Do conventional loans require an appraisal? Why it matters

What you’ll learn

— How appraisals work for conventional loans

— What appraisers look for

— What sellers do to prepare for a conventional loan appraisal

— How to get a conventional loan

One of the most important aspects of a real estate deal is figuring out the market value of the property. While your best guess might be good enough for unloading your secondhand sofa on Facebook Marketplace, improvising doesn’t cut it for a major purchase like a house. That’s why lenders call in the pros.

If you’re a prospective homebuyer wondering, “Do conventional loans require an appraisal, and why does it matter so much?” you’ve come to the right place. Below, you’ll learn how home appraisals work, which aspects of the home appraisers scrutinize, and the steps for getting a conventional loan.

Why do conventional loans require an appraisal?

In the vast majority of cases, lenders require home appraisals for conventional loans so they can get a precise estimate of the property’s market value. The one exception happens when lenders grant an appraisal waiver. This might be an option if:

— The home has already been recently appraised.

— There’s enough pricing data for recent sales of similar homes in the area.

— The lender wants to speed up the sale and the buyer has an excellent credit score and loan-to-value ratio.

What about home inspections? The distinction is easy to get confused about, but it’s not hard to grasp.

The point of an appraisal is to determine how much the property might fetch in the local real estate market. This gives lenders a baseline for how much mortgage to extend. It also shows buyers and sellers whether the offer is in the same ballpark as the appraised value. It’s sort of like looking up the Blue Book value for a used car. You’re after an estimate of how much the model you’re considering is generally worth.

Home inspections, on the other hand, are about finding issues the buyer might need to repair. This is like taking a car to a mechanic for a pre-purchase inspection. At this stage, you’re looking to uncover the car’s potential flaws, not determine its market value.

How do conventional loan appraisals work?

Appraisers are typically chosen by the lender but paid by the buyer. Appraisal costs average $500 but can be as low as $200 or as high as $2,000, depending on factors like the home’s location, size, and type. Some government-backed mortgages, like FHA and VA loans, have their own special appraisal requirements. Conventional loan appraisals tend to be cheaper than appraisals for those options.

Appraisals aren’t usually time-consuming, but your mileage may vary. The actual in-person appraisal can take as little as half an hour. If the property is unusually big or has unconventional features, it might take an hour or two.

The full appraisal process — scheduling, evaluating, and reporting — might take just a few days or extend up to three weeks. You can expect a longer wait if the appraiser has a full schedule, the appraisal is particularly complicated, or it’s the busy season (spring or summer).

Appraisers are professionals, but they’re not perfect. If you think there’s been a mistake, you can take it up with your lender to try for a reassessment.

What do appraisers look at?

Once the appraiser arrives on the scene, they thoroughly investigate the property’s interior and exterior, taking photos and jotting down anything that’s changed since the home was last appraised. This could be something that increases the home’s market value, like renovations, or something that could bring it down, like outdated appliances or a cracked foundation.

Starting from this initial evaluation, the appraiser reviews sales of comparable properties in the same location — these are called “real estate comps” — to see how the home stacks up.

Finally, the appraiser compiles all their findings into a report. In addition to the value, the report lists all the steps the appraiser took to arrive at their conclusion. This includes itemized lists of features, notes on the home’s history, and the specific comps they based the evaluation on.

Requirements for conventional loan appraisals

Professional appraisers carry a long checklist of what to look for. While there are no legally mandated criteria, a rough list of the most common conventional appraisal guidelines might include the following.

Conventional loan home condition requirements

Appraisers look for:

— Visible exterior issues like a leaky roof or a damaged foundation

— Visible interior problems like water damage or cracked walls or ceilings

— Broken or malfunctioning systems, such as HVAC, plumbing, and electrical

Environmental hazards

These include visible instances of:

— Lead-based paint

— Asbestos

— Mold

Safety and livability standards

This covers aspects such as:

— Functionality of utilities like electricity, water, and heating

— Obvious safety issues, such as exposed wiring and trip hazards

— Safe access, like stable handrails on staircases

How to get ready for a conventional loan home appraisal

If you’re a homebuyer, your role in the appraisal is simple: Pay the check and sit tight. Here’s a look at what sellers might do to prepare so you can understand both sides of the equation:

— Clean up: Making sure the home is spic and span boosts the seller’s chances of a good evaluation.

