Mortgage lenders can order different kinds of property assessments to ensure that they aren’t providing a home loan for greater than the property’s value. The home valuation methods an appraiser uses can vary depending on the circumstances. Learn about four types of home appraisals in this guide and consult with an experienced mortgage broker in Houston for more information about the process.
What Is a Home Appraisal?
A property appraisal involves a third-party expert reviewing a home before the sale goes through. Lenders will order this assessment to make sure the loan they’re providing is reasonable for the value of the property. This process also helps buyers avoid overpaying for a home.
Say you’re about to purchase a house for $500,000, but the appraiser determines the home is only valued at $450,000. Your lender can use this information to pull back on the loan and keep the sale from going through. Before owning a house, the property will have to undergo one of four home appraisal techniques for the lender to fund the mortgage.
Categories of Residential Appraisals
What are the types of home appraisals that a lender can order? Check out the various home appraisal approaches below and learn which one best fits your situation.
1. Full-Home Appraisal
Of all the methods for appraising homes, this approach is the most common. It involves a third-party appraiser looking at the property inside and out. They’ll likely take pictures of different sections of the home and compare them to similar properties in the neighborhood.
Lenders often order a full-home appraisal before any property transaction is complete because it gives them the most detailed analysis of the property’s worth.
2. Exterior-Only Appraisal
An exterior-only or drive-by analysis is one of the least common types of home appraisals. Rather than having an appraiser enter the home for inspection, they’ll only check out the exterior and take pictures. It’s a less reliable form of appraisal for new homebuyers although lenders may order it for homeowners with a lot of equity looking to refinance.
3. Rental Analysis
Are you looking to buy an investment property? Your lender will likely order a rental analysis appraisal. It’s similar to a full-home appraisal but rather than comparing the property to recently-sold homes nearby, the appraiser evaluates the potential for rental income based on leased properties in the area.
It’s one of the more expensive types of home appraisals due to the extra effort involved in researching rental incomes.
4. Broker Price Opinion
A broker price opinion isn’t a traditional appraisal because it doesn’t involve an appraiser. Instead, the real estate broker will estimate the home’s value using their knowledge of the market. If you’re buying a new home or refinancing, the property will need to undergo another type of appraisal rather than a broker price opinion.
This estimation usually only happens when you’re getting a second lien mortgage or looking to cancel your mortgage insurance on an existing loan.
Which Appraisal Method Is Best?
For most homebuyers and sellers, the full-home appraisal provides the most details before moving forward with the sale. You’ll likely receive this type of appraisal unless you’re purchasing an investment property or trying to obtain a stand-alone second lien mortgage. These scenarios call for a rental analysis and broker price opinion, respectively.
Understand Your Lending Options With Champions Mortgage
Do you have more questions about the types of home appraisals? Are you having financial issues and looking for loan relief with a forbearance agreement? The team at Champions Mortgage is here to answer all of your questions.
Reach out to us today at (281) 727-2500 to speak with a lending specialist. Learn more now.
