What is a home appraisal, and how does it impact my mortgage?

@brandon_lockman 

A home appraisal is an unbiased estimate of the value of a property conducted by a licensed appraiser. The appraiser assesses various factors such as the size, condition, location, and comparable sales in the area to determine the fair market value of the home.

The impact of a home appraisal on your mortgage is significant. Your mortgage lender requires an appraisal to ensure that the property's value is sufficient to support the loan. If the appraisal comes in lower than the purchase price or the expected value, it can affect your mortgage in a few ways:

1. Loan Approval: If the appraisal value is lower than expected, the lender may not approve the mortgage or offer a lower loan amount. This is because they want to ensure that the loan amount aligns with the assessed value to minimize the risk of lending more than the property is worth.
2. Down Payment: A low appraisal may require you to increase your down payment. Lenders typically only provide a percentage of the appraised value as the loan amount. So, if the appraisal value is lower, you may need to contribute additional funds to meet the required down payment.
3. Negotiating Price: If the appraisal value is lower than the purchase price, you can negotiate with the seller to lower the price, especially if your purchase agreement has an appraisal contingency. This allows you to benefit from a fair market price according to the appraisal results.
4. Private Mortgage Insurance (PMI): If the appraisal leads to a loan-to-value (LTV) ratio above 80%, you might be required to pay for private mortgage insurance. PMI protects the lender in case of default and can be an additional cost for borrowers.

Conversely, if the appraisal value is higher than the purchase price, it may benefit you by potentially lowering your down payment, reducing or eliminating the need for PMI, or providing equity when refinancing.

It's important to note that the actual impact of an appraisal on your mortgage will depend on various factors, including your lender's policies, the terms of your purchase agreement, and the specific circumstances surrounding the appraisal.