— Repair small issues: If the seller has handyman skills, they might take care of simple fixes, such as chipped paint or leaky faucets.

— Double-check safety equipment: Making sure fire and carbon monoxide detectors are present and functional and the fire extinguisher is easily accessible reassures the appraiser that the home is safe to live in.

— Look for signs of damage: Looking for water damage, evidence of pest infestations, and health hazards like mold before the appraiser flags it avoids surprises.

— Document improvements: If the seller has made renovations or repairs since the last appraisal, they can make the appraiser’s job easier by showing receipts.

— Make the home easy to access: Leaving gates and doors open and accessible makes the appraiser’s job easier.

— Spruce up the exterior: Sweeping up and mowing the lawn makes a good impression from the moment the appraiser arrives.

— Stand by for questions: Being easily available lets the appraiser get prompt answers to questions.

What qualifies a borrower for a conventional loan apart from the appraisal?

We’ve learned that a successful appraisal based on comparable sales has to satisfy the lender’s minimum property requirements (MPRs) and safety and livability standards. But what about the borrower’s side? Here are the basics of what you need to qualify for a conventional mortgage:

— Credit score: Generally 620 or higher

— Debt-to-income ratio: Often no higher than 43%

— Down payment: 3–20%

— Proof of income and employment: Pay stubs, W-2s, tax returns

— Private mortgage insurance (PMI): Only required for down payments lower than 20%

How to get a conventional loan step-by-step

Taking out a conventional mortgage can take time, but the process is pretty straightforward:

— Lay out a budget: Calculate how much you can afford to spend on monthly payments and what you’re able to put down.

— Review your credit: Pull your credit report to get a sense of how strong your mortgage application might be. Check for errors, and dispute any you find with the credit bureaus.

— Get pre-approved: Getting pre-approved with a range of lenders is essential to landing a good deal. If you’ve got a laptop and a few basic details about your finances, you can get pre-approved with Better in as little as three minutes. It’s completely free and doesn’t impact your credit score.

— Make an offer: With your pre-approval letter in hand, work with your real estate agent to make a competitive offer that seals the deal.

...in as little as 3 minutes – no credit impact

Ensure a smooth deal from appraisal to closing with Better

Home appraisals keep buyers, sellers, and lenders on the same page about the home’s market value. Taking this simple step means everyone gets what they expect from the sale.

Getting a mortgage should be as easy as booking an appraisal. Better makes financing your dream home that simple. You can get pre-approved and view your competitive rate in as little as three minutes with our fully online application. If you decide to partner with us, you also get access to our world-class, 24/7 support team to guide you through the process.

Don’t make taking out a mortgage harder than it needs to be. Get pre-approved today, and take the stress-free path to homeownership.

...in as little as 3 minutes – no credit impact

FAQ

What if the appraisal comes back lower than the offer?

If the appraisal is low, your lender may reduce the offered loan amount. If you still want to go forward with the purchase, you can cover the difference between the appraised value and the offer yourself.

Does a conventional loan require an appraisal?

Yes. In most cases, a professional appraisal is one of the requirements for obtaining a conventional mortgage.

What will fail a conventional loan appraisal?

Appraisals aren’t pass or fail. However, an appraised value lower than the purchase price could be considered a type of failure.

How do FHA appraisals work?

Appraisals for FHA loans are stricter than for conventional mortgages. While conventional loan appraisals don’t have mandated qualification criteria, FHA loans must satisfy specific minimum property requirements regarding aspects like safety, structural soundness, and sanitation. FHA appraisals must also be performed by an approved appraiser.