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Five Things You Should Not Do Before Purchasing a Home

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Five Things to Avoid When Purchasing a HomeThere are many things you should not do before purchasing a home, or you may compromise your chances of getting a mortgage at best, or even be refused a mortgage at worst. Take the tips below seriously, because many people have ignored them and were sorry they did.

You have found your dream home, so what comes next? What should you do and not do to make sure you don’t let it slip out of your grasp? This is easily done, even if you have the finance and wherewithal to purchase it and to maintain your monthly repayments. Your main job is to persuade the lender that they can trust you to maintain your payments faithfully until completion – and that could be as far as 30 years away!

Here are five things that you must definitely avoid when purchasing a home:

Do Not Change Your Job

You should have a record of stable employment, and if your new dream job becomes available at the same time as your dream home, you will have a choice to make. Your lender wants to see that you are in stable employment so changing employment while you are in the process of buying a home can create complications.

The home buying process becomes even more complicated if you have become self-employed! Your lender may ask for your last 5 years of employment history, and if you have had several jobs, or have become self-employed you may be considered a higher risk by your lender. Even if you have changed jobs for more money, it is possible that you may be refused a mortgage if you have not been in the same job for at least 3 months so that you are past any ‘trial’ or ‘probationary’ period when you may be released.

Do Not Overspend

You lender works from a ratio known as the debt to income ratio (DTI), based upon how much you owe as a percentage of how much you earn. If you purchase high ticket items using a credit card or loan, you increase your DTI. If this exceeds 36%, including your mortgage and home insurance, then you will likely be refused a loan to buy your home. Keep that new leather sectional until you actually have the mortgage and the keys, not before!

Do Not Apply For Credit

If you open any new credit accounts shortly before your mortgage applications, you could be regarded as a bad risk. This is because you have little or no credit history of repayments for this line of credit. Also, did you know that credit searches on your records with Equifax, Experian and TransUnion can adversely affect your credit score? Even if you agree to act as guarantor for another person, your records will be searched and your mortgage application could suffer because of it.

Do Not Deposit Large Sums into your Bank Account

The mortgage underwriter will be suspicious of any large sums paid into your bank account shortly before or during your application. Anything over $500 will be queried. It is known for sellers to pay prospective buyers cash to pay the required deposit, and increase the asking price by the same amount. This enables the buyer to pay a deposit they would otherwise be unable to raise so the seller can sell the house – and is 100% illegal! Your bank account will be scrutinized when you apply for a mortgage.

Keep Your Finances Stable

Prospective lenders want stability in everything: employment, income, outgoings and bank accounts. Try to keep everything stable before purchasing a home, meaning no excessive outgoings for around three months prior to your application, no excessive deposits, no new credit cards and certainly no changes of bank account or banks. You have a better chance of being approved for a mortgage if your finances having been running smoothly.

Conclusion

If you ignore any one of these five when purchasing a home, then your application for a mortgage will be compromised. You may be asked to show evidence of financial stability for a period before reapplying. If you have big ideas for a new job, a new car or other major purchases or applying for that fabulous new credit card or even a store card, leave it until you have the keys to your new home – then you can do what you like (within reason!).

Mortgage Basics: The Pre-Approval Process

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Pre-Approval BasicsMany homebuyers are not aware that getting pre-approved for a home loan might just be what gets you them a new home faster. Before you start looking at homes, consider taking the time to talk with a lender or two about getting pre-approved for a mortgage so speed up the closing process and prevent missing the chance to purchase a home if you don’t have the mortgage approval necessary but other bidders do.

What’s Involved in Pre-Approval?

Before you can be pre-approved for a home loan, your credit, income, and debt history will all be checked to ensure you’re a good candidate for financing. This is also where you determine how much money you’re able to bring to the table as a down payment. The process itself is relatively quick and after these checks are completed, you’ll know how much can borrow.

Once you’re pre-approved, you generally have a period of 1 to 3 months to look for and secure a home before further action needs to be taken. You have the option of  locking in your mortgage rate during this time as well, so even if mortgage rates up before you purchase, your lender will still provide you with the better rate.

No matter what amount you’re pre-approved for, you’ll see that getting financing early has a number of benefits.

