An appraisal is a report made by a qualified, often licensed individual who sets forth an opinion or estimate of value regarding a customers property.
FHA loans consist of the appraiser also doing an inspection report on the condition of the property. Your FHA appraisal will contain and inspection report as well.
The most common types of appraisals are: 1004 (full appraisal - inside & out), 1073 (full condo appraisal), 2055-interior (shorter form than the 1004, includes exterior & interior inspection, floor plan & sq footage calculation), 2055-exterior (exterior only - often called a "drive by"), and 2075 (which isn't an appraisal, just a property inspection to make sure it still exists, conforms to the neighborhood, and doesn't have any physical deficiencies). When doing an investment/rental property often forms 1007 (rent schedule) and 216 (operating income statement) are required.
The Appraisal is prepared in the name of the lender bank or the mortgage company that orders the report. Even though the mortgage applicant pays for the appraisal cost, the report does not belong to the him. Federal regulations entitle the home buyer a copy of the report.
Remember an appraisal is simply an opinion of value by a licensed appraiser. It is not a guaranteed value of a home. An appraised value does not mean that is what you should sell your home for. An appraisal however will give you an idea as to what your house is worth compared to other surrounding similar homes.
It is also important to have a recent appraisal of your home. The value of your home may change in relation to other homes in the area without any physical changes to your own residence.
The appraiser determines the value of your home by looking at homes that have sold in the last 12 months in your area. These homes also must be similar for example a split level home can only be compared to other split level homes.
Because appraisers do their job professionally regardless of whether the borrower ends up qualifying for a loan or not, they often require the borrower to pay up front for their services.
An appraisal can use three methods to calculate the value of a property. The income generated, cost to replace or comparable sales. Residential homes usually rely predominantly on comparable sales to value a home.
Keep in mind:
* Although you pay the appraisal fee, the appraiser works for the lender, which uses an appraisal as a final qualifier for finalizing the loan.
* If you question the results, you may want to engage your own appraiser for a second opinion.
* Appraisers often work on a tight deadline, right before closing. If the appraisal comes in lower than the selling price, it could throw a monkey wrench into your loan approval process.
The term appraisal within the context of mortgages may also be applied to the process by which this estimated value is arrived at.
An appraisal helps the lender obtain an independent opinion of the value of the customer's property, and is used to calculate the transaction's Loan to Value ratio.
For Conventional mortgages and anything covered by the HUD-FHA Direct Endorsement Program, the lender obtains a complete copy of the report detailing the method and basis for the the appraised estimated value.
If a loan is VA or a HUD application being processed by HUD itself, lenders only receive an abbreviated statement of value with no substantiating information.
Appraisers use a variety of measures and factors to arrive at the estimated value of your property, including the selling prices of comparable properties in your area, the built up area, the condition of the property, etc.