An appraisal in the mortgage and refinance process is an independent professional opinion of your home’s market value, ordered by the lender to confirm the property is worth enough to secure the loan. A licensed or certified appraiser inspects the home, compares it to recent sales, and produces a written report. That number then drives your loan-to-value ratio, your interest rate, whether you’ll pay private mortgage insurance, and sometimes whether the loan closes at all. A standard single-family appraisal runs $300 to $400 on a conventional loan, with FHA and VA appraisals commonly $400 to $900 and complex or rural properties higher still.
Why Lenders Require One
The home itself is the collateral, so the lender needs outside confirmation that it’s worth at least what you’re borrowing. Federal rules under Title XI of FIRREA require appraisals for federally related transactions to be in writing, follow uniform standards, and be performed by state-licensed or state-certified appraisers.1eCFR. 12 CFR Part 323 – Appraisals Residential deals above $400,000 require a certified appraiser specifically. Below that threshold most lenders still order one as a matter of internal risk management.
Who Orders It, Who Pays, and Who Picks the Appraiser
You pay for the appraisal, usually upfront when you apply or rolled into closing costs, but the lender is the client because the report exists to evaluate their lending risk. Federal law bars anyone with a financial interest in the loan from pressuring the appraiser toward a target value. Under the Dodd-Frank Act it’s illegal for lenders, loan officers, real estate agents, or borrowers to coerce, bribe, or instruct an appraiser to base a valuation on anything other than independent judgment.2Office of the Law Revision Counsel. 15 USC 1639e – Appraisal Independence Requirements To preserve that separation, most lenders route the assignment through an appraisal management company, which picks a local appraiser from its panel. You don’t choose the appraiser, and neither does your loan officer or agent.
What Happens During the Appraisal
Before the visit, pull together a list of major improvements with rough dates and costs: a new roof, a kitchen remodel, an updated HVAC. The appraiser can only credit upgrades they know about. Property surveys, tax records, and any documentation of easements are worth having on hand too. Practically, make sure every room is accessible, including the attic, basement, and any crawl spaces, and clear a path to the electrical panel, water heater, and HVAC unit.
On site, the appraiser walks the property inside and out. Outside they note siding, roof condition, grading, and lot characteristics, and they measure the footprint to calculate finished square footage. Inside they evaluate the quality of finishes, the condition of major systems, and the layout, and they photograph each room. They also look for red flags: water stains, foundation cracks, outdated electrical panels, or deferred maintenance. A problem doesn’t automatically kill the deal, but it goes in the report and may trigger repair requirements, particularly on government-backed loans.
All appraisals must follow the Uniform Standards of Professional Appraisal Practice, the ethical and performance standards used across the profession.3The Appraisal Foundation. Uniform Standards of Professional Appraisal Practice For a typical single-family home, the appraiser relies mainly on the sales comparison approach: they find recently sold homes similar in size, location, age, and features, then adjust each comparable up or down to account for differences with yours. If a comparable sold for $400,000 but has no garage and yours does, the appraiser adjusts that comparable upward to reflect the garage’s contribution. The cost approach (rebuild cost plus land, minus depreciation) is mainly used as a cross-check, and the income approach applies to rental or investment properties rather than owner-occupied homes.
How the Appraised Value Shapes Your Loan
The number the appraiser lands on feeds directly into your loan-to-value ratio. LTV compares the loan amount to the appraised value; on a $320,000 loan against a $400,000 home, LTV is 80%.4Consumer Financial Protection Bureau. What Is a Loan-to-Value Ratio and How Does It Relate to My Costs For a purchase, lenders use the lower of the sale price or the appraised value, so a high appraisal doesn’t shrink your down payment.5Fannie Mae. Fannie Mae Selling Guide – B2-1.2-01 Loan-to-Value (LTV) Ratios
A higher LTV means more risk to the lender, which usually means a higher rate. On conventional loans, an LTV above 80% also triggers private mortgage insurance. You can request PMI cancellation once the balance drops to 80% of the home’s original value, and the servicer must automatically terminate it at 78%.6Consumer Financial Protection Bureau. When Can I Remove Private Mortgage Insurance (PMI) From My Loan Both thresholds run off the original value, which is why the initial appraisal number keeps mattering long after closing.
Getting Your Copy and How Long It Lasts
Under the Equal Credit Opportunity Act’s Regulation B, the lender must give you a copy of the appraisal promptly on completion or at least three business days before closing, whichever comes first, and you get it whether the loan is approved, denied, or withdrawn.7Consumer Financial Protection Bureau. 12 CFR Part 1002 (Regulation B) – 1002.14 Rules on Providing Appraisals and Other Valuations Read it carefully for factual errors. Wrong square footage, a missing bathroom, or comparables from a different neighborhood can pull the value down for no good reason.
