What you should know about appraisals when you apply for a mortgage
One of the things you need to have when you apply for a mortgage is an appraisal of the house. But what exactly is an appraisal? What information does it provide? Who has to pay for it? Here are some answers to the main questions you may have:
- Why is an appraisal report necessary?
When you have a mortgage on your house, what you are doing is using your home as a guarantee for the bank to cover any potential missed payments on the loan you requested. It is essential for the bank to know how much that guarantee is worth so that it can estimate the amount it can lend you or how risky the transaction is. The purpose of the appraisal report, therefore, is to estimate how much your home is worth.
- Who performs appraisals?
Appraisal companies, which are licensed and supervised by the Banco de España, perform appraisals. The regulations recognise the consumer’s right to appoint, by common agreement with the bank, the company that will appraise the home, although it is common practice for it to be chosen by the bank.
- I already have an appraisal. Can I use it to apply for a mortgage at any bank?
Following the reform of Law 2/1981 of 25 March 1981, since December 2007 banks must accept an appraisal submitted by the customer provided it has been certified by a licensed appraiser and it has not expired. The bank may carry out any other verifications it may consider advisable, but it may not charge you anything for doing so.
- When does it have to be done?
In view of the cost an appraisal entails, it should be postponed until the bank has at least performed a first analysis of your payment capacity.
- Who pays for the appraisal? What information should it include?
Appraisals are paid for by the future home purchasers, although they are ordered more in the interest of the bank than in that of the acquirers.
Your bank should expressly inform you that the expenses must be paid by you and it should request your authorisation to charge them to your account.
The bank should also warn you that performing an appraisal does not necessarily mean that your loan application will be approved or that the expenses you paid will be refunded if the transaction does not come through in the end.
Finally, if the loan transaction is rejected, the bank must provide you with the original appraisal report so that you may use it at another bank while it is valid.