The Advantages of Getting Pre-Approved

With pre-approval in hand, you’ll be seen as a serious buyer. Sellers often see someone with pre-approved financing as a more attractive candidate than a buyer who submits an offer without having secured a loan. After your offer is accepted and you’re under contract, your pre-approval will also help the rest of the purchase process go smoothly. You won’t need to worry about shopping around for a mortgage or approving for a mortgage as you are trying to close one of the most important deals of your life.

Getting a pre-approval is part of planning ahead when you intend to become a homeowner. Follow some of these steps to help insure you have a smoother home purchasing experience.

 

Why Getting Pre-Approved is Important While House Hunting

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Mortgage and Home Loan Pre-Approval BasicsIt is easy to get swept up in the excitement of shopping for a new home, especially when it is your first. It is fun to tour open houses and get a feel for what is on the market that might feel like home. That being said, beginning to house hunt before you have gotten pre-approved with a mortgage lender may lead to disappointment.

You may think you know what you can afford, but  factors such as your income, credit scores and credit play a role in determining how much home you can qualify for and afford. You don’t want to discover that after you have put in an offer on your “dream” home that you don’t qualify for the size of loan you need or that there are other complications related to your credit or other credit worthiness factors.

Mortgage Pre-Approval Before You Shop

When you get pre-approved for a mortgage through a mortgage lender, the lender does a complete financial review and provides you with the maximum price you can spend on your home. When you have this number in mind while house hunting, there are the following benefits:

  • You can begin your house hunt with reasonable expectations based on what you can truly afford
  • When submitting an offer on a home, you know exactly how much you can bid during the negotiations

Pre-Approval: Insurance When House Hunting

There are buyers that believe a pre-approval is only beneficial to make them more credible when making an offer. If the above teaches you anything it should be that getting pre-approved makes you more informed and reduces the stress of your house hunt and insures you aren’t using inaccurate figures when setting a home price that you believe you can qualify for and afford.

You have enough to focus you energy on, the last thing you need to worry about is getting your financing confirmed right before you make an offer on your home when there are other offers and your offer is time senstiive. Getting pre-approved is the first step you should take before house hunting.

Tips For Making Your Realtor Relationship Run Smoothly

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Whether you’ve been living in your home for a year or for thirty years, you will have to go through the same process to sell your home. Finding a Realtor who knows the market you live in can make the sales process more efficient and can save you time and frustration.

As the mediator between you and the buyer’s agent, your Realtor’s job isn’t easy. If you keep a few simple things in mind, the process will go much more smoothly.

Take Your Emotions Out of the Sale

Your home means a great deal to you. If you’ve made updates, you’ll want the buyer to appreciate your hard work. However all buyers are not going to love your exact tastes. It’s important not to be offended if a buyer doesn’t love everything about your home or consider it to be worth the price you’d like to get for it. It is not uncommon for your upgrades to not be given a dollar for dollar value when your home is appraised. In fact, sometimes they will get little to no mention in the appraisal and may not affect your appraisal value.

Cleaning Things Up

Whether it’s for a showing or after the paperwork is signed, keeping your home clean and put together can make a world of difference as perception is reality. A dirty house can and will put off potential buyers. The better the house looks, the more buyers are willing to pay, which means the more you stand to get from the sale.

Let Your Realtor Do Their Job

It’s your realtor’s job to sell your home. Trust them to market your house to the people they think have the highest likelihood of buying it. Your home should always speak for itself and if not, your real estate agent is there to do the talking. This same idea comes into play when you’re negotiating a deal. They’re there to get you the best deal possible. It’s important for your Realtor to hear your thoughts and concerns, but they do need space to do their job. It doesn’t hurt for them to like you throughout the process as well. We all enjoy working hard for clients that we enjoy and it is certainly more likely that you will not be getting 100% out of your Realtor if you are on their bad side. The same is true of contractors and others we might employ as well.

Following these tips might not be easy, but sometimes they can mean the difference between the sales process being short and sweet or long, drawn out and frustrating. If you do decide your Realtor is not a good fit, simply communicate that to them and find one that you think is a better fit. The sooner in the process you can make such a determination, the better.

