What is the primary function of a home appraisal during the mortgage process?

The primary function of a home appraisal during the mortgage process is to determine the fair market value of the property. This valuation is crucial for lenders as it helps them decide how much money they are willing to lend based on the property's worth. The appraisal serves as a critical component of the underwriting process, ensuring that the loan amount aligns with the current market value of the home.

Accurate assessments of fair market value contribute to protecting both the lender and the borrower. If a property appraises too low, it can prevent the borrower from obtaining a loan for an amount greater than the home's actual worth, which helps avoid potential issues of negative equity.

Understanding the fair market value also assists in setting realistic expectations for sellers and buyers in the housing market. The appraisal is based on various factors, including recent sales of comparable properties, the condition of the home, and current market trends, thus ensuring a comprehensive evaluation of the property's value.