Qualifying for a home loan is not always simple or fast. The process often begins by getting preapproved for a home loan. This ensures that you meet the basic eligibility guidelines for a loan, but it does not guarantee that you will get approved for a mortgage. Many factors can affect a lender's decision, and one factor that can affect your home loan is the appraisal. Here are several vital things to understand about appraisals and home loans.
Lenders Always Require Appraisals Before Issuing Loans
The first thing to know is that a lender will not approve a home loan for you until you get the house appraised. You will need to find a house to buy first, and then you will need to agree on a purchase price. After that, your lender will tell you to get the house appraised. Lenders always require this on home purchases. You cannot buy a house without it, and lenders have good reasons for requiring appraisals. The appraisal helps a lender determine how much money to lend to a borrower. Therefore, the appraisal can affect your home purchase.
The Loan Program Requires a Specific Percentage Down
The second thing to know when buying a house with a loan is that the lender will require a specific percentage down. When a lender preapproves your loan request, they will tell you what type of loan program they will issue you. The loan program determines how much money you need down. The percentage might be as high as 20%, or it could be much lower. Some loan programs require only 3.5% down, and you might even find a loan program that requires less.
The Appraisal Affects the Deal
Knowing the appraisal amount and the percentage down you need are two essential things you must know. It affects how much the lender will give you based on the value of the house. For example, if you offer $200,000 on a house and need 5% down, you will need $10,000 for your down payment, as the lender will loan you $190,000. However, if the house appraisal reveals that it is only worth $190,000, the lender might only loan you $180,500 to buy the house. If you still pay $200,000 for it, you will need $19,500 as your down payment instead of $10,000.
If you want to purchase a home, the best place to start is by getting preapproved for a mortgage loan. The preapproval process helps you know if you can buy a house, but it does not guarantee that you will get the loan. If you have questions about home loans, contact a lender for more information.