When it comes to buying or selling a property, one of the most critical documents you'll encounter is the property appraisal report. A property appraisal document provides an expert assessment of a property's value, which is can be a key part of buying or selling a home. While these documents may seem complex at first glance, interpreting them doesn’t have to be overwhelming. In this guide, we break down the key components of a property appraisal and examine how to properly read and interpret it, in order to increase your odds of success.
A property appraisal is a detailed report prepared by a licensed appraiser that provides an estimated value of your property. This value is determined based on various factors, including the property's physical characteristics, location, comparable sales in the area, and market conditions.
Property appraisals are crucial to most real estate transactions for several reasons:
Property appraisals also play a significant role in the mortgage approval process. Mortgage lenders use property appraisals to assess the value of the property being used as collateral for the loan. The outcome of the appraisal can have several implications for your ability to get approved for a mortgage.
Firstly, the appraised value of the property directly affects the maximum mortgage amount you can qualify for. Lenders typically lend a percentage of the property's appraised value, up to a certain limit. A lower appraised value might result in a lower approved mortgage amount. If the appraised value falls short of the desired mortgage amount, you might need to make up the difference with a larger down payment to secure the mortgage you're seeking.
Furthermore, If the appraised value of the property is lower than expected, it can result in a higher LTV ratio. The loan-to-value (LTV) ratio is a crucial factor in mortgage lending. It represents the percentage of the property's appraised value that the lender is willing to finance. Lenders typically have maximum LTV ratios that they are comfortable with, and these ratios can vary based on factors like the type of mortgage and the borrower's creditworthiness.
Finally, lenders often base interest rates and mortgage terms on the perceived risk associated with the loan. A property appraisal that comes in lower than expected might be interpreted by the lender as an increased risk.In some cases, a lower appraised value could lead to higher interest rates or less favourable mortgage terms. This can affect your monthly payments and overall affordability, potentially impacting your mortgage approval if the new terms make the loan less manageable based on your financial situation.
The first section of a property appraisal typically contains information about the property's type, size, and age. Understanding these details is crucial as they lay the foundation for the appraiser's assessment of the property's value.
Now that we've covered the basics of property type, size, and age, let's move on to another critical aspect of property appraisals.
Once you've examined the property's physical characteristics, it's time to dive deeper into the financial and legal aspects of the appraisal.
While property appraisals can be understood and interpreted more easily than you might expect, you do not have to go about this process alone. If you are conducting a property appraisal as part of your home-buying process, a Clover Mortgage broker can help you every step of the way. Our team has decades of experience and a tight network over 60 different lenders. Regardless of the results of your appraisal, we can help you find the best terms and the lowest rates available to you. Contact us to get started with a free consultation today!