How Do Home Appraisals Affect Your Mortgage Loan in Illinois?

As with housing markets across the country, the Illinois real estate market has been marked by low inventory and rising prices. While these conditions are advantageous for sellers, many buyers are feeling frustrated after getting outbid and having trouble finding a home they like that is also within their price range. So, whether you are a first-time homebuyer or not, it’s time to brush up on what to know when buying a home.

What is a home appraisal?

When you finance your home purchase with a mortgage loan, your lender will hire a licensed appraiser to conduct a professional appraisal of your home’s value before approving your loan. 

Licensed real estate appraisers in Illinois have education, training, and experience in assessing the market value of residential properties. The appraiser visits the home to examine it in person and then researches comparable properties (“comps”) which are similar homes in your area. Based on the unique features and condition of your home, plus the local comps, the appraiser prepares a report with an estimate of your home’s current market value. 

As long as the appraiser’s market value is the same as or more than the agreed purchase price, you don’t need to worry about it derailing your mortgage loan application. However, if your home appraises for a lower value than what you want to borrow against it, you’ll either have to bring more money to the table or renegotiate the sales price. 

To protect yourself during the home buying process, you can add an appraisal contingency to the sales contract. This enables you to walk away without a financial penalty if the appraisal is lower than the contracted purchase price.

If you are getting an appraisal as part of the mortgage refinance process, there are some aspects that could have an impact on your home’s perceived value. Here’s what home appraisers look for:

• The number of bedrooms: A bedroom is any room with a window and a closet.
• Health and safety concerns: Is there lead paint? Do the HVAC and cooling systems work? Is the home in basic livable condition?
• Interior upgrades: Any permanent improvements you’ve made to the home, such as new tile in the bathroom, new kitchen cabinets, and countertops, etc. will boost the appraised value.
• Exterior condition: Upgrades outside of the home’s living space, such as a new garage door, backyard pool, porch, patio, etc.
• Comps: What similar homes in your area have recently sold for, as well as overall property value trends in your real estate market.

So, while you can’t renovate your kitchen overnight, you can clean and declutter your home before the appraiser’s visit. Tidying both inside and outside of your home will help it make a better overall impression on the appraiser. If you do have the time and resources to significantly improve your home before it gets inspected, check out these home improvements with the best ROI. 

When do you get an appraisal?

Home appraisals usually occur during the underwriting phase of your mortgage application. If you are buying a home, the appraiser will go and inspect it while the home is under contract and still owned by the seller. If you are applying for a mortgage refinance on your own home, you will be living in the home while the appraiser comes to make notes. 

Outside of the mortgage loan process, you can get a professional appraisal of your home anytime you want an accurate value, such as when you’re considering selling. 

Home appraisals in Illinois usually cost between $450-500. Unless you negotiate for the seller to pay, the appraisal fee will be added to your closing costs as a buyer. You will also pay the appraisal fee as part of your closing costs when you refinance. 

Home appraisal vs. a home inspection

It’s important to note that a home appraisal is different from a home inspection. Home inspectors are also licensed and certified, but they serve a different purpose. Instead of assessing value, the intent of a home inspector is to catch any major issues with the home before you purchase it. Home inspections are highly recommended but not required by mortgage lenders.

How does an appraisal affect your mortgage loan?

Because an appraisal can make or break the approval of your home loan, it’s an important part of the mortgage application process. A home appraisal also protects you from paying more for a home than the market says it’s worth. 

If you go under contract on a home and the appraisal comes in below the purchase price, you have several options:

• Pay the difference in cash
• Renegotiate a lower purchase price with the seller
• Walk away from a certain house and keep looking

Partner with a local Illinois mortgage lender!

Locally owned and operated, Town and Country Banc Mortgage Services, Inc. is consistently rated one of the top housing lenders in our market. We offer a wide variety of home mortgage loans and our knowledgeable lenders can help you find the best home loan for you. To apply for a new home loan or a mortgage refinance, contact our local mortgage team or apply today!

Are you a first-time homebuyer? Check out this Guide To First-Time Homebuyer Programs.