When Is an Appraisal Ordered in the Loan Process?

Navigating the home loan process can seem intricate, with numerous steps involved before a borrower secures financing. Understanding the sequence of these stages, particularly when a property appraisal is required, helps demystify the journey. This article clarifies the typical point at which a home appraisal is ordered, providing insight into the mortgage application process. A clear understanding of this timeline helps borrowers anticipate the various phases of their loan application.

Early Stages of Loan Application

Before an appraisal, homeowners typically assess their borrowing capacity and engage with lenders. This initial phase involves pre-qualification, providing a preliminary estimate of what a borrower might afford based on self-reported financial information. A more thorough step is pre-approval, where lenders conduct a detailed review of the borrower’s financial standing.

During this stage, applicants submit financial documents, including pay stubs, W-2 forms, tax returns, and bank statements to verify income and assets. Lenders also assess the borrower’s credit history and debt-to-income ratio to determine their creditworthiness and the maximum loan amount they might qualify for. These early steps focus on the borrower’s financial health, establishing eligibility for a loan before a specific property is identified.

Initiating the Appraisal Order

An appraisal is typically ordered after the borrower identifies a specific property and executes a purchase agreement. This generally occurs after the lender conducts initial checks on the borrower’s qualifications, often following conditional loan approval. Conditional approval signifies the lender is prepared to extend financing, provided certain conditions are met, including a satisfactory property appraisal.

The lender, not the borrower, is responsible for ordering the appraisal, typically through an independent appraisal management company (AMC) to ensure impartiality. The borrower is generally responsible for the appraisal fee, which can range from $500 to $750, and is often paid upfront. This independent valuation confirms the property’s market value adequately supports the loan amount as collateral for the lender’s risk assessment.

Appraisal Completion and Review

Upon receiving the appraisal order, a licensed appraiser evaluates the property. The appraiser conducts an inspection, assessing its physical attributes, condition, size, and features. They also research recent comparable sales in the surrounding area to determine the property’s market value. This evaluation culminates in a detailed appraisal report, providing an independent opinion of the property’s worth.

Once completed, the appraiser submits this report to the lender, typically within 6 to 20 days. The lender then reviews the report, comparing the appraised value against the agreed-upon purchase price and the requested loan amount. This review ensures the property offers sufficient collateral for the mortgage loan.

Loan Underwriting and Closing

The appraised value directly influences the loan-to-value (LTV) ratio in the final underwriting decision. Underwriters review the appraisal report to ensure the home’s value aligns with the loan amount, mitigating the lender’s risk. If the property appraises for less than the agreed-upon purchase price, it can create a gap in financing. In such scenarios, the borrower may need to bring additional funds to closing, renegotiate the sales price with the seller, or the loan application might face denial if the gap cannot be resolved.

A satisfactory appraisal, confirming the property’s value is sufficient to secure the loan, is a condition for final loan approval. Meeting this condition allows the loan to move towards “clear to close” status, paving the way for the final closing date and the transfer of property ownership.