Are you thinking about purchasing property in the Ormond Beach area? If so, you probably understand that the real estate market in the region is heating up quickly. Therefore, you may want to jump in and purchase property now. Unless you are purchasing a home with cash, there are several steps that the lender will require you to complete before they finance your loan.
One of the most important steps is a home appraisal. What is a home appraisal, and how long is it good for? What are situations where a home appraisal might be required? Learn more about a home appraisal below.
A home appraisal is a specific process where an independent third party makes an estimation of how much the home is worth. Before you sell jewelry, you may have it appraised. If you are purchasing a house, you go through the same process. A home appraisal will give you some idea of how much the house you are buying is actually worth. Of course, the appraisal is not exact, as the value of a house is the amount of money someone is going to pay for it; however, a home appraisal is important because the lender wants to make sure they are not providing too large of a loan for a house.
Essentially, a home appraisal is designed to help the bank protect itself. If you decide to sell the house later, the bank wants to make sure they will get their money back. The only way this will happen is if they do not provide too large of a loan for a house. They do not want to provide you with a loan, have you sell the house, and then have you not have enough money to pay it back.
A home appraisal is almost universally recommended; however, it is only required if you are financing a mortgage. Even though there are some situations where the bank may not require an appraisal, this is highly unusual. This is a critical step because the bank wants to make sure they are not paying too much money for a house. Once your offer is accepted, the bank will probably ask for a home inspection and appraisal. You should complete both of these steps, and they need to be done before you get to the closing table.
Typically, you have approximately four weeks from the time to offer sheet is signed to the specified closing date. This is usually more than enough time for the bank to get its appraisal completed.
There might be some situations where the appraisal needs to be redone. In general, a home appraisal is good for approximately 120 days. If the appraisal is updated, then the entire process is good for 240 days. This is between four and eight months, so it should not be an issue if the closing process gets delayed a bit.
For example, there may be an issue with a home inspection, or there may be issues with financing. The bank usually will not require you to get the appraisal redone. Because they are usually good for several months, this is not something you should have to worry about.
The first thing you will do when the appraisal comes in is to compare the appraisal value to the amount of money you are paying. What happens if the appraisal value comes in higher than what you paid for it?
This is not of any concern to the buyer. After all, this means you are getting a great deal on the house. You are paying less money for the house than it is actually worth. Even though the seller might be a bit disappointed, you have already signed the offer sheet. Therefore, the seller is probably not going to back out now. Even though the seller may try to renegotiate, you have already agreed to pay a certain amount of money for the house, so you should not have to put up any extra money. If you are buying a house, and if the appraisal value comes in higher than what you paid for it, this is a sign that you are getting a great deal.
On the other hand, if the appraisal value comes in too low, you may have some issues. If the appraisal comes in lower than you are paying for it, the bank is going to be concerned. They do not want to pay more money for a house than it is actually worth.
There are two things that could happen at this point. If the loan-to-value ratio is off, the bank may ask you to bring extra money to the closing table. For example, if you are putting down $50,000 on a house that you are paying $250,000 for, the bank is putting up $200,000. If the appraisal value comes in at $225,000, the bank is providing $200,000 in financing for a house that is worth only $225,000. This is a loan to value (LTV) ratio of more than 80 percent, so the bank may ask you to either purchase private mortgage insurance or bring more cash to the closing table.
On the other hand, if the appraisal value on the house above only comes in at $175,000, the bank may refuse to finance the deal completely. The bank does not want to provide a loan that is larger than the house is worth. Therefore, it is important for you to pay close attention to the appraisal, and if the appraisal comes in low, the lender may ask you to bring more cash to the closing table.
If you are looking for a house in the local area, it would be our pleasure to help you. At Ormond Beachside, we take great pride in helping potential homeowners find the right houses to meet their needs.
It would be our pleasure to work with you as well. We will work with you personally, comparing the benefits and drawbacks of each house available well advocating for your best interest. It is our job to help you make a competitive offer on a house without overpaying for it. Contact us today to speak to Mike today, and let us help you find the right house!