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A Guide for First-Time Homebuyers

Editorial Note: Parts of this article were reviewed by a lender to ensure accuracy prior to publication. The overall conclusions, recommendations and opinions are the author's alone.


If this is your first time down the path toward home ownership, it can be a bit overwhelming. You’ve saved up, worked on your credit score and checked out the local listings. But now that you’re ready to obtain a mortgage, where do you start? There are a long list of national programs targeting first-time homebuyers, but how do you know which one is right for you?

In this piece, we’ll explain the ins and outs of all the major national financing programs for first-time homebuyers, including Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) loans, as well as the Energy Efficient Mortgage (EEM) Program and the Fannie Mae and Freddie Mac loan programs.

Keep in mind, depending on where you live, your state also might have programs targeting first-time homebuyers, including loan programs, mortgage credits and down payment and closing cost assistance. Check here to look into state-by-state programs for first-time homebuyers.

Nationally available first-time homebuyer loans

First: What qualifies you as a first-time homebuyer? According to the federal government, you qualify for these programs if you:

  • Have had no ownership in a principal residence during the three-year period ending on the date of purchase of the property. If either you or your spouse meets this requirement, you are both considered first-time buyers.
  • Are a single parent or “displaced homemaker” who has only owned a home with a former spouse while married.
  • Are someone who has only owned a property that doesn’t meet building codes and can’t be brought into compliance for less than the cost of constructing a new home.

If any of these apply to you, keep reading for more information on the types of loans you might qualify for to purchase your new home.

FHA Loans

The FHA loan is a government-backed, fixed-rate mortgage that requires lower credit scores and less of a down payment than many other types of loans, making them popular with first-time buyers.

  • Eligibility requirements
    • You can qualify for an FHA loan with a minimum credit score of 500, with a 10% down payment. With a credit score of 580, you can qualify with a 3.5% down payment
    • Steady employment history for at least two years; your income will be verified
    • You must put at least 3.5% down
    • Debt should not exceed 43% of your income
    • Mortgage must be for your primary residence
    • Loan limit of $726,525 in high-cost areas
  • Pros of an FHA loan
    • You might be able to qualify for an FHA loan with a lower credit score and less money upfront than other mortgages
    • The interest rate is fixed at a low rate
    • You might be able to qualify for this type of loan even if you’ve been denied for a conventional mortgage
  • Cons of an FHA loan
    • You’re required to pay mortgage insurance premiums (MIPs), which protect the lender in case you default on your loan. These mortgage insurance premiums include 1.75% of the loan upfront, and 0.45% to 1.05% of the loan each year in the form of monthly payments. This adds to the cost of your mortgage.
  • When to consider
    • If you don’t have great credit, you don’t have a lot of money saved for a down payment and/or you weren’t able to qualify for a conventional loan, you might look into an FHA loan.

VA Loans

The U.S. Department of Veterans Affairs backs mortgages through private lenders for service members, veterans and their eligible spouses and survivors.

  • Eligibility requirements
    • You must be an active-duty service member, a veteran, a reservist or a member of the National Guard. If you are a spouse of a service member who died or became disabled in the line of duty, you also may qualify.
    • Maximum loan amount of $484,350
  • Pros and cons of the VA loan program
    • Because these loans are insured through the VA, they don’t require private mortgage insurance (PMI) or a down payment and have less-stringent credit and income requirements than many other mortgages.
    • The VA doesn’t require a minimum credit score, but private lenders often do
    • You must meet the service requirements.
  • When to consider
    • If you’re a member of the military, talk to your private lender about securing a VA home loan.

USDA Loans

The USDA guarantees loans for properties in designated rural and suburban areas.

  • Eligibility requirements
    • Homes must be located in a designated area; see if the home qualifies here.
    • Borrowers must meet low-income standards for their area
    • Applicant must be without “decent, safe and sanitary” housing
    • Homes must generally be under 2,000 square feet and not have an in-ground swimming pool
    • Must occupy the home as primary residence
  • Pros and cons of the USDA loan program
    • The interest rates of USDA loans are very low — according to the USDA website, with applicable payment assistance, interest rates may be as low as 1%. Your home must be located in a designated rural area to get this loan, although many people are surprised at what areas are considered rural by federal standards.
  • When to consider
    • If you are a low- to moderate-income buyer looking outside of cities for your first home, you might qualify for a USDA home loan, which could be a great low-interest, zero-down option. Your private lender can give you more information about this loan.

