One of the most important parts of buying or selling a home is an appraisal. A home appraisal is conducted by an unbiased and independent professional who assesses how much a property is worth. The appraiser not only assesses the condition of the home and land but also looks at comparable sales in the neighborhood and the health of the housing market.
However, a home appraisal can be used for much more than getting an idea of what a home is worth before you sell or buy. Here are 5 other reasons to get your house appraised.
1. Refinance for Better Loan Terms
Owning a home is one of the best ways to build credit. Depending on your credit rating at the time of purchase, your current credit standing may be much better at this point in time. With a higher credit score and an improved credit history, consider refinancing your mortgage to get better loan terms, especially a lower interest rate.
But, before you can refinance the existing mortgage, your home will need to be appraised to determine the new loan amount. Typically lenders conduct a drive-by appraisal in which photographs are used to determine the home’s value.
With a solid appraisal, you can lower your mortgage payment and have more money to save or put towards other expenses.
- Approval for a Home Equity Loan
A home equity loan is a great way to utilize your home’s value in order to get access to funding for a home project. By using the equity in your home, you can finance a wide range of renovation projects. Maybe you’re considering redoing your home’s exterior to include landscaping, siding, shutters, and maybe even a new front door.
Before you can be approved for a home equity loan, the lender most will need to calculate the amount of equity in your home. This number is determined by subtracting the current value of the home from the remaining mortgage balance.
The best way to determine your home’s current value is to use a professional appraisal. This way you’re able to get a reasonable assessment of your home’s worth.
- Removing Private Mortgage Insurance
Private mortgage insurance (PMI) is added to conventional mortgage loans when the buyer puts down less than a 20% down payment. PMI exists solely to protect the lender’s investment. If you’ve ever looked at the breakdown of your mortgage payment, you’ll notice that a good amount of it goes towards PMI. Hundreds of dollars each month can quickly add up to thousands of dollars.
The good news is that PMI can be removed as soon as the principal balance of the loan reaches 78% of the home’s value. Since home values are on the raise, it makes sense to get your home appraised to see if you’re able to remove the monthly PMI expense earlier than expected.
While a home appraisal costs a couple hundred dollars, the cost will pay for itself in what you’re no longer paying towards PMI. In turn more of your payment will go towards the principal balance of the loan.
4. Collateral for Other Loans
Aside from home equity loans, you may also need to know your home’s value for other loan types. For example, if you’re looking to apply for a business or cash loan, you may want to use your home as collateral. When using your home as collateral to back a loan, the lender will want to ensure that the money it’s giving you is supported by the value of your property. In this instance, you’ll want to pay for a home appraisal to prove that the property you’re using as collateral is enough to cover the loan amount.
5. Unexpected Life Change
Sometimes life has a good way of throwing us curve balls when we least expect them. There are many life events that may require you to pay for a home appraisal. Common situations that may require an appraisal include:
- Division of property in a divorce
- Filing bankruptcy
- Settling an estate
- Tax reassessment
By knowing your home’s current value in each of these situations, you can ensure that the final outcome is as fair as possible. Getting the maximum value for your home is especially crucial when dealing with legal issues.
While most people only think of home appraisals when they’re looking to buy their current home or want to purchase a new one, appraisals are also beneficial for other purposes. No matter if you’re considering refinancing or want to complete a major home renovation project, don’t forget the importance of knowing your home’s value from an unbiased professional.