Home Warranties: Their Need and How a Home Warranty Works

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Home Warranty BasicsHome warranties are necessary because they do not come with statutory consumer guarantees. If you purchase a washing machine and the electrics fail a month after installation, you will either have it repaired or replaced free of charge. If you purchase a house and the electrics fail because the entire house needs rewiring, you have to pay it yourself.

What else can go wrong with a home shortly after you have moved in? A surprising amount, including plumbing issues, central heating failure and a leaking roof. Each of these can be expensive to repair, and anybody who purchases an old house without a home warranty has only themselves to blame if they find themselves with expensive repair bills.

What Are Home Warranties

When you purchase a newly built home, the builder warranty will cover you for problems related to the structure, fixtures and fittings of your new home. However, you do not have this warranty when you purchase an old home from a seller. A home warranty is designed to offer a similar form of cover, although it is wise to check what is and is not included in the insurance policy.

Home warranties are not alternatives to your homeowners insurance, which protects you from fire and other general damage to your home and contents. A home warranty insures you for specific named components of your home, such as the plumbing, electrical wiring system, heating systems and items such as garbage disposal units, dishwashers and exhaust fans.

You should check the inclusions, and then state any other items in your home you want covered by the policy, such as a washer, septic tank or even roof leaks. If an item is not stated, then you will not be covered for it. You can get a good home warranty for under $400 each year.

How do Home Warranties Work?

Most home warranties operate using the same procedures. Let’s say you have included your water heating system in the policy and your water comes out cold. You should first contact your insurer providing your home warranty and inform them of the problem.

They will ask you for your policy number, or perhaps even just your name and address and get your details from that. You describe the nature of the problem, and then the insurer will contact a local pre-qualified firm to carry out the repair. You will be charged no more than a local service charge. Everything else will be paid for. If you had forgotten to switch the unit on, you will still pay the service charge.

Summary

A home warranty is good to have, particularly if you have just purchased a new home. A seller will often pay for the policy and offer that as a sales incentive, and if you are selling your home the $200 – $400 is well worth the benefit. You pay for the first year, and the buyer will pay after that.

Home warranties give you peace of mind that, should anything happen with the essential components of your home, you can have it quickly repaired or replaced at a very low cost to you – the service charge is usually around $100 or so.

DIY Kitchen Remodeling and Renovation Ideas

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Kitchen Remodeling TipsDIY kitchen remodeling need not be expensive if you know what you are doing. Fundamentally, remodel or renovate what you can see and clean up what you can’t. It’s amazing what a fresh coat of paint can do, and even more amazing what you can do with new doors if you want to go that far. Here are some tips and ideas for remodeling your kitchen on a budget.

First decide on a color scheme. Kitchen remodeling is best carried out as part of a complete makeover for your kitchen. Before purchasing anything, decide on a color scheme for your kitchen as a whole: ceiling, walls and cabinets. Many like to have contrasting colors for their cabinet and doors, but choose what you personally prefer.

We are not discussing the ceiling, walls or lighting here, and you can easily renovate your cabinets without touching the rest of the room. You should consider whether or not renew your worktops: this can be expensive depending on the material, although you are still saving a great deal on the cost of new cabinets.

DIY kitchen remodeling starts with cleaning! Kitchens can be greasy, oily places, and it is important that you remove all the grease and oil from your cabinets. Give them a thorough clean, and then sand them down. Remove the doors and hardware, and make sure everything is thoroughly clean and sanded to give a good key for the primer and paint. Here are some options:

1. Painting the Doors and Cabinets

If the doors and cabinets are OK then you can repaint them after a quick sanding and primer coat. You can use a brush, but it is possible to get rollers designed to give a smooth surface. If you prefer a wood stain for the cabinets and/or doors, then that can also be done, although make sure you strip off all the old paint. Darker stains such as dark oak and cherry are best for DIY kitchen remodeling.

2. Using New Doors

Using new doors is the best way to renovate kitchen cabinets. You can then stain or paint these to make your entire kitchen look like new. It would also save you a lot of time in stripping and sanding, though you still need to do that with the cabinets.

However, many times the only parts of the cabinets you see are one or two ends and the edges by the doors. Eyes will be drawn to your new doors, and the cabinets will be largely unseen. Keep in mind that new doors might also mean new drawer fronts to match, though it may be possible to finish them all in the same way.