FHA 203(k) loans

The Federal Housing Administration offers a second option for first-time homebuyers who are buying a home that will need extensive renovation. The FHA 203(k) loan rolls the cost of the home and renovations into one mortgage.

  • Eligibility requirements
    • This loan requires that you have at least $5,000 of renovation work to do on the home and that you complete the repairs within six months of closing
    • Maximum loan amount is 110% of the home’s projected value (requires an appraisal)
    • Mortgage insurance is required
    • Debt should not exceed 43% of your income
    • Must have a credit score of at least 620
    • Requires at least 3.5% down payment
  • Pros and cons
    • This loan is a good option for low- to moderate-income buyers purchasing homes that need significant repairs or renovation, including bedrooms additions, plumbing replacement or electrical wiring
    • Interest rates can be higher than a conventional mortgage but are often lower than rates for separate loans you would take out for repairs.
  • When to consider
    • If you’re buying a real fixer-upper that will need extensive work, the FHA 203(k) could be the right option for you.

Energy Efficient Mortgage Program

The FHA guarantees a loan program designed to help finance energy-efficient upgrades to homes — the cost of these improvements is added to the loan. The borrower must only qualify for the original mortgage amount.

  • Eligibility requirements
    • The energy improvements must be cost-effective. For existing homes, the improvements must pay for themselves over time through reduced energy bills. For newly constructed homes, the improvements meet International Energy Conservation Code standards.
    • Must obtain a home energy assessment
    • This process can be pursued when obtaining your FHA loan as an add-on, so the same eligibility requirements for an FHA loan apply
  • Pros and cons
    • Saves you money in the long run in utility bills
    • The VA loan program and Fannie Mae also offer versions of EEMs, so ask your lender about which program works best for your situation.
  • When to consider
    • If you are looking to make energy-efficient upgrades on an old home, an EEM might be a great way to finance those upgrades.

Fannie Mae and Freddie Mac loan programs

Fannie Mae and Freddie Mac are two private government–sponsored enterprises. They engage in buying mortgages from lenders and selling packaged mortgages to investors. The two companies offer similar programs — dubbed HomeReady® and Home Possible®, respectively — that finance up to 97% of a home’s purchase price and require a 3% down payment for first-time homebuyers.

  • Eligibility requirements
    • For Fannie Mae’s HomeReady loan, you need a credit score of 620 and you must pay PMI until the loan-to-value (LTV) ratio drops to 80%.
    • For Freddie Mac’s Home Possible loan, there’s no minimum credit score if you put at least 5% down. You must hold mortgage insurance until the LTV drops to 80%.
    • Both programs have income limits based on where you live; check Fannie Mae and Freddie Mac for these.
  • Pros and cons
    • Both of these programs offer first-time buyers a chance to own a home with a low down payment, but because these are private mortgages, it’s important to check the loan terms closely.
  • When to consider
    • If you’re a first-time buyer, it’s worth seeing if you qualify for a Fannie Mae or Freddie Mac mortgage loan.

Grants and financial assistance for first-time homebuyers

In addition to federal loan programs, there are several financial assistance options available to first-time homebuyers.

Down payment assistance

The federal government doesn’t provide direct down payment assistance to homebuyers. Instead, it provides funding for states to run their own programs targeting first-time buyers. Down payment assistance is typically in grant form, meaning it doesn’t need to be paid back, but each state’s eligibility requirements, specific grant amounts and terms vary. Start here to find programs in your area.

Good Neighbor Next Door Sales Program

HUD’s Good Neighbor Next Door Sales Program takes 50% off the list price of homes in revitalized neighborhoods for teachers, law enforcement officers, firefighters and emergency medical technicians. In return, HUD requires that you sign a second mortgage note on the discount rate — you won’t be required to pay interest or payments on this second mortgage as long as you live in the home for three years. Eligible homes are listed through the HUD site, but keep in mind the list of properties changes weekly, and if more than one person shows interest in the home, the selection is made by random lottery.

HUD “Dollar Homes” program

The U.S. Department of Housing and Urban Development’s (HUD) “Dollar Homes” program covers single-family homes bought in foreclosure by the FHA. If the houses don’t sell for six months, HUD will list the homes for $1 to local governments. The local governments can fix up the homes and partner with local nonprofits to sell them to low- to moderate-income buyers at bargain prices. Check the HUD site to see if any are available in your area.

Do tax credits still exist for first-time homebuyers?

