Mortgage Loans: Understanding Property Value

The property value of a home is very important when it comes to dealing with mortgage loans. In order to accurately determine whether or not a lender will lend you the money you need, a lender wants to determine whether your house is worth the value they are using. During this process, many terms are thrown around that many people may not understand. Terms like: appraised value and estimated value are confusing. If you want to stay on top of the mortgage process, you will need to understand some basic things about property value and how it is determined.

Estimated Value

Many times, an estimated value will be used during the mortgage loan process. The lender may ask you what the estimated value of the home is. The estimated value is quite simply an estimate of what the property value is. This is basically an educated guess. There are a number of property value websites that offer estimated property values. You can simply type in any address in the country and they will give you an estimated property value. Much of this data is calculated based on recent trends in the market and recent home sales. While it is a nice place to start from, it is by no means an official value. It serves to give the lender a starting place for a loan.

Appraised Value

Once you move a little farther along in the mortgage process, the term appraised value will come up. The bank will require an appraisal of the property before they can move along with the loan. The appraisal is conducted by a certified appraiser. Typically, they are hired by the bank. You will pay for the appraisal as an upfront part of the closing costs of the loan. The appraiser will go out and look at the property and assess the condition of the property. They will take pictures of the property and make notes about the property. They will measure the property and examine recorded documents about the property. 

With this information, they can assess the appraised value of the property. They will look in their database for recent sales of comparable homes in the area. They are supposed to compare your home to homes that are very similar and have sold within the last six months. Once they have completed their analysis, they will assign an appraised value. This will be the value that the bank will use for the loan.

If your home requires repairs, an appraiser may also list an "after-improved value." They will make a note of the repairs you are required to make in order to get the value indicated. Some of the most common repairs are paint, flooring or any other health and safety issue.

Actual Value

The actual value of a property is what it sells for in the open market. You can say that your house is worth a certain price all you want, but until it sits on the open market for a fair amount of time and sells for that price, it is not.