The ratio between the unpaid principal amount of your loan, or your credit limit in the case of a line of credit, and the appraised value of your collateral. Expressed as a percentage.
If you're buying a home and your offer has been accepted, the next step is applying for your Glossary Term: mortgage. As part of that process your Glossary Term: lender will order a home Glossary Term: appraisal, which gives you a trained professional’s point of view on the Glossary Term: fair market value of the home to make sure the home’s value supports the purchase price. If you applied to refinance your mortgage, an appraisal is an essential part of determining your Glossary Term: loan-to-value (LTV) ratio, which will help determine whether you qualify for refinancing.
For a home purchase, an on-site appraisal is needed for the mortgage to be approved. For a refinance, an appraiser may either visit the home or use an automated computer valuation, depending on your lender’s requirements. Appraisers consider:
An inspector would be hired by you directly if you are purchasing a home and want an itemized report of potential repairs or problems in the home. On the other hand, the appraiser is hired by your lender to determine the home’s fair market value. This will allow your lender to ensure that the home loan amount is in line with what the home is really worth. For more about inspections and how a major defect could impact a home’s value, see What to expect at your home inspection.