The First-Time Homebuyer Tax Credit was instituted in 2008 amid the financial downturn to encourage homeownership by providing a significant tax credit to first-time buyers. The program officially ended in 2010, though, so you likely won’t qualify for this credit unless you purchased your first home between 2008-2010 and you haven’t claimed it. Still, some states offer a mortgage tax credit that reduces the amount of income tax you owe, and nearly all states offer some type of financial assistance to first-time buyers.


As you can see, through federal loan programs, and federal, state and local assistance, there are many options and benefits available to first-time homebuyers across the country. A good first step would be to find a trusted lender to help walk you through the options available to you. Owning a home is a big life goal for many people, and now that you’re armed with information about the potential benefits and pitfalls, you’re well on your way!

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Roxanna DeBenedetto
Roxanna DeBenedetto |

Roxanna DeBenedetto is a writer at MagnifyMoney. You can email Roxanna here

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How to Speed Up Your Mortgage Refinance

Editorial Note: Parts of this article were reviewed by a lender to ensure accuracy prior to publication. The overall conclusions, recommendations and opinions are the author's alone.

The saying “time is money” is even more true when you’re refinancing your home to reduce your monthly payment. The sooner you complete a refinance, the sooner you’ll be able to enjoy the benefits of lowering your payment and improving your financial situation.

There are steps you can take to move the process along more quickly. We’ll discuss these as we explain how to speed up your refinance.

Why speed is important in a refinance

Interest rates change on a daily basis. Once you lock in your rate, the clock begins ticking. If you don’t complete the refinance within the lock timeline, you could end up paying extension fees or end up having to re-lock at a higher rate.

Rate locks are usually priced in 15-day increments, although different lenders may offer other timelines. The shorter the lock period, the better your rate should be. If you can complete your refinance within one of the shorter lock-in periods, you’ll end up with a lower rate, lower costs or both.

Tip No. 1: Know what you want to accomplish with the refinance

If you’re objective is to save money every month on your payment, the refinance process can be incredibly fast. The simpler your goal is for the refinance, the easier it will be for the lender to approve your loan.

If a lender sees that you’re saving money and improving your financial situation with a lower down payment — and that you have made all your payments on time — it already has a pretty good idea that you’ll make a new lower payment on time.

However, if you’re applying for a cash-out refinance to consolidate debt, that may be a red flag that you are overextended on credit because your job or income is unstable, prompting lenders to request more proof of income to make sure you can repay your loan.

Tip No. 2: Pick a streamline refinance option

One of the benefits of government-backed loan programs, such as those offered through the Federal Housing Administration (FHA) and Veteran Affairs (VA), is the ability to refinance under “streamlined” guidelines. These refinance programs don’t require any income verification, and they usually won’t require any appraisal.

They also don’t require a full credit report, and they only verify that you’ve made your current mortgage payments on time with a mortgage-only credit report. Because lenders don’t have to underwrite your income or an appraisal, the refinances can be completed very quickly.

If you have an FHA or VA loan and have made seven payments on time since you took out your mortgage, you are probably eligible for a streamline refinance option. The VA streamline program is more commonly called a VA Interest Rate Reduction Refinance loan (IRRRL), but it features the same income and appraisal flexibilities as the FHA streamline refinance.

Tip No. 3: See if you can get an appraisal waiver on conventional financing

When market values go up — as they consistently have for at least the past five years — conventional lenders may begin to offer appraisal waivers. Although you’ll still need to document your income and assets, conventional lenders may be able to offer you a waiver of your appraisal, which will significantly speed up your refinance process. It will also save you the cost of an appraisal, which is usually $300 to $400.

You may hear your loan officer talk about a property inspection waiver (PIW) or an automated collateral evaluation (ACE). These basically amount to a computerized system accepting the estimated value you input on your loan application as the appraised value for your refinance.

Appraisal waivers are usually only available on rate-and-term refinances, which are refinances paying off the balance of your loan to save money. If you are looking for a cash-out refinance to consolidate bills or make home improvements, chances are you’ll need a full appraisal.

Tip No. 4: Fill out an accurate and complete application

Take the time to fill out your loan application accurately. Be sure to provide contact information for your employer, your homeowners insurance company and a complete two-year history of your employment and addresses.

If you’ve applied for new credit accounts in the past 60 days, have a current statement handy in case the balance and payment haven’t yet appeared on your credit report. These may seem like minor things, but they can cause major delays if you don’t disclose them properly at the beginning of the loan process.

Tip No. 5: Have your basic paperwork ready to provide

Depending on the type of refinance for which you are applying, there may be very little your lender needs. However, there are some basics you should have handy to speed up the process, just in case.

