Whether you’re purchasing a new home in Brampton, Toronto or the GTA, want to complete a refinance of your current mortgage, or switch your mortgage to a new lender at renewal for a better rate, it’s important to understand the role a home appraisal has in the lending process.
After you apply for a mortgage, your lender may require an appraisal, which is an unbiased determination by an accredited and independent appraiser of the market value of the property your lender will be financing.
Here are 10 important and interesting facts relating to home appraisals:
- When you purchase a home, your lender wants to be sure that the home’s selling price is an accurate representation of the home’s condition and neighbourhood, and that you are not borrowing more than what the home is worth. The lender also wants to be sure the property meets its lending guidelines.
- When you refinance your mortgage for debt consolidation or to access funds for other needs, the appraisal will be used by the lender to determine the amount of funds that you can borrow since you can only refinance a set amount, up to 80 percent of your home’s appraised value.
- When switching your mortgage to a new lender at renewal to get a better rate or terms, the appraisal is required to verify the property’s value.
- To complete the appraisal process, an appraiser typically visits the home to get the information needed and to take pictures. The appraiser will also analyze market comparables, which are the sale prices of at least three other similar properties. The appraiser then provides the lender with a written opinion of the property’s value. If the appraised value is sufficient, your mortgage approval is finalized assuming all other conditions have been met. The cost is often passed along to you, typically forming part of your closing costs.
- In many bidding war situations, some buyers are paying over asking but the appraiser may determine that the property has a lower value, which could affect your financing and require you to increase your downpayment, particularly if you are right at 5 or 20 percent down. Such a situation can be challenging so perhaps considering having a contingency plan if you end up in a bidding war situation.
- A hot housing market also means that appraisers are very busy so be careful with quick closings. It may not be possible to get the appraisal done in time.
- The lender is the appraiser’s client, not you, which means the appraisal is sent to the lender and only discussed with them. You cannot obtain a copy of the appraisal since it is part of the lending process and not a product you are buying.
- When a realtor gives you a current market assessment, that should not be considered an appraisal for financing purposes.
- A home inspection is not the same thing as an appraisal. A home inspection is often a condition of a purchase and is done to protect you, the homebuyer. A qualified home inspector assesses the physical condition of the home and its major systems to help you determine if everything is in good working order, and what repairs are needed and by when.
- An appraisal is not the same as a tax assessment. Your home’s appraisal is not shared with your local tax office or tax assessors.
If you are in Brampton, Toronto or the GTA, please get in touch at any time if you have any questions regarding a home purchase, refinance, or a switch at renewal. I always recommend getting advice well in advance of the mortgage financing process, so you know what to expect and are fully prepared. I’m here to help, contact me today!
