Depending on your annual income, cash reserves, creditworthiness, and the appraised value of the property, you may be able to borrow up to 100% of the value of the home. A typical home mortgage is 80% of the home’s appraised value. Which loan program fits your needs will also be based on your intended use of the property, whether it will be your personal residence or if you will be using the property for rental or investment purposes. Lenders typically lend only 70% or 75% of the purchase price for investment or commercial properties. Investment properties may also require additional qualifying criteria and use a different appraisal process.
Why is the appraisal so important?
The amount of money which you can borrow will depend on several factors, but one of the most important is the “LTV” or “Loan to Value” ratio which is based on the appraised value of the property in relation to the amount of money you wish to borrow. A higher appraisal value will normally result in the opportunity for a larger loan amount. For example, most loans are based on a 80% Loan to Value ratio, meaning the lender will loan you 80% of your property’s value. Keep in mind that this amount may vary for a refinance, an investment property, or based on your credit history or FICO scores.
Comparables are an important part of the appraiser’s analysis and will be included in the report. You can help the appraiser by supplying all known recent sales in your immediate area, some which may not yet appear yet in the public records. In addition, be sure to supply the appraiser with any recent remodeling or major improvements which you have made to the property, and the cost of those changes. Any information on recent improvements in the area, such as new schools, roads, or other community services which will enhance your neighborhood’s value may help the appraiser’s valuation.