  • Current month of pay stubs: If you aren’t doing a streamlined government refinance, this is usually the bare minimum a conventional lender will need.
  • Last year’s W-2: If you have high credit scores (above 720), you may not have to provide a W-2, but it depends on the type of income you receive. If you get overtime and commissions on top of a base salary, expect to provide two years’ worth of W-2s.
  • Current mortgage statement: This is needed to show that there are no late fees accruing. It also provides a snapshot of your current loan balance for your loan estimate preparation.
  • Two months of bank statements from a checking or savings account: Some lenders will only require one month. If you’re adding the closing costs to your loan balance, you may not need any bank statements at all.
  • Copy of your current homeowners insurance policy: Whether you include your homeowners insurance in your monthly payment or not, the lender will need this to calculate your total qualifying payment. It will also need to switch the lender information to show who your new mortgage company will be.
  • Current property tax statement: Again, this is required regardless of whether you have an escrow account. Your property taxes will need to be current, and the lender will need the yearly taxes to calculate your total qualifying payment.
  • Copy of your driver’s license or picture ID: This is needed to confirm your identity at your application and then again at your closing.

Tip No. 6: Apply with a digital or online refinance lender

You may see advertising or have a loan officer tell you about a digital or online refinance process. This generally means the lender doesn’t need any income or asset documentation to approve your loan, allowing the refinance to finished quickly.

That doesn’t mean they aren’t accessing your personal information in another way. New technology allows lenders to access your income and employment history through online databases. It can see your assets with “view-only access” to your banking accounts.

You generally have to work for a large employer to be eligible, and your bank accounts need to be with a large bank. You also need to be comfortable with giving your lender your log-in credentials for your bank for “read-only” access.

Tip No. 7: Stay at your current job

Your income and employment will be verified during the loan process and right before closing. Switching from a salaried to a commission position, or changing employers, will create delays in the process or prevent you from being able to complete the refinance at all.

Tip No. 8: Don’t make large deposits into your checking or savings accounts

If you are increasing your loan amount to cover your costs, you may not need to provide any bank statements at all. If you do need to provide bank statements, the first thing the lender will look for is large deposits.

If you received a large cash gift from a relative, or recently sold an asset such as a car or coin collection, avoid depositing the funds until after your transaction is complete to avoid having to provide documentation and explanations.

Tip No. 9: Provide only asset documentation you need for the loan

Refinance lenders only need enough documentation to approve your loan. If you have an extensive portfolio of stock funds, 401(k) plans or several different asset accounts, you don’t need to disclose them if you aren’t going to be liquidating them to complete your refinance.

Tip No. 10: Communicate any changes to your loan officer immediately

Sometimes a new job opportunity is too good to pass up, or a car breaks down requiring you to buy a new one. The most important thing is to immediately notify your loan officer of any changes to your employment, credit or assets so they can develop a game plan to prevent any unnecessary delays finishing your refinance.

Things that could slow down the refinance process

Sometimes situations can arise that you have no control over in the refinance process. You’ll need to make quick decisions to keep the refinance moving if you run into any of them.

Your appraisal comes in lower than estimated

A low appraisal could affect the viability of a refinance. This is especially true with conventional mortgages, where the interest rates are influenced by how much equity you have. Even a 5% difference in your estimated value could result in a higher rate, higher costs or both.

You can also dispute a home appraisal by providing recent, similar sales you think better represent your home’s value. If your value comes in lower, reach out to your loan officer to have a new break-even point analysis done to make sure the refinance still make sense. This calculation divides the total closing cost of your refinance by the monthly savings to determine how long it takes to recoup the costs. Getting your refinance done quickly isn’t beneficial if it takes you longer to recoup the costs than you plan to live in the home.

One caveat: Don’t give the appraiser your opinion about what you think your home is worth. There are very strict laws in place to make sure appraisers have the independence to evaluate your home’s worth without any pressure from an interested party. An appraiser can refuse to complete your appraisal, creating delays and potentially causing the lender to decline your loan.

Some states consider it a felony to influence a home appraiser, so it’s best to let the appraiser do the inspection, then dispute the value with recent sales if you don’t agree with the appraiser’s opinion.

You have a second mortgage you want to keep

If you have a home equity loan or a home equity line of credit (HELOC), you may want to keep it open and just refinance your first mortgage. This will require an extra approval process called “subordination” or “resubordination.”

