A crucial part of the mortgage loan underwriting process for any home loan is determining the property value, as it is the collateral for the mortgage loan. The value of the property helps a lender determine how much can be borrowed against it.
The most common way to determine the value of a home is by getting an appraisal. The appraisal is ordered through an appraisal management company that coordinates a licensed appraiser to physically inspect the interior and exterior of the property. The appraiser researches the surrounding market and uses comparable properties, or recent sales, to determine the market value of the property.
For a full appraisal report, the appraiser would need complete access to the property to thoroughly inspect it. However, there are also drive-by appraisals that do not require the appraiser to have access to the property.
An Appraisal Valuation Model (or AVM), is a computerized method to determine the value of a home. A combination of data from recent sales, property characteristics, neighborhoods, etc., are used to algorithmically determine the value.
These can be completed quickly and are cost-effective. The downside is that they are heavily data-dependent and may not account for unique property features or changing market conditions. Websites like Zillow or Redfin use an AVM to estimate property values for their listings.
Lastly, there are appraisal waivers. An appraisal waiver can be issued on conventional loans depending on the estimated value of the property, loan terms, and if there have been recent sales in your property’s local area.
Whether or not you get an appraisal waiver is determined by an automated loan approval process completed by your mortgage lender through Fannie Mae/Freddie Mac’s loan underwriting system. Ultimately, whether you need an appraisal or if you can get by with using an AVM, will be determined by the loan program you are applying for and the underwriting utilized for it.
If you have any questions about appraisals and how they affect your home loan, give us a call at (760)930-0569 and one of our Mortgage Loan Consultants will be happy to help.
