Yes, a property appraisal is a required step for loan approval with New American Funding. This crucial process ensures the lender has an accurate understanding of the property's market value before officially approving any loan.
Why an Appraisal is Essential for Loan Approval
The appraisal serves as a fundamental safeguard in the mortgage process, benefiting both the lender and, indirectly, the borrower.
Lender's Requirement
For lenders, including New American Funding, an appraisal is a non-negotiable part of the underwriting process. It helps them determine the fair market value of the property, which is essential because the property itself acts as collateral for the loan. By verifying the home's value, the lender mitigates risk, ensuring that the loan amount is appropriate for the asset securing it.
To facilitate a smooth and timely loan process, the lender is typically very proactive, ordering the appraisal early on in the loan process. This forward-thinking approach helps to prevent delays and ensures all necessary documentation is in place for official loan approval.
Protecting Both Parties
While the primary purpose of an appraisal is to protect the lender's investment, it also offers an indirect benefit to the borrower:
- For the Lender: It establishes that the loan-to-value (LTV) ratio is acceptable, reducing the risk of lending more than the property is worth. If a borrower defaults, the lender needs to be confident they can recoup their investment by selling the property.
- For the Borrower: Although the appraisal is ordered by the lender, it provides an independent assessment of the home's value, offering a level of assurance that the purchase price aligns with the market.
The Appraisal Process: What to Expect
An appraisal is a professional, unbiased estimate of a property's market value, conducted by a licensed and independent appraiser.
What an Appraiser Considers
During the appraisal process, the appraiser will thoroughly evaluate various factors that contribute to a property's value. These typically include:
- Location: Proximity to schools, shopping, transportation, and other amenities.
- Property Size: Both the living area (square footage) and lot size.
- Condition of the Property: The overall maintenance, age, and any recent renovations or needed repairs.
- Number of Bedrooms and Bathrooms: Key indicators of functionality and appeal.
- Amenities: Features such as a garage, pool, updated kitchen, energy-efficient systems, etc.
- Comparable Sales (Comps): A critical component where the appraiser analyzes recent sales of similar properties in the immediate vicinity to determine a relevant market value.
Key Aspects of the Appraisal Timeline
As mentioned, New American Funding typically initiates the appraisal process early. Here’s why this timing is important:
- Foundation for Approval: The appraisal report provides the cornerstone data needed for the final loan approval. Without it, the loan cannot proceed.
- Contingency for Buyers: For homebuyers, the appraisal clause is often a standard contingency in purchase agreements, allowing them to back out of a deal if the appraisal comes in significantly lower than the agreed-upon price.
- Efficiency: Ordering the appraisal proactively helps maintain momentum in the loan application, ensuring that the necessary financial assessments are completed well before the closing date.
Understanding that an appraisal is a mandatory and critical step helps borrowers prepare for the loan approval process, ensuring a smoother journey towards homeownership.
