While this new rule impacts many types of loans, it's important to note that not all loans will be affected. Loans that are guaranteed or insured in part, or entirely, by a government agency are excluded from the rule and will still require an appraisal. These agencies include the Federal Housing Administration, Department of Veterans Affairs, Fannie Mae, Freddie Mac and Department of Housing and Urban Development.
If you're planning on venturing into the home-buying process for the first time, you may be wondering what an appraisal is and how this change could impact your experience.
When purchasing a home, most lenders will require a home appraisal to be done to determine the property's value in comparison to the actual sale price. This is to protect in case the buyer defaults on their loan. The lender knows they will be able to sell the property and make enough profit to cover the remaining loan balance.
When the appraisal is conducted, different factors are taken into account to determine a property's market value, with the biggest indicator being comparable sales, often referred to as "comps." These are homes that are located within a close proximity of a home that have sold within the last 90 days. After comparable sales and other property features are assessed, the appraiser will decide on a loan amount based on the appraised property value compared to the sales price.
With the change in rules about appraisal requirements, many home buyers will now be able to save money if they have the option of forgoing an appraisal on a home under $400,000. If you're unsure if you will need to factor appraisal costs into the home you're buying, ask a trusted lender how this may impact your specific situation.
The homeownership journey can be intimidating, but we're here to make it an exceptional one. Contact a local lender on our team to start a conversation about your specific financial situation. We're here to help!