Your second mortgage lender will need to agree to being “subordinate” to your new first mortgage. That means your first mortgage lender wants to have first rights to foreclose on your home if you default.

Home equity loan and HELOC lenders will usually have a process in place to approve subordinations quickly, but some have long turn times that may force you to lock in your mortgage for a longer time period.

Final thoughts about speeding up your refinance

Be sure to shop around to get the best rate possible. Once you’ve found your best deal, lock it in and be prepared to act quickly with any documentation requests from your loan officer and loan processor.

Taking all these steps will help speed your refinance up so that you can begin enjoying the benefits of a lower rate and monthly payment.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Denny Ceizyk
Denny Ceizyk |

Denny Ceizyk is a writer at MagnifyMoney. You can email Denny here

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Guide to Home Appraisals for Mortgages

Editorial Note: Parts of this article were reviewed by a lender to ensure accuracy prior to publication. The overall conclusions, recommendations and opinions are the author's alone.

There are many factors that can lead to a mortgage denial when you’re trying to buy a home. One of the most common things that can stand between you and an approval is an issue with the property’s appraisal.

But what is an appraisal? And why do home appraisals matter so much during the home buying process? This guide answers those questions and more.

What is a home appraisal?

An appraisal is a written estimate that details a professional appraiser’s opinion of a home’s value. When you buy a home, your mortgage lender will more than likely require a home appraisal before approving the loan.

“Appraisers are reporters of the market,” said Stephen Wagner, 2019 president of the Appraisal Institute in Chicago. “They interpret the actions of buyers and sellers in the marketplace.”

All 50 states require appraisers to be certified or licensed to provide appraisals to mortgage lenders who are federally regulated, according to the Appraisal Institute. Appraisers receive their credentials after passing an examination administered by their state’s appraisal board.

When choosing an appraiser, government-sponsored enterprise Fannie Mae has specific requirements for mortgage lenders. They need to select from professionals who not only meet the certification or licensing requirements, but also have experience in and knowledge of the local real estate market and the specific property type being appraised.

Many appraisers use the Uniform Residential Appraisal Report, the most common form used in real estate appraisals.

What do appraisers look for?

Before visiting a property, an appraiser gathers upfront information related to the property. Once they begin the appraisal assignment, they typically review the property’s:

  • Amenities
  • Condition
  • Interior
  • Structure
  • Upgrades

But not all appraisal assignments look the same, said John Brenan, vice president of appraisal issues with The Appraisal Foundation in Washington, D.C.: “Some require an appraiser to personally inspect the interior of a home. Some only require an appraiser to personally inspect the exterior of the home.”

The homebuyer doesn’t have to be present for the appraisal. In many cases, a real estate agent will provide access to the home if necessary, he added.

The U.S. Department of Housing and Urban Development (HUD) requires appraisals for FHA loans to be more in-depth than those for conventional loans. Appraisers hired by FHA lenders must establish an unbiased opinion of a home’s value and determine whether it meets the FHA’s minimum property standards — by inspecting the home’s foundation and major systems, for example.

The U.S. Department of Veterans Affairs follows a similar process for VA home appraisals. The appraiser must determine the value of the home and review the property’s condition to assess whether it meets the VA’s minimum property requirements.

Appraisers typically determine a home’s value by using one of three common methods:

  • The sales comparison approach, which involves reviewing recent home sales and homes currently for sale that are similar to the property being appraised. The appraiser makes adjustments to the home’s value based on its condition, features and quality.
  • The cost approach, which involves calculating what it would cost to build that same house on a similar lot, minus depreciation. This method can be helpful for appraisals on relatively newer homes, according to Brenan.
  • The income approach, which involves taking the rental income of the property being appraised, or a comparable property, to determine a value that would provide the rate of return that the typical investor would require for a similar home. As Brenan noted, this approach is typically used for commercial property appraisals.

The most commonly used method for real estate transactions is the sales comparison approach. When using this approach, appraisers consider several factors, according to the Appraisal Institute, which include:

  • Conditions of the sale
  • Economic characteristics
  • Expenditures made immediately after the purchase
  • Financing terms
  • Location
  • Market conditions
  • Non-property components of value
  • Physical characteristics
  • Property rights being transferred
  • Use and zoning

Homebuyers usually pay for an appraisal as part of their closing costs. An appraisal fee can run about $300 to $400, but it can vary depending on the state, property type, loan type and the complexity of the appraisal assignment. For example, the VA has a state-by-state fee schedule for home appraisals. The appraisal fee is $450 in Georgia and $525 in New York.