Appraisals expire. For conventional loans sold to Fannie Mae, the appraisal must be dated within 12 months of closing; if more than four months have passed, the appraiser has to do an exterior update and review current market data, and if that update shows a decline, a new appraisal is required.8Fannie Mae. Appraisal Age and Use Requirements FHA appraisals are valid for 180 days, extendable to a year with an update.9U.S. Department of Housing and Urban Development. FHA Implements Revised Appraisal Validity Period Guidance If closing drags, watch those dates. An expired appraisal means paying for another one.
When the Appraisal Comes In Low
If the appraised value lands below your contract price, the lender won’t loan more than the home is worth, and you’re left figuring out how to cover the gap.
Start by reading the report for errors. The CFPB has confirmed that borrowers can challenge an appraisal through a formal reconsideration of value process when they identify factual errors, weak comparables, or evidence of prohibited bias.10Consumer Financial Protection Bureau. Mortgage Borrowers Can Challenge Inaccurate Appraisals Through the Reconsideration of Value Process You submit through the lender, not to the appraiser directly, and include documentation: better comparable sales, an incorrect room count, a missed renovation. “I think it’s worth more” without data won’t move the number.
If the reconsideration doesn’t change things, you have a few options:
- Ask the seller to drop the price to the appraised value.
- Cover the gap in cash and keep the original loan amount.
- Split the difference with the seller.
- Walk away, if your contract has an appraisal contingency.
An appraisal contingency is a clause that lets you back out or renegotiate if the home appraises low, without losing your earnest money. Most contracts give buyers 10 to 21 days to complete the appraisal and act, and missing the deadline can forfeit the contingency. Waiving the contingency to strengthen an offer is a real gamble: if the number comes in low, you’re on the hook to close at the contract price or lose your deposit, which typically runs 1% to 3% of the purchase price.
Refinance Appraisals
Refinance appraisals work the same way mechanically, with a few practical differences. Because you already own the home, you can be present during the inspection and point out improvements the appraiser might otherwise miss. Whether you’ll need a full appraisal at all depends on the refinance type. Cash-out refinances and loan-type changes almost always require one because the lender is taking on new risk. A straight rate-and-term refinance may qualify for a lighter option through the lender’s automated underwriting.
For refinance LTV, the lender uses the current appraised value, not what you originally paid. If your home has gained value since you bought it, a strong appraisal can lower your LTV, potentially eliminate PMI, or open up better pricing. That appreciation only counts once an appraiser puts it on paper.
Desktop Appraisals and Appraisal Waivers
Not every loan needs someone inside your house. Fannie Mae’s desktop appraisal lets a licensed appraiser value the property from public records, MLS data, tax assessments, and sometimes photos, without visiting. It’s limited to purchases of one-unit principal residences with LTV of 90% or less that receive automated underwriting approval. Refinances, investment properties, condos, manufactured homes, and multi-unit properties don’t qualify.11Fannie Mae. Desktop Appraisals
A “value acceptance” (formerly appraisal waiver) skips the independent appraisal entirely when Fannie Mae’s system judges the risk low enough. It’s available for one-unit properties including condos, principal residences, second homes, and certain refinances, but not for properties valued at $1,000,000 or more, manufactured homes, co-ops, new construction, or manually underwritten loans, and an offer expires four months from issue.12Fannie Mae. Value Acceptance A waiver benefits the lender’s efficiency; it doesn’t necessarily benefit you. In a hot market where you suspect the home may be overvalued, a full appraisal is a check against overpaying.
FHA and VA Appraisals Add Property Condition Standards
Government-backed appraisals do double duty: market value plus a health-and-safety check. FHA appraisals follow HUD Handbook 4000.1, which requires the property to be safe, sound, and secure, and the appraiser must flag conditions such as excessive dampness, termite evidence, environmental hazards, faulty mechanical systems, or structural problems.13U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 Common FHA sticking points include chipping or peeling paint on pre-1978 homes, roofs with less than two years of remaining life, missing handrails, and standing water at the foundation. Sellers usually have to fix these before closing.
VA appraisals have their own checklist: safe drinking water, functioning sewage, domestic hot water, and a heating system adequate for comfortable living conditions.14U.S. Department of Veterans Affairs. Basic Minimum Property Requirements (MPR) Checklist If a wood-burning stove is the only heat source, the home must also have a conventional heating system able to hold at least 50 degrees where there’s plumbing. The VA also caps allowable appraisal fees by region.