Home Appraisal Basics During a Mortgage Application

home appraisal mortgage application

Within the mortgage and homebuying world, one vital piece of the process to understand is the appraisal. Designed to produce a fair and unbiased value for a home about to be purchased, appraisals are based on several factors and play a big role in some of the major financial details of any home sale.

At Altius Mortgage and our partners at Mortgage Ogden, we’re happy to walk you through the ins and outs of the appraisal process whether you’re a first-time homebuyer or an experienced real estate flipper. Let’s go over the simple details you need to know about an appraisal, including what it’s used for and the areas of a home that will be included in it.

Appraisal Basics and Uses

Appraisals refer to an event where a third party is hired to assess all the important factors that play a role in the value of a home. These third parties are known as appraisers, and they have received specific training in evaluating home values across many different property types.

In the majority of cases, the seller of the home in question is the one who arranges for an appraiser. This objective review of a home’s value is very valuable for sellers to present as they price their home. In other situations, though, appraisals can be requested by potential buyers or even by a lender themselves – this is often done so the lender can get their own in-house estimate for the value of a home they’re about to lend money to a buyer for.

Areas Appraisers Inspect

  • Property details and location: Appraisers will assess all the property basics for your home, including the size of the lot and the structure itself. Lot size is important because it often means flexibility even if the structure doesn’t fill the entire lot. In addition, appraisers will consider the popularity of a given area, including how recent comparable homes nearby have done on the market.
  • Home exterior: Appraisers will also look into several exterior areas, those connected with what real estate pros would call “curb appeal.” Areas here include walls and roofing quality, garages and driveways, siding and much more.
  • Home interior: The appraiser will run through a wide list of various interior features, from plumbing and HVAC areas to a variety of appliances that might be needed in the home. They’ll check tub and bathroom areas for any potential future issues, and cover the entire interior of the home from top to bottom.
  • Other improvements: Appraisers also want to see any evidence that the home has been improved from its original state. This may include a swimming pool, new floors, a security system, or a variety of other upgrades. These can change home value significantly.

For more on what happens during an appraisal, or to learn about any of our mortgage loan services, speak to the staff at Altius Mortgage today.

Understanding Mortgage Loan-to-Value Ratio

mortgage loan-to-value ratio

You’ll hear several industry terms when applying for a mortgage, and one such term might be “loan-to-value ratio.” Abbreviated LTV, this ratio is an important number viewed by lenders and mortgage companies that plays a major role in mortgage acceptance and mortgage refinancing situations.

At Altius Mortgage and our partners at Mortgage Ogden, we’ll explain LTV and how it impacts you for any of our home loan options. Here are some basics to understand on this term and why it’s important for you to know.

LTV Definition and Importance

As we noted above, LTV is a ratio being expressed. It covers the amount of the mortgage loan as a percentage of the home’s total value – that is, how does the amount you’re requesting for your loan compare to the actual, precise value of the home currently?

So why does this ratio matter? Well, to help lenders understand the kind of risk they’re taking when approving your mortgage. When your home’s LTV sits close to the appraised value, it will be a higher number that represents more risk; this is because if the loan goes into default, there’s limited equity built up to make up for this.

On the flip side, attaining a lower LTV can lower the risk to the lender and improve your acceptance speed. Lenders tend to prefer LTV rates at or below 80 percent – they will often lend to those with higher rates, but these groups will pay larger interest rates and may not qualify for the same kinds of programs.

LTV Calculation Format

Calculating LTV is very straightforward, and something you can do on your own. You simply take the amount you’re requesting from the lender, then divide this by the appraised value of the property that’s being used in your situation.

Now, there are a few additional factors to consider here. For instance, in cases where the home is appraised at a lower value than the purchase price being requested, the lower appraised value will be used. For refinancing, meanwhile, the LTV will be calculated based only on appraised value.

Lowering Your LTV

There’s only one major way to decrease your LTV ratio: By paying a larger down payment. The more you pay on the down payment, rather than saving these payments to be folded into the overall mortgage, the lower the amount that you need to borrow from the lender to cover the home cost. A home you’re looking at might have an appraised value of $200,000 and a sales price of $190,000, which would mean a 95% LTV ratio, but if you’re able to put $40,000 up for the down payment, the sales price category would drop to $150,000, changing your LTV ratio to 75%.

For more on loan-to-value ratio and why it’s important, or to learn about any of our mortgage loan options, speak to the staff at Altius Mortgage today.