As you may already know, and appraisal is a valuation of your home. What you may not know is how an appraisal works. Many people have the mistaken notion that an appraisal measures the value of your home based on things such as how much it cost to build, and the quality of the materials used. They learn the hard way that this is not the case.
Here's a real-life example I came across during my lending days. Andre lived in the Pocono Mountains in Pennsylvania, an affluent area. He had his home built in a secluded area, and, because of relationships he had with contractors, was able to build a beautiful 3000 square-foot home for only $150,000. He had a mortgage for that amount, and wanted to refinance with a little bit of cash to pay some of his bills. His credit was not perfect, so he only qualified for a 70% LTV loan. Because he had his home built less than a year prior to applying, the maximum we would accept for his home value was the price he built it for, which was $150,000. Andre was incensed, and insisted that his home was worth at least $300,000.
This is a perfect example of a policy of most lenders; that is, if you are refinancing and you have been in your home for less than one year, whether you built it or bought it, the maximum your home is “worth” is what you paid for it. This is a measure to prevent fraud.
If you'd like to learn the dirtiest secrets of the home lending loan industry, Lee Rivera reveals the information mortgage companies don't want you to know! Check out his lens at http://www.squidoo.com/home-lending-loan/
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