You can remove the doors from top wall cabinets and repaint the insides for a different look – you also save the cost of renovating the doors. Alternatively, replace them with new glazed or louvered doors.

3. New Countertops

You can either refinish existing countertops or buy new. New is best. The finish is more professional and if you wait for a sale or discount they are less expensive than you might expect. Because they will generally be cut to the exact size for you, new countertops are ideal for DIY kitchen remodeling.

4. New Hardware

New door and drawer handles and self-closing hinges will finish the new look for your cabinets. You can also get hinges that open with a push so you do not need any handles. While you are changing the cabinet hardware, also upgrade your kitchen lighting, and fit modern light switches. There is a large range of lighting options available for modern kitchens that add the finish touch to your renovation.

5. Renovating Appliances

If your appliances, such as a freezer or washer, are looking a bit tired, they too can be painted. You can fix corkboard or chalkboard to a freezer or fridge using magnets to provide a handy surface for messages and lists. Car spray paint is good for painting appliances after a good wash down, or have your local garage or body shop do it for you.

Final DIY Kitchen Remodeling Tips

Finish off by treating yourself with new flooring. You can purchase stick-on tiles that look very professional when laid, and they are easy to lay yourself. However, one important tip is not to rush things. Some people want to do everything at once. Take your time, and work on one cabinet at a time. Then, if it doesn’t work you can start again until you get it right – then repeat with all the rest!

These are just some DIY kitchen remodeling and renovation ideas that are not difficult to carry out. They might even give you some fresh ideas of your own!

Is a Second Home a Good Investment: Advice on Second Homes

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Second Home / Investment Home BasicsIs a second home a good investment or just another potential burden when markets fall? Is there genuine advice on second homes that is meaningful and can help you come to a decision? Second homes may or may not be the investment vehicle you are looking for, depending on your needs.

Yes, you can earn money from your second home, particularly if it is in a high demand location. However, with second homes, you will likely be able to make more money by investing in other forms of investment, such as mortgage backed securities or even purchasing property to rent.

There is no reason not to purchase a second home for your retirement or vacation that you genuinely use as a home from home, but there are better options if your primary goal is to invest your money. Additionally, the real estate market is still a bit volatile in many states to be regarded as secure investment potential. Here are just two reasons why not:

No Income and Loss of Investment Potential

When you purchase a second home with cash, you will lose the investment potential of that cash.  If you take a mortgage and so pay interest on it, that is even worse.  You are getting no money in, but are paying cash out at a regular monthly rate! Either way, it is sheer speculation that the property will increase in value sufficient to provide you with a long term gain greater than from regular methods of investment.

If you assume that you make even the low estimate of 4% per annum on your capital outlay, a $150,000 second home will cost you $500 in interest alone if you borrowed over 10 years. So the appreciation over a 10-year period would have to be $60,000 just to break even!  That is a big ask these days.

Then you have maintenance bills. Homes deteriorate over time and need looking after. You can add these costs to the loss of income from your investment, and all that has to be recovered at a later date taking inflation into consideration.

Second Home: The Long Term View

Let’s assume you pay cash for your second home – there is no other way for an investment. You are unlikely to finish positive in comparison to the investment potential of the capital sum paid for the property.

Your $150,000 property would likely just break even if it appreciated by around 8% each year – but the average tends to be under 5% over longer time periods. However, it is possible, particularly if you let it out and use your rental income in your calculations. If you do that, of course, it is not a ‘second home’ but rental property.

Conclusion

Is a second home a good investment? Most advice on second homes says likely not.  However, if you rent it out, even if just as a vacation home on a temporary basis, you have a good chance of doing better than break even. Is that what you really expect of a good investment?  That, after all, is the question! If your primary motivation for purchasing a second home is to use the home as just that, a second home, you’re on the right track. If, however, you are looking at making your money work the hardest for you in terms of an investment, there are better avenues to look into such as rental properties, that will also be brining in income.

Square Footage of a House: How to Measure a House

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Square Footage BasicsThe square footage of a house is important when buying or selling a property. Many people have no idea how to measure a house in square feet because there is no mandatory standard. The standard set by the American National Standards Institute (ANSI) is voluntary so you should be careful with measurements, particularly when buying a house.

