If you are buying a home with a mortgage, part of the process involves getting a home appraisal. Here is what you need to know about appraisals, including how they can impact the mortgage you are applying for.

What Is A Home Appraisal?

The purpose of getting a home appraisal is because your mortgage lender wants to know the actual value of the home that you are purchasing. This is done by having an independent third party inspect the home, who will then give an unbiased opinion about what the home is actually worth. The appraiser will look at things like the overall square footage, the construction materials, appliances, fixtures, and things of that nature.

However, consideration is also put into the condition of all those items in the home. A brand new home is going to be appraised at a higher value than an older home that could use some updates. The location of the home is also considered, especially when comparing it to the homes that it is surrounded by. A highly desirable neighborhood will cause the home to be appraised higher than one in a less desirable neighborhood.

What Happens If The Home Is Appraised Too Low? 

One potential problem you can run into is that the home you are interested in buying is appraised for less than what you offered. The lender that you selected is likely only going to let you borrow enough money to cover the appraised value of the home.

For example, if your offer on a home was accepted for $200,000 and the home was appraised for $150,000, then the bank would only loan you $150,000 for the home. You would then have to provide a down payment that was at least $50,000 in order to be approved for the mortgage. If you did not have enough cash on hand, then you would have to back out of the purchase of the home.

What Happens If the Home Is Appraised Too High?

If the home is appraised higher than your accepted offer, then this means that you got a good deal on the home. Nothing will change with your mortgage, since you can provide the minimum amount required for a down payment. However, be aware that a higher appraised home value could lead to paying more in property taxes down the line.

Reach out to your mortgage lender to learn about how the appraisal can play into your mortgage approval.