If you buy a home using a mortgage loan, your lender will probably have the home appraised to determine its market value. Nearly all loan programs require an appraisal, and that includes conventional, FHA, and VA.
This guide explains what happens after the appraisal has been completed, and how long it takes to reach the final closing stage.
Here are the five most important points covered in this article:
- Mortgage underwriting is usually the next step after a home appraisal, where the lender reviews the loan file and assesses risk.
- The home-buying process typically includes pre-approval, house hunting, making an offer, appraisal, underwriting, and closing.
- Closing usually occurs two weeks to 45 days after the appraisal, depending on underwriting conditions and borrower responsiveness.
- Underwriters may request additional documentation or explanations, which borrowers should handle quickly to avoid delays.
- Borrowers can help keep the process on track by staying in touch with their lender, responding to requests promptly, and avoiding major financial changes before closing.
What Happens After a Home Appraisal?
Let’s start by addressing the first frequently asked question posed above:
“What happens after the home appraisal?”
In a typical mortgage transaction, underwriting is usually the next step that follows the appraisal. Mortgage underwriting is when the lender reviews the borrower’s financial details and the property itself, in order to assess risk and determine loan approval.
The mortgage lender’s underwriter will review the loan file to make sure all required documents are present. The underwriter will also assess the risk level associated with the loan, and give an approval or denial based on those findings.
But let’s step back and look at how the broader process unfolds, and where the appraisal fits into it.
An Overview of the Mortgage Process
While the mortgage and home buying process can vary from one person to the next, it usually follows the steps outlined below:
- Pre-approval: The home buyer gets pre-approved for a mortgage loan, to find out how much they are able to borrow. This also helps them narrow the home search to a specific price range.
- House hunting: The buyers search for a property that meets their needs and also falls within their budget. They would then submit an offer, possibly making an earnest money deposit as well.
- Purchase agreement: The buyer(s) and seller agree on a purchase price, choose a desired closing date, and sign the real estate purchase agreement / contract.
- Home appraisal: The mortgage lender will order an appraisal shortly after the purchase agreement has been signed, at least in most cases. They do this in order to determine how much the property is worth based on current market conditions.
- Mortgage underwriting: The loan file then moves on to the underwriter, who reviews all of the documents and determines whether or not the borrower can proceed to closing. This is the most intensive screening process that occurs along the path to final approval.
- Underwriting conditions: In some cases, borrowers might receive what’s known as a conditional approval. This means there are still some items that need to be resolved or explained, prior to the final approval and funding.
- Closing: This is the end of the transaction from the buyer’s perspective. You’ll sign a bunch of paperwork, pay closing costs and other items that are due, and get the keys to your new house. These days, most or all of the process can be handled electronically, using digital documents.
So, the home appraisal typically comes after the purchase agreement has been signed, but before the underwriting process. And that makes sense, since the underwriter needs to review the appraisal results.
How Long Until the Closing?
Let’s move on to address the second FAQ introduced earlier:
“How long does it take to close after the appraisal takes place?”
In a typical transaction, it might take anywhere from two weeks to 45 days after the appraisal for the borrower to reach closing.
But this can vary. It largely depends on whether or not the underwriter identifies issues or conditions during the underwriting stage, and how quickly the borrower resolves those issues.
There are a lot of variables involved with a mortgage transaction. Some loans and home sales are more complex than others. So the process can vary from one borrower to the next.
For example, note the difference in these two scenarios:
- In some cases, the appraiser will determine that the home is worth as much as the sale price, or even more. If that’s the case, the process moves forward into the underwriting stage.
- In other cases, the appraisal will “come in low.” This means the home was appraised for less than the purchase price. In this scenario, the buyer might have trouble getting approved for the necessary loan amount. So the buyer and seller might have to go through another round of negotiations.
The underwriting process can vary as well. Some borrowers encounter issues that need to be resolved before the underwriter will give them a “green light” to close the deal. Other borrowers sail through the process with no issues whatsoever, and reach the finish line sooner.
How Home Buyers Can Help Themselves
As a home buyer, you don’t have very much control over the mortgage underwriting process. It unfolds without your involvement for the most part.
But there are some things you can do, after the appraisal and prior to closing, to help keep the process on track. Here are some of those best practices.
1. Keep the lines of communication open.
Stay in touch with your loan officer (or other point of contact) throughout this process, to make sure he or she has what they need to move toward closing. Also, keep an eye out for your “Closing Disclosure” document. The lender is required to send you this five-page document a few days prior to the closing. It tells you how much you’ll have to pay when you close.
2. Follow up in a timely manner.
If you receive additional paperwork requests from the loan officer or underwriter, try to resolve them as quickly as you can. This can help prevent unwanted delays. Everyone wants the loan to move forward, and it takes a group effort to make that happen. So be sure to handle these requests in a timely manner.
3. Maintain the financial status quo.
It’s best to avoid making major purchases or bank withdrawals between the home appraisal and closing. If your financial situation changes significantly during this timeframe, it could raise a red flag or even derail the loan process. Keep in mind that some mortgage lenders do another credit check just before closing.
Summary of Key Points
We’ve covered a lot of useful information in this article. So let’s wrap up by summarizing some of the most important points you should take away from this.
- In a typical real estate transaction, mortgage underwriting is usually the next step after the home appraisal has been completed.
- The broader home-buying process typically involves mortgage pre-approval, house hunting, the offer and negotiating stage, home appraisal, mortgage underwriting, underwriting conditions (in some cases), and the final closing.
- The length of time between the appraisal and the actual closing day can range from two weeks to 45 days, depending on a number of factors.
- Mortgage underwriting involves a detailed and intensive review of the loan file, the borrower’s qualifications, and the property that’s being purchased.
- You might receive additional requests from the underwriter, such as a letter of explanation regarding a certain financial transaction.
- As a borrower, you can help expedite the process by handling these additional requests in a timely manner.
Disclaimer: This guide was created for a general audience and might not apply to all borrowing scenarios. When using a mortgage loan to buy a home, you might encounter additional steps or requirements not covered above.