Whether you want to refinance an existing mortgage loan to one with a lower interest rate or you need a new mortgage loan to purchase a home, you'll need an appraisal to determine the current market value of either your current home or the property that you wish to buy. Even though your lender chooses your appraiser, you'll need to pay for the actual appraisal.
Why Appraisals are Necessary
Mortgage lenders won't lend you money until they know that you are not dramatically overpaying for a home. That's why they send an appraiser to the home that you want to buy; lenders want to make sure that the property you are purchasing is worth at least what you have agreed to pay for it. When you want to refinance, your lender sends out an appraiser to make sure that you have enough equity in your home. Most lenders will only approve your request for a refinance if you have at least 20 percent equity in your residence. The only way to calculate your equity is to first determine your home's current market value with an appraisal.
Appraisals Aren't Free
The appraiser who performs your appraisal wants to get paid. And the person who pays that appraiser -- whether you are refinancing or buying a new home -- is you. Appraisal costs can vary depending on the size of your home and its location. But in general, the Federal Reserve Board estimated in August 2010 that a typical appraisal cost from $263 to $444.
State by State
Location, though, plays a big role in the cost of your appraisal. In certain states, appraisals tend to cost more. Bankrate pointed this out in its 2012 survey of mortgage closing costs. In Texas in 2012, Bankrate found out, the average appraisal cost $412. In New York, the average appraisal cost $390, while in Wyoming it cost $449.
Your location might be the most important factor in how much your appraisal costs. But it's not the only one. The size of your home plays an important role, too. If your home is larger, the appraiser will have to more to investigate. This will take the appraiser more time, boosting the cost of your appraisal. Your appraisal might also cost more if you've made several improvements such as adding a master bedroom or renovating your kitchen. Appraisers have to factor these changes into their market-value calculations. Your appraiser might charge more, too, if you are located in a more isolated or rural area.
Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.