Appraisal
A professional assessment of a property's market value, required by lenders before funding a loan.
Definition
An appraisal is an independent valuation of a property conducted by a licensed appraiser to determine its fair market value. Lenders require appraisals to ensure the property is worth at least the loan amount, protecting against over-lending. The appraiser inspects the property, compares it to recent comparable sales, and considers the local market. For rental properties, the appraiser also typically completes a rent schedule estimating market rent. If the appraisal comes in lower than expected, the buyer may need to renegotiate the price, increase their down payment, or walk away. Appraisal costs range from $400 to $1,500 depending on property type and location.
How This Relates to DSCR Loans
DSCR loan appraisals include a rent schedule that directly affects your qualifying DSCR. If the appraised rent is lower than expected, your DSCR may fall below the lender's minimum.
Related Terms
Fair Market Value
The price a property would sell for on the open market between a willing buyer and seller.
Comparable Sales (Comps)
Recently sold properties similar in size, condition, and location used to determine a property's market value.
LTV (Loan-to-Value)
The ratio of a loan amount to the appraised value of the property.
Underwriting
The process by which a lender evaluates the risk of a loan application before approving it.
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