buy homes.

Everything you need to know about home appraisals

Before you can finalize the financing for your new home, you’ll need a home appraisal report. Home appraisals are essential to having your mortgage approved and determining the value of the home you’re buying or selling.

In this blog, we’ll cover what a home appraisal is, how the report affects your mortgage, what’s included in the appraisal report, and how the process works from start to finish.

What is a home appraisal?

A home appraisal is an expert opinion about your property's value by a licensed professional. The appraiser’s opinion is objective and based off of facts about the property such as home age, square footage, and location as well as current market conditions to determine the value of the home in a report. An appraisal does not take into consideration things like new landscaping or appliances, as these items are not considered stable value-generating features.

For a mortgage, the entire transaction rests on the value of the property. If the home’s value does not support the amount of the loan, then the deal may need to be restructured. As a result, home appraisals are required for the purchase/sale of a home when a mortgage is needed. However, there are scenarios where you can avoid the mandatory appraisal with a Property Inspection Waiver (PIW).

There are two different types of home appraisals:

  • An appraisal report - contains detailed information about the property and surrounding area to support the final value decision. The report can be used by all parties within the transaction (buyer, seller, and mortgage lender).
  • A restricted appraisal - also known as desktop appraisals. These have to define the intended user and can only be used by them. This report does not contain the same level of detail as a typical appraisal report and is geared towards those already familiar with the property and area.

Home appraisals are different from home inspections, although both are very important. While a home appraisal determines the value of a home, a home inspection determines the overall condition of the property. In both cases, a certified professional will walk through the home.

Who are the appraisers?

Appraisers are licensed, educated professionals who objectively estimate a home’s value. An appraiser’s level of education and experience determines the type of property they can evaluate.

How much does a home appraisal cost?

Standard appraisal fees usually run from $445 - $760 for 1-4 unit single-family homes. Special circumstances require additional fees, which can be discussed with your mortgage lender at the time of your application. The appraisal fee(s) are paid by the borrower.

How do I order a home appraisal?

Although you pay for the appraisal, your mortgage lender will be able to handle ordering it for you. At NewCastle Home Loans, we use a third-party appraisal management company to ensure each property receives an independent appraisal review. The company handles the entire appraisal process and is separate from NewCastle. Our online application tools allow borrowers to pay for their appraisal and begin the appraisal order process directly with the third-party vendor.

We will give you a copy of the appraisal once it is complete.

What to expect from a home appraisal and what’s reviewed for the home’s value.

The appraiser will need to come out to the property to conduct a walkthrough. Here is a list of items the appraiser will take into consideration and include in their property review and report:

  • Location - One of the biggest indicators of value is a home's location. If the property is closer to the city and is accessible to public transportation, it will have a higher value than if its near a loud location like an airport.
  • Floor location - This applies to condos and apartments. Higher floors are deemed more valuable than lower floors.
  • View - What do you see when you look out your window? A home that looks out over the beach has a higher value than one that looks out onto a highway.
  • Design - This field indicates whether a home is an individual freestanding unit or shares walls with another unit. A freestanding home will be worth more than a condo or townhome with shared walls.
  • The quality of construction - The appraiser evaluates the quality of the building materials used and quality of workmanship. The appraiser rates the quality of construction between Q1 and Q6, with Q1 being the highest rating.
  • Actual home age - The number of years since the home was originally built. Generally, the newer the house, the more valuable.
  • Effective home age - An estimate of the age of a home based on its use and physical wear and tear. A home that has not been properly maintained may appear to be older than it actually is.
  • Condition - This term refers to how far the building materials are from being new. The appraiser rates the property condition between C1 to C6, with C1 being the best condition.
  • Room count - The appraiser counts "legal" bedrooms and bathrooms above ground. "Legal" means bedrooms that have closets. Bathrooms are only counted as "1" or “full” if they have a sink, shower and/or bathtub, and a toilet. If a bathroom has no shower or tub, the appraiser considers it a “half” bath. The appraiser also counts bedrooms and bathrooms below ground.
  • Gross living area - The appraiser calculates the above ground square footage and ensures that measurements are within the specified standards. The appraiser also evaluates if the living spaces are completed.
  • Functional utility - The appraiser checks the usability of house features, such as accessibility of rooms or the height of the ceiling. Essentially, the appraiser asks, “Is the property habitable?”
  • Heating and cooling - How is the property heated and cooled? Central heating and cooling are more valuable than radiators. The newer the furnace or HVAC system, the better.
  • Energy-efficient items - Energy-efficient items add to the home value.
  • Garage/carport - Garages are more valuable than carports, and carports are more valuable than uncovered parking.
  • Porch/patio/deck - These features add value to a home depending on the climate. The appraiser notes whether these areas are sheltered or enclosed. The appraiser also measures the size of outdoor seating areas.
  • Upgrades - Has there been recent remodeling or repairs? If you have an older home, the appraiser often checks for remodeling and upgrades.
  • Fireplace - Fireplaces add value to homes because of their heating capabilities. Wood burning is best, but gas fireplaces will also add value.

The appraiser will also note items that need to be repaired. Items that warrant a mention in the appraisal report are usually items that have to do with safety or structural issues such as missing handrails or leaking roof. If these types of problems exist and you are selling the home, repair them before ordering an appraisal since these deficiencies will certainly affect the final determination of value.

In addition, the appraiser will research municipal records to gain further information about the property. This research allows the appraiser to gather accurate information about the property without relying on the owner, realtor, or anyone who has a stake in the outcome of the transaction.

Once the appraiser has all the information they need about the property, they look at properties in the same area that have sold recently. The comparison of recently sold properties against the subject property is what allows the appraiser to determine an appropriate value estimate.

The final appraisal will show an estimate of the value of the property. Lenders will use this value as the basis for calculating loan-to-value ratios and determining the max loan amount available to the borrower. You will receive a copy of the appraisal either from the appraiser or from your mortgage lender.

The appraisal report is very important for negotiations.

The appraisal report is a valuable negotiating tool for purchase transactions. If the home value is less than the contract sales price, you can renegotiate the sale price with the seller. If there are repairs noted, this also gives you a tool to renegotiate the terms of your contract. If you get an appraisal for a refinance, you’ll know whether the value has appreciated sufficiently to warrant taking cash out of your home. If the value is not what you expected, the appraisal may help you decide what repairs need to be completed to increase the value to the expected amount.

In order to be able to renegotiate the home price or walk away from the deal, make sure your contract includes a clause stating you are not obligated to proceed if the home’s appraised if value is less than the purchase price.

There is no appraisal refund policy.

By placing your order and submitting your credit card information, you agree to an appraisal policy. There are no refunds due to discrepancies in value. An appraisal is an appraisers opinion of value. All appraisers are licensed by the state in which the appraisal is performed. If you disagree with the value of an appraisal, we will investigate the file. However, no refund will be issued for discrepancies in value.

Have any questions? Feel free to ask!

If you have any additional questions regarding home appraisals, feel free to email us or call 855-610-1112.

Are you still house hunting? If so, make sure to download our free First-time Home Buyer’s Guide. You’ll learn valuable industry insight and learn how to put together a game plan for your home purchase.

Get our FREE First-time Home Buyer Guide!

You may also like:

How one lender trims 4 weeks off average mortgage closing times

On average, mortgages close in 41-days. We close loans in only 12-days. That’s more than 3x faster than the national average. Seems hard to believe, right? Here’s proof.