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Do I need an appraisal?
By Riki Unrau
One common question I am asked quite regularly as a mortgage broker is ‘Will I need an appraisal on my home?’ The answer is not quite as cut and dry as one might think. Here are some guidelines to help you better understand if you will require one or not when financing a home.
Down Payment Matters
Typically, when you put less than 20% down on your mortgage you will not have to purchase an appraisal. The reason being is because your mortgage will be insured and so, if you default on your loan, the lender is covered for the full value of the home. Their bases are covered.
If you have more than 20% down then your mortgage will not be insured (by you anyway). The lender then can request you provide them with an appraisal to confirm the value of the home.
Please be forewarned that you should NEVER order the appraisal without talking to your mortgage broker first. This is because most lenders have an approved list of appraisers. If you purchase an appraisal from someone not on that list the lender has the right to refuse it. Then you will have to pay someone on that list for a whole new appraisal.
Rental Properties & Private Sales
For rental properties you will be required to obtain an appraisal called a Market Rents Estimate. This is simply the appraiser estimating how much the property will rent for and what kind of economic life is still left.
If you are purchasing your home through a private vendor then you will almost definitely be required to obtain an appraisal. This is because private sales can often times be over valued by the seller. The lender wants to make sure they are not giving you more than the property is worth.
Again, do not order one unless your mortgage broker says it is okay. The list of approved appraisers still applies in both of these situations.
How Much Does it Cost?
Appraisals can range from $250-$1,000 depending on the property and how unique it is. If you need an appraisal done on a standard three-bedroom home in city limits then you will be looking at the low end of the scale. However, if your property is a solar powered, off-grid log home on 30 acres surrounded by a piranha-filled moat then you will be paying more. Rule of thumb is the more unique the property is the more it will generally cost to get an appraisal because there is less to compare it to.
Every situation has its own individual needs and requirements. If you are unsure if you will require an appraisal or if you simply want to discuss your options please give your local mortgage broker a call.
– Riki Unrau is a Mortgage Broker with Centum Homeward Mortgage Group Ltd.
