Without the home appraisal, you would not have a mortgage. Lenders put a lot of emphasis on this report. It is how they determine the amount of collateral you have in exchange for the mortgage. If you default on your loan, the lender needs to know that you have something they can sell to make their money back. There is not a written rule regarding an appraisal’s expiration, but there is an understood timeline within the industry.
The General Rules
A majority of lenders abide by the same rule – they will not use an appraisal dated more than 90 days ago. In fact, many banks will not use an appraisal that is more than 60 days old. This is the general consensus because the value of a home can vary a lot within that time. The number of homes that sell and the price they sell for can change drastically over a matter of a few months. This helps determine the value of your home.
The Comparable Properties
An appraisal report is not written about the subject property alone. It also contains comparable properties. These are properties in the area that sold within the last 6 months. Lenders try to use comparable properties that directly represent the subject property. Typically, they have the same amount of bedrooms, bathrooms, and layout. In a perfect world, they also have the same amount and type of upgrades that your home has. This allows the appraisal to directly compare them and determine an accurate value for your home. If the appraiser cannot find comparable properties that are identical to your property, he can use those that are close. He must then make adjustments according to the differences in the properties.
Dealing with an Unstable Market
Unfortunately, the real estate market can be volatile. Because of this, lenders often require comparable properties that sold more recently than within the last 6 months. This is most common when values in your area recently decreased. A bank needs to know a very recent value for your home in order to determine if they should lend to you. If the value of your home is lower than the appraiser came up with because he used outdated comparable properties, it could really hurt the lender. If you were to default on your loan in the near future, the lender would not be able to recoup the loan because they could not sell it for the price of the loan.
When you Should Secure the Appraisal
The timing of your appraisal plays a role in your loan’s approval. If you have it done too soon, the lender may not accept it. If you wait too long, though, it could delay your financing. The lender needs time to go over the appraisal and ensure that the home is worth enough. They also need to review the appraisal to ensure the home is in good condition and does not pose any threats to the occupants. Your lender will tell you when the best time is to start the appraisal process. They usually have appraisers they like to use as well. Using your own appraiser could result in you paying for an appraisal twice. The appraisal must be in the lender’s name or they cannot use it. Paying for an appraisal without the lender’s knowledge may not result in an appraisal assigned to your bank. This could pose a problem for your application.
The home appraisal can make or break your loan. If you have one performed and you do not agree with the value, you do have the right to appeal it. The appraiser can then decide what to do. Sometimes they are willing to find different comparable properties. Other times they will present to you their reasons for not obtaining new comps for the appraisal. Make sure your report is less than six months old to prevent any unnecessary issues with your mortgage application.