Determining the market value of your home is an important piece of the mortgage financing puzzle.
First of all, appraisals are different from inspections. Inspections are a quality check; they look for defects and damage in a property. Appraisals determine property value based on comparable sales in the area within a certain period of time. (there are other methods, but for residential real estate the “comparable method” is the most common.)
You will need to get an appraisal when you are dealing with a conventional mortgage, or, in other words, a mortgage where the loan is a maximum of 80% of the value of the property. The reason you need an appraisal in this situation is because the mortgage is not being insured by CMHC or another one of the insurers. Because of this, the lender will need the additional security of the appraisal to determine the property’s value.
Appraisals are not terribly expensive, typically in the $250.00 price range. Some lenders have a specific list of appraisal companies that they work with, others do not.
Appraisals are particularly important when it comes time to refinancing your home. How much money you can borrow against your home completely depends on your home’s value. For example, let’s say you want to refinance your home to pay off some high interest debt, renovate your bathroom and take your wife/husband/partner on a vacation. (You can borrow up to 90% of the value of the home, but for the sake of this example we’ll do 80% to avoid the extra cost of insurance.) If the appraisal reveals a market value of $350,000, you can borrow 80% of that, or $280,000. For this reason, it’s important as a home owner to keep an open mind when it comes to looking into their home’s value.
