Mortgage loans make it possible for many people to purchase homes. If you're entering the housing market as a buyer, you should familiarize yourself with the various costs and fees associated with obtaining a mortgage loan. These include the down payment, closing costs and appraisal fees. The appraisal fee for buying a house is the cost to hire an appraiser to conduct an appraisal on the property. An appraisal is usually required before a mortgage loan can be fully approved and funded.
Mortgage Fees
There's a laundry list of small fees borrowers must pay to their mortgage lenders when the loan is originated. These include things like application fees, origination fees, recording costs, transfer taxes and many others. Generally these are lumped together and called the "closing costs" or "settlement costs." All of the fees are broken down with detail on the HUD-1 Settlement Statement provided by your lender. One of these fees is the appraisal fee. On average, an appraisal costs a few hundred dollars.
Requirement for Appraisal
When a mortgage loan is approved the lender assumes the risk that you -- the borrower -- might default on the loan. If this happens, the lender has the right to foreclose on the property and try to sell it to recoup their loss. In order to verify the property is worth the requested loan amount -- or the asking price -- they need an appraisal. The appraiser is hired by the mortgage company, not the seller or the buyer. He should be licensed in the state and familiar with properties in the same area.
Appraisal
The appraiser visits the property and takes a tour or walk through. He will note facts like the size in square footage, building materials and any improvements throughout the home. The appraiser might take pictures of the home as well. He can then make an estimate of the property's fair market value by analyzing the physical attributes of the property plus comparing it to other homes in the same neighborhood that are similar. The appraised value is provided to the mortgage lender for review.
Considerations
If the appraisal comes in below the seller's asking price, it might be a deal breaker because it's too great of a risk for the lender to approve a loan for more than the property is worth. This can be a bad situation for both the seller and the buyer. There are a few options for cases like this. You can haggle with the seller to bring down the price, increase your down payment amount to make up for the difference or try to persuade the lender to order a second appraisal.