There isn’t a “shelf life” on appraisals, Brenan said. However, each lender has guidelines it follows that dictate how old an appraisal report can be for mortgage lending purposes.

Why appraisals matter to the homebuying process

An appraisal establishes a home’s value. This number is important to your mortgage lender because it affects the loan you need to purchase the home.

Lenders rely on a house appraisal to determine whether the sales price makes sense and to calculate the homebuyer’s loan-to-value ratio.

[An appraisal], as described by Wagner, “is a risk mitigation tool at that point, to make sure that somebody’s not paying too much for a property or that the lender isn’t going to lend too much against the property.

Put another way, a home appraisal is designed to ensure that the collateral for a mortgage — the house — is adequate enough to justify the loan amount, Brenan said. The appraisal also helps establish value in the event of a foreclosure sale, should the lender need to take the property back because the borrower defaulted on the mortgage.

Aside from mortgage approval, other reasons you might need an appraisal include:

Can you skip a home appraisal?

In certain circumstances, you may be able to sidestep the home appraisal requirement when getting a mortgage to purchase a home.

Conventional mortgage borrowers may be able to get what’s called a property inspection waiver (PIW) mortgage, which is a loan that goes through the underwriting process without an appraisal. It’s also known as an appraisal waiver mortgage.

With a PIW mortgage, the lender can use existing information about the property’s estimated value to originate a loan, rather than ordering a new appraisal. However, the homebuyer would need to supply a 20% down payment in most cases.

How to dispute a home appraisal

An appraiser’s opinion of value isn’t necessarily the end of the line, Brenan said.

If you’re not happy with your appraisal — for example, the home value comes in lower than expected — you have the option to dispute the appraiser’s findings.

Let’s say you’re looking to buy a home priced at $300,000 but the appraisal comes in at $250,000. After your lender has given you a copy of the appraisal report to review, you can request another appraisal if you’re not satisfied with the results. It’s helpful to provide any evidence you may have that disputes the appraiser’s findings, such as a recent comparable sale or missing square footage.

Keep in mind that your lender isn’t obligated to honor your request. But if it does, you’ll be responsible for the additional appraisal fee.

“If the borrower or a real estate agent or whoever wants the appraiser to consider additional information, go through the lender, share that information,” Brenan said. “The appraiser will review it and notify the lender if it warrants any type of change.”

If your lender decides to stick with the original appraisal or no changes occur after it’s reviewed, a few things can happen. Using the example above of an appraisal coming in lower than the sales price, you would either need to come up with the difference in cash or renegotiate with the seller on a lower price. Otherwise, the loan could be denied.

It’s also important to remember that although a house appraisal is part of your homebuying process and you’re responsible for paying the fee, you aren’t the appraiser’s client. In terms of a home purchase or refinance, the lender is required to order the appraisal and can’t accept an appraisal ordered by a borrower — “that is to avoid any possible bias or undue influence,” Brenan said.

Home appraisal vs. home inspection

While they both involve taking a critical look at a home, an appraisal and inspection aren’t the same.

An appraisal examines the elements and features that help determine the value of a home. But an inspection evaluates the home’s structure, interior and exterior to assess its condition and recommend any necessary repairs. Unlike appraisals in most cases, home inspections can be optional. Inspection fees range from about $300 to $500, though it can change based on a number of factors, such as the size and age of the home.

An appraiser is generally looking for things that impact value, such as the quality, design and floor plan, Wagner said.

“Appraisers do not inspect properties to the depth and level that a home inspector might, wherein as a home inspector is … testing plumbing and electrical and kind of almost seeing behind the walls, if you will,” he explained.

The bottom line

A home appraisal provides benefits for both homebuyers and mortgage lenders, Wagner said.

“In addition to valuation issues, they may find out things about the property that they might not have otherwise been particularly aware of,” he said.

For example, a home could be advertised as a certain size, but the appraisal showed that it’s actually smaller or larger than marketed.

“There’s a number of aspects of the physical characteristics of a property that may come to light that were not obvious to the buyer at the outset,” he said.

Lastly, since an appraiser is analyzing market information to arrive at a home’s value, there’s not much of a need to worry about bias.

“The appraiser is the independent, impartial, objective party in the entire transaction,” Brenan said. “The appraiser is the only one whose compensation does not depend on whether the deal goes through or not.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Crissinda Ponder
Crissinda Ponder |

Crissinda Ponder is a writer at MagnifyMoney. You can email Crissinda here

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