October 29, 2020
Categories: Tools
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In two prior blog posts we discussed important components of the mortgage process: the importance of maintaining your credit through closing and the requirement the house successfully passes inspection. This blog post addresses a third crucial component, the necessity of the house appraising at or above the loan value. Like the subject of home inspection, this topic highlights a clear advantage of buying a new construction home. Appraisals for a resale home can be tough, ultimately costing you your loan approval however new construction home loans rarely encounter this problem.
Your mortgage lender will contract with an appraiser to assess the market value of the home you are attempting to purchase. The appraiser physically walks the home, noting aspects that increase or decrease its value, measuring the square footage and noting the number of rooms. The appraiser compares the home to recent sales and listings in the close vicinity, determining a fair market value that accounts for any increases or decreases. The appraisal process is designed to be objective and very formulaic. The appraiser will submit their findings report to the lender, and it is essential the market value they submit be equal to or above the amount of the loan being secured. This makes sense… the lender will not willingly loan an unsecured amount on a home. Should the seller default and the lender be required to foreclose on the home they want to make sure they did not lend an amount beyond what the home could sell for.
In a resale situation the sales price should theoretically be based upon reasonable market value however ultimately, the price is arbitrarily decided by what the owner thinks the home is worth, whether it’s reasonable or not. In new construction, builders are market savvy and realistic of what a home will sell for. They devote resources to market research to ensure they provide clients with a quality home at a reasonable value. Because of this, it is rare new construction homes do not appraise at loan value. Should the home not appraise, it becomes the builders’ option to reduce the price to the lowered appraisal value. Builders obviously try to avoid this so typically their homes are priced reasonably from the get-go. Rest assured as you are shopping for a new construction home you will be getting a good value and avoiding some of the headaches often accompanying the purchase of a resale home.
Search The Greater Charleston New Homes Guide to find a great value on a new Charleston area home!
Related Articles
Avoiding Mortgage Pitfalls: Part 1 – Fluctuation in Credit
Avoiding Mortgage Pitfalls: Part 2 – Building to Code
Avoiding Mortgage Pitfalls: Part 4– The Importance of Timing
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10.20
Categories: Tools