Mortgage Glossary
Appraisal
An appraisal is a professional assessment of a property's market value, conducted by a licensed appraiser. Lenders require an appraisal before approving a mortgage to ensure the home is worth at least as much as the loan amount. The appraiser evaluates the property's condition, features, and location, and compares it to recent sales of similar homes in the area. The buyer typically pays for the appraisal, which usually costs between $300 and $600.
Related Terms
Loan-to-Value Ratio (LTV)
Loan-to-value ratio is the amount of your mortgage divided by the appraised value of the property, expressed as a percentage. For example, if you borrow $320,000 on a home appraised at $400,000, your LTV is 80 percent. LTV is a key factor in mortgage approval and pricing. A lower LTV typically means better rates and the ability to avoid mortgage insurance, while a higher LTV indicates more risk for the lender.
Equity
Home equity is the difference between your home's current market value and the amount you still owe on your mortgage. As you make payments and your home appreciates in value, your equity grows. Equity can be accessed through a cash-out refinance or home equity loan, and it serves as a key measure of your financial stake in the property. Building equity is one of the primary wealth-building benefits of homeownership.
Underwriting
Underwriting is the process by which a lender evaluates your financial profile to determine whether to approve your mortgage application. The underwriter reviews your credit history, income, assets, debts, and the property appraisal to assess the overall risk of the loan. This step typically takes several days to a couple of weeks. The underwriter may request additional documentation or clarification before issuing a final decision, which will be approved, conditionally approved, suspended, or denied.
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