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Home Value

How do I determine my home's value?

I have a line of credit with my house as calateral. How do I determine the value of my home? Is it replacement cost? Or average sales value in my neighborhood? How much of the value can be borrowed with a reverse mortgage?

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Highlights

  • A home's value is determined by location, location, location.
  • A appraiser will value a property to determine the mortgage loan amount.
  • The appraisal business is in flux due to the adoption of the HVCC.

The market value of your property is determined by its location, location, location, plus its amenities such as the number of bedrooms, bathrooms, square footage, size of the garage and lot, and overall condition of the house, grounds, and neighboring properties.

You can estimate your home value by comparing your property to others in the neighborhood. In the real estate business, this is known as "looking at comps." The term "comp" is short for "comparisons." An experienced real estate broker or agent keeps comps in his or her head in the same way a baseball fan keeps current statistics of his or her team memorized.

For those of us who are not real estate agents there is Zillow.com. Zillow correlates public information about properties in the United States. Zillow uses sales prices, appraisal information, and other data on comparable homes in a given area to estimate a home's value.

Appraisal

To estimate the value of a property, a mortgage lender will ask a real estate appraiser to give an opinion about its value. An appraisal usually costs $350. Before 2009, the mortgage company or bank originating the loan would hire appraisers directly. This lead to accusations of a conflict of interest and fraud, where it was alleged that mortgage companies, appraisers, and others would actively or tacitly conspire to overvalue properties and mortgages to the detriment of home buyers.

In response to these allegations -- some founded -- the FHA required the adoption appraiser independence requirements that it called the Home Valuation Code of Conduct (HVCC). HVCC requires mortgage companies to order appraisals through so-called Appraisal Management Companies (AMC) instead of directly with individual appraisers. The hope was appraisers would be free to create accurate valuations if they did not feel pressured by mortgage companies whose revenues depended on loans closing and therefore, certain values on appraisals so the loans would not fail due to over-valuation.

As of late 2010, the HVCC process is now under review amidst statements by appraisers that AMCs are pocketing a large portion of the $350 appraisal fee, driving experienced appraisers out of the market, and the existence of appraisals that are inconsistent and unreliable because inexperienced appraisers are valuing properties.

Reverse Mortgage

A reverse mortgage is a unique mortgage because they are no payments required from the borrower. Instead the homeowner receives cash from the lender and in turn, the lender receives a portion of the homeowner's equity. A reverse mortgage loan is designed to give older homeowners the ability to receive tax-free income without having to make payments, sell their home or affect their hold on their title. For older homeowners, a reverse mortgage can be the right way to receive either extra income or security in retirement.

The loan is repaid when the borrower ceases to live in the home; this can be a result of the homeowner selling the home, moving out (and it is no longer their primary residence), or passing away. In any of these cases, the lender receives the proceeds of the sale of the home to pay off the balance of the reverse mortgage loan. If the proceeds of the sale exceed the outstanding loan balance, the difference is paid back to the borrower or to their estate.

Bills.com assembled a network of the most reputable reverse mortgage lenders in the country. You can access them through this quick reverse mortgage form. Also, be sure to continue your research and take advantages of this additional reverse mortgage information on Bills.com:

You asked how much equity can be taken in a reverse mortgage. That depends on two variables. One is the age of the homeowner. The other is the amount of equity in the property. Speak with a reverse mortgage loan officer about your individual situation.

I hope this information helps you Find. Learn & Save.

Best,

Bill

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