When buying a home, always keep in mind that the listing agent will try to get the highest possible price for the seller – the agent’s payment depends on the selling price of the property. The property will therefore be advertised in the most advantageous way to get the highest price, and that could mean expressing the square footage in the best way possible without being deliberately misleading.

Different people will measure a house in different ways, often according to why they are measuring it. Here are some of the problems and how they arise.

How to Measure a House

The square footage of a house is measured by multiplying the length by the breadth in feet, using the external measurements, not the internal sizes. Each floor is measured separately and added together, and if the property is not rectangular each shape is measured separately.

Only heated and residential areas should be used in the total. Thus, if upstairs and downstairs are both 1200 square feet, the total would be 2400 sq/ft. But what about the stair space? That should only be counted once, so should be deducted from the upstairs measurement.

Square Footage of a House – Garages and Porches

Should the floor space of garages and porches be included? Technically no, because only heated residential areas should be quoted. Some people will report the garage and porch separately as being unheated space, but what if the garage has a heater and a bunk bed installed? Some might also claim their heated porch to be a residential area.

Because there is no obligatory legal standard, it is little wonder that the dimensions of properties for sale have been subject to complaint after the sale has been completed. It is not only easy to misrepresent the square footage of a house, but not everybody agrees on how to measure it!

If you are buying a home, and its dimensions are important in terms of square footage, make sure you ask if unheated areas or porches and garages are included in the total. Be absolutely certain of what you are buying and also check that the stair area has not been counted twice.

Other errors known to occur involve people measuring downstairs then doubling it for a two-floor home. Not only does this double the stair area, but in the case of a vaulted area, where part of the ground floor rises up to the roof of the property, that is also being counted twice.

Ask How the House Was Measured

How do you overcome these problems when there is no agreement on how to measure a house? First, use your head and make sure you ask the relevant questions.  Ask what the stated measurement includes. Also check comparable sales in your area for any difference between reported dimensions. When buying a home, you can ask your own agent or appraiser for this information before you make an offer.

There are other problems with regards to the square footage of a house, such as the  terms ‘above’ and below’ grade for loft and basement conversions, and arguments over how to measure a house properly have reached a stage where many agents refuse to advertize square footage in case they are faced with a lawsuit for inaccuracy. Use your common sense and ask the right questions;

a) What is the square footage of a house for sale?

b) Are the garage and porch or any outbuildings included in that figure?

c) What exactly does the quoted area include?

Ask these questions and you should understand what the figure stated really means.

Low Appraisal – 3 Steps When the Appraisal Comes in Low

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Low Appraisal BasicsA low appraisal is not the end of the world, and not all appraisals are accurate. The following steps will help you deal with an appraisal that has come in lower then expected.

Whether you are the buyer or seller, it is important that the appraisal is accurate.  For the buyer, a low appraisal means lower finance so they have to pay the difference between the lower mortgage and the asking price in cash.  For the seller, it means they may find their home hard to sell because their asking price is higher than the appraisal.

It is possible to have another appraisal carried out of you are unhappy with the first, although you would likely have to pay for it. However, if you ae the seller that should be no hardship because you can add the cost to your asking price.

Keep in mind that, while the lender is not permitted to communicate with the appraiser, you can.

1. Read the Appraisal Report Carefully

First check that the report is absolutely accurate with the details of the house in question. Make sure that each room is included and accurately measured. It is not unknown for a room to be missing that affects the entire comparative appraisal, or even for measurements to be wrongly recorded.  Appraisers are human like the rest of us, and it is easy for a number to be misread or wrongly transcribed to a report.

Also check the comparables used.  If you own the property, you should know better than anybody whether the comps used in your area are fair in relation to their comparison with your own home. Maybe the area used is a poorer area and homes sell cheaper, even though it might be only a half-mile from you, or perhaps there have been large numbers of foreclosures or short sales in the comparable are used.

It’s not unusual for other parts of town with similar designs of home as yours to be used as comparables if no real estate has change hands in your immediate area for some time. Sometimes the improvements you have made to your home are not given consideration. You can communicate this information to seller because the low appraisal will reduce their mortgage or home loan.

