With the Ontario housing market continuing to outperform all expectations, the desire to take out different mortgage options is taking center stage for many. Ontario homeowners are looking around seeing property gains in numbers that were simply not anticipated during what has turned out to be a severe and prolonged pandemic.
July real estate numbers have mirrored this upward housing trend. According to the Toronto July Housing Report, the price of an average single detached property now sits at $1.1 million. Housing sales are way up and the length of time on the market for properties is now on average only 14 days from listing to sale.
Existing homeowners are tempted to take some of their newfound wealth in their homes and look at taking out second mortgage options. This could be motivated by many factors including the need to put money into renovations and upgrades, ongoing debt payments (consolidation), or even using home equity to buy another property in the hot Ontario real estate market.
The Ins and Outs of the Appraisal Process
Having an appraisal on your property is something that you must be aware of when seriously considering a second mortgage or a refinance on your home. It is certain that any lender will be relying heavily on this report to determine the value of your property and therefore the equity available to you. Keep in mind though, this does not mean you have access to 100% of the equity available; other factors such as current mortgage balance and amount you can qualify for are part of determining the “extra” amount available to you.
A word of caution, do not just simply order an appraisal on your own; banks have their list of approved appraisal companies that must be used, so if you pay for one on your own and that appraisal company is not on the lenders approved list, you will be required to get another appraisal done and at your cost. Connect with your mortgage specialist to discuss the details first, this way you know how to move forward as you will have all information.
An appraisal can be viewed as an overall assessment of the state of your property, including but not not limited to renovations or upgrades you have completed. It is the overall process of forming an opinion of the relative value of a property. Lenders will approach every property differently based on its unique advantages and disadvantages.
The appraisal is essentially the “piece of paper” that can summarize the individual specifications of a given property. A lender will rely on the findings of an appraiser. The lender will take into consideration the pros and cons of the property in question when structuring a second mortgage or refinancing.
There are two types of appraisal reports: The Form Reports and the Narrative Reports.
Concerning the Form Report, the appraiser will fill out a form that is a general template to be filled. All necessary information is provided within this document.
Conversely, in the Narrative Report, the information that the appraiser will provide is in written form, rather than inputted on a standard form. Any reasons or rationale behind the appraiser’s decisions will be clearly written along with using three comparable properties similar to the subject property. All appraisers will need to be a member of the Appraisal Institute of Canada ( AIC) Ontario lenders will belong to the Ontario chapter of this organization.
Just like any other certified body an AIC appraisal member will be held to certain standards and will have to provide an objective and unbiased assessment of your property in order to carry out their duties effectively under AIC guidelines.
What Will Appraisers be Looking For?
When conducting an appraisal of your property an appraiser will be asking themselves key questions:
What is the current state of the property?
The year the property was built (is it a new build?)
Any upgrades and any renovations that may affect the final appraised value
Any structural problems that are in immediate need of attention
Any ongoing issues such as water damage or mold
Is there a need for any major renovations?
How do the upgrades compare to similar properties in the neighborhood?
What is the resale value of similar properties in the area?
How are the comparables in your neighborhood or area? This last point is very crucial to an appraiser. It is only by assessing resale value, area specifications, and comparable upgrades and current models similar to your home that an accurate appraised value can be made.
I am always available to help discuss different mortgage options as well as ease any of your concerns in the lending process.