Home appraisals are a key part of the homebuying process. An appraisal ensures that the buyer pays a fair price and protects the mortgage lender against potential losses. If you obtained a conventional mortgage with a down payment of less than 20% of the purchase price of your home, your lender probably insisted that you pay private mortgage insurance (PMI) premiums to help cover your expenses if you can't meet your mortgage payments. By law, PMI premiums must be raised automatically after you have paid 22% of your loan principal or halfway through the repayment period (after 15 years with a 30-year mortgage, for example), but you can have them eliminated sooner if you can show that the market value of your home has increased enough to obtain a 20% share of mortgage capital. An appraiser can document the growth in the market value of your home due to improvements you have made to the property or to market trends.
On the other hand, a high appraisal may allow the buyer to borrow the money needed to buy the house at the agreed sale price. It can also increase the amount of equity a homeowner has, which could increase their refinancing income by withdrawing cash or eliminating their private mortgage insurance (PMI). Almost all homes purchased with mortgage financing must be appraised before they can be processed the loan. The lender wants to ensure that the property is not worth less than the amount they are financing, and it is based on an assessment of the value of the home by a professional appraiser.
In a way, appraisal is also an additional layer of protection for the buyer, since it prevents them from paying too much for a home. Since the mortgage lender assumes the risk of lending you money to buy a house, they usually have a group of appraisal companies and people they trust for their professionalism and objectivity.