If for any reason you feel that the comps used were not representative of the property, or that it has not been accurately appraised, then work with your agent to prepare an appeal to the appraiser through your mortgage advisor. The same applies to both seller and buyer.

There are no guarantees that the appeal will be successful, but it is certainly worth trying. If that fails, ask your agent and mortgage professional to ask the lender for a second appraisal.  Lenders will sometimes do this if the professionals working for you have a good reputation and you case is strong.

2.  Low Appraisal Negotiation

The home appraisal is the basis on which the buyer receives finance from their building society or bank. If the seller is not prepared to reduce the price to the appraisal level, then both can get together to discuss a compromise. If the buyer really likes the property and wants to buy it, they may be prepared to make a larger cash payment in order to secure it.

Sometimes the two parties go 50% between the two prices, the seller reducing the asking price and the buyer paying extra cash. Only consider this type of negotiation if you cannot have the appraisal altered and the lender refuses a second opinion. The buyer can also refuse the offer and wait for a higher one, but that can be risky.

3.  Cancel the Transaction

The only other option is to cancel the transaction. If the seller is not prepared to lower the asking price and the buyer is not prepared to pay the difference in cash, there is no other option.  The buyer could then switch lenders and seek a new appraisal, both parties now aware of the problem.  This might give the seller time to correct any problems with the property or deal with any factors raised in the original low appraisal.

Generally, the best action to take is first to assess whether or not it is worth challenging the low appraisal, taking the advice of a professional mortgage advisor. If that fails, then the buyer and seller should get together and negotiate a price suitable to each of them – that will be determined by how desperate each is to buy or sell.

Home Appraisal Basics: What is Real Estate Appraisal?

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Home Appraisal BasicsA home appraisal is the process by which the fair market value of your home is assessed. A real estate appraisal is an essential component of the process of selling a property or refinancing it. Fundamentally, a state-licensed appraiser will utilize the data available to estimate your home’s current market value.

This data can come from a number of sources, and includes its location, size and state of repair, and also the market value of similar homes in your area. You are unlikely to get a loan on a home without one, and also unlikely to get a mortgage to purchase a home that has not first been appraised.

Methods Used in Home Appraisal

An appraiser will consider different aspects of your home when it is being appraised. Each of these can be used or just one of them, depending on the location and style of your home. Here are the three most common methods:

The Cost Method:

An assessment is made of the market cost of the land which you own with respect to your home. If you own an apartment then that might be irrelevant, but if you own a ranch that could be thousands of acres. For the average home, you would generally own the land encompassed by your home and front and back yards.

The value of your home would then be calculated as the value of this land plus the cost to rebuild your home on it, less depreciation through wear and tear. This approach is used more for new homes where the cost to rebuild the structure is known. It would also be used where no homes have been sold to enable the following approach to be used.

The most common approach for residential properties is:

Sales Comparison

Fundamentally, your appraisal will be based upon the value of similar homes in your neighborhood. Appraisers refer to these homes as being ‘comparables’ which have been sold within the last 180 days. Comparables, or ‘comps’ as the professionals call them, will be around the same size as your home, with the same number of rooms and amenities, and they will be located within a half mile from your home.

The comparison takes into account the number and areas of the rooms, their layout, condition, lot size and relative age. The appraiser will estimate the value of your home based upon that information. For example, if your home is exactly comparable in size to another nearby that sold for a certain figure a month ago, but you have a slightly larger lot and your home is better maintained, yours will be appraised higher than the selling price for that home.

To use this method of home appraisal, your appraiser will be looking for at least three comparable properties that have sold within the above time scale. If there have not been three, then fewer will be used and likely the Cost Method will also then have an impact on your appraisal.

Real Estate Appraisal Costs

The costs for a home appraisal will be paid by the borrower. It will be you if you are appraising your own home for refinance purposes or if you are buying a home. In spite of who pays, the appraisal is owned by the lender or mortgage company.

To summarize, then, a home appraisal is needed by anyone buying a home or borrowing money on their own home. A residential real estate appraisal is largely based upon the selling prices of comparable homes in the same area, although land and rebuilding costs can also be taken into consideration.

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