Part 3 of 4
In two prior blogs we discussed important components of the mortgage process: the importance of maintaining your credit through closing and the requirement of the house successfully passing inspection. This blog addresses a third component, the necessity of the house appraising at or above the loan amount. This topic, like the subject of home inspection, highlights an advantage of buying a new construction home. Appraisals can be a treacherous issue in resale, ultimately costing your loan approval but new construction home loans very rarely encounter this problem.
Your mortgage lender will assign an appraiser to assess the market value of the home you are trying to purchase. The appraiser will physically walk the home, noting aspects that increase or decrease the 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 price that accounts for any increases or decreases. The appraisal process is very formulaic and designed to be objective. The appraiser submits their report to the bank, and it is important that the market value they submit be equal to or above the amount of the loan being secured. This makes sense… the bank will not willingly loan an unsecured amount on a home. Should the seller default and the bank is 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 resale situation a sales price should theoretically be based upon reasonable market value but ultimately, the price is arbitrarily decided but what the owner thinks the home is worth, whether its 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 that they provide clients with a quality home at a reasonable value. Because of this, it is rare that new construction homes do not appraise at loan value. If the home does not appraise, it then becomes the builders’ option to reduce the price to the lowered appraisal value. Obviously, builders 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 that you will be getting a good value and avoiding some of the headaches that often accompany the purchase of resale homes.
Search The Greater Charleston New Homes Guide to find a great value on a new Charleston area home!
This blog is based on Fox News’ article “Four ways a real estate deal can die,” by Adam Verwymeren.
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