For the USDA Home Loan program, we’ve covered most of the income and asset documents that the average borrower will need for the mortgage-lending process. In this blog post, we’ll be talking a bit about the “dreadful” Appraisal to make things a bit more easy to understand.
What is an Appraisal?
An appraisal is a report that determines the value and condition of a home. An appraisal report is similar to a home inspection but not as thorough, and should not be used as a replacement for one. An appraisal report is not a guarantee that all defects in a home have been reported, whereas a true home inspection might find such defects.
An appraiser is assigned to a home to come take photos of all rooms, including basement, attic, and crawl spaces to confirm the home is in good condition. If the home needs any repairs or there are concerns noted from the appraiser, these repairs are going to need to be rectified before the home can be sold. The appraisal allows the underwriter to see the condition of the home as well, and due to certain conditions, may request additional documentation in order to sell the home.
Why Do I Need An Appraisal?
An appraisal is needed for almost all loan types, except for streamline refinance options. An appraisal is needed so the underwriter can ascertain the value and condition of the home and determine if any additional items will be needed to close the loan. This is often the first and only look the underwriter has of a property that the mortgage is for. If the home does not meet the standards set by the latest USDA HUD Handbook, then the issues identified by the appraiser and/or underwriter will need to be addressed before the home can be sold.
Additionally, the appraisal gives the home a dollar value. This value must match or exceed the total purchase price of the home, or the purchase price will need to be re-negotiated. If the seller is not willing to come down in price, there’s a very real chance that this mortgage transaction will not go through. Usually this happens if the appraisal of the home comes in very low, to a number that the seller disagrees with. If the seller does agree to lower the purchase price, a purchase contract revision will need to be drafted, signed, and dated by seller, buyer, and all agents to confirm the new details of the loan.
What Additional Items Will I Need?
In some situations, the Appraisal Report can lead into additional expenses that may be rolled into the mortgage for the home. For example, if you are looking to buy a home that is on private well water, the underwriter will require a water inspection to ensure that the water is safe to drink. There are rules for who may obtain the water sample collected for the water test as well. Most companies will send one of their own to procure a sample, which is acceptable. However, if the company does not have someone that will do it, the borrower, the seller, or agents are not allowed to collect the sample due to conflict of interest. The only action they can perform is the actual ordering of the water test, and nothing else. The sample must be collected by a third party who will not benefit or have an interest in the purchase of the home.
Other inspections that can result from an Appraisal Report can be roof inspections, septic inspections, mold inspections, and termite inspections. These inspections will need proof that the home does or does not need repairs and must also provide the copy of the invoice. If you, as the borrower, purchase these inspections, these may be rolled into the cost of the loan if the purchase contract indicates that this will be the arrangement. While this may cost money, it is definitely for a good reason and to give you a peace of mind.