Appraisals are an important component of the loan application for both the buyers and the sellers. Though at times they are overlooked, they do have a significant impact on the overall success or failure of a loan application.
The way appraisals impact the mortgage application are as follows: first and foremost appraisals let the banks know the value of the home so the banks can determine whether or not it is a financial risk for them to loan you money towards the purchase of that home. Generally speaking, the banks want to see immediate equity in the home (the difference between what the house is worth and what they are financing).
Appraisals also will impact whether you need to pay PMI (private mortgage insurance). Basically the appraisal is used to determine whether or not you are financing 80% or more of the home - if you are you need to pay PMI, or your loan officer will need to come up with a package of loan rather than one loan (for PMI no one loan can be 80% or more of the value of the home, but a combination of loans can).
Buyers and sellers are impacted by appraisals as they can make or break a deal. Banks rely heavily on appraisals to help determine how viable a loan application is. Appraisals are also a major component of refinance applications. Generally speaking the buyer will pay for the appraisals or in case of refinancing, the owner will pay for the appraisals.
