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Property Appraisal

The third question that a lender must ask is “How much is the property worth?” An appraisal is necessary to ensure that a lender does not lend more on a property than its value. Most lenders hire an outside appraiser who:

• Inspects the property

• Compares it to nearby comparable properties sold recently

• Determines its value based on the sale prices of those comparable properties

• Submits a report to the lender

Unlike your credit report, you are entitled to receive a copy of the appraisal report if you paid for it and if you request a copy in writing. Most lenders now provide a disclosure notifying you that you are entitled to a copy. Some lenders routinely provide a copy of the appraisal to the applicant w hen the report becomes available. If you want a copy of the appraisal, be sure to make arrangements with the lender at the time that you are submitting your application.

National standards govern the content, format, and valuation methodology of residential appraisals. Whether you are applying for a government-insured loan or a conventional loan (see Chapter 4), your appraisal format is based on requirements developed jointly by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), Federal National Mortgage Association (Fannie Mae), and Federal Home Loan Mortgage Corporation (Freddie Mac). The FHA and VA continue to require certain additional information for their appraisals in the form of addenda included with the appraisal report. Some small local lenders may have their own special requirements, but most lenders follow the national requirements.

The national standards govern not only the format for appraisals; they also specify the appraiser's qualifications and credentials. In addition, most states now have enacted (or are in the process of enacting) appraiser licensing requirements for appraisers evaluating properties located within those states. Most lenders deal only with appraisers whose work they know and trust. Appraisers are required to have a certain amount of training and experience before their valuations are acceptable to mortgage lenders and investors.

 
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