What role does an "appraisal" play in the mortgage process?

An appraisal is a critical component of the mortgage process as it establishes the market value of a property. This assessment is performed by a qualified appraiser who considers various factors such as the property's conditions, location, and recent comparable sales in the area. The primary purpose of the appraisal is to ensure that the lender is not extending more credit than the property is worth, thereby protecting the lender's investment and helping to secure a fair and accurate loan amount for the borrower.

By determining the market value, the appraisal also provides essential information that can impact the terms of the mortgage, such as the loan-to-value ratio and whether the borrower will need to provide additional equity. This assessment is crucial for both parties involved in the mortgage transaction, as it helps ensure that the price being paid aligns with the property's actual worth in the current market.