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Tuesday 09/26/2017 Mortgage Rates

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How to Value a Home

A home's value is determined by its size, the number of bedrooms, upgrades, renovations, the size of land, nearby amenities and the market value of the surrounding real estate.

Finding a true and official indicator of home value, however, will depend on the quality of your sources. The best sources that indicate a home's true value are "comps" and appraisals. Read on to learn how.

Comparables

Used by real estate agents to compare different market values of homes, "comps" offer a descriptive analysis of the area your new home resides. The items of comparison include the land parameters (per square feet), sizes, prices, and the age of the house in question compared to other nearby houses. You can use the information outlined in a comp to know what you're getting in return for your funds and how well your home should do on the market several years down the line.

Comps also give you enough leverage when you're fighting to win a for sale by owner (FSBO) home. Click here to learn more.

Appraisals

To be approved for a mortgage, your lender has to know the market value of the property to derive the size of the loan and to know the level of risk associated with the transaction. Typically, your lender will hire an appraiser they trust to inspect the property and make due assessments that factor in items of value.

If your lender does not provide you with an appraiser, you can hire one of your own but you need to make sure that they’re certified, otherwise, your lender won’t approve of the loan. Even though comps are the best method of getting a home's value, an appraisal is the only official method that lenders will recognize before a mortgage approval.

What Determines the Price of a Home?

  • Location, location, location.
    Present, as well as future development of projects within the area, will be a huge factor on the market value of your home. You don’t want to be the one that ends up in a seemingly nice neighbourhood where a recently abandoned locale is sitting just a mile away. The more forward-looking the local government is about developing the area’s infrastructure, the more reasons there are to invest in your home.
  • Size.
    Bigger does not always mean better, and it does not always hold true that bigger houses will undeniably be pricier. Older homes come from a time where land used to be cheaper and that meant more living space for everyone. However, some old houses suffer from poor construction, old plumbing, and old wiring. If a high-maintenance home is spacious and cheap, you might be looking at expensive repairs down the road.
  • Renovations.
    Any upgrade done to a home will undoubtedly be a good sign for a purchase. Kitchen remodels, bathroom remodels, and shed roofs are all strategies to up the asking price of a home, making it a good investment. Previous homeowners that have made an effort to get better use out of their houses means that they had a good time living in it.
  • Land.
    If what you want is a bigger yard, old homes are your best bet if you're running on a tight budget. Older homes are typically 20% cheaper than new construction, so you can find more outdoor living space for a better deal with older homes.
  • Amenities.
    If the three-dimensional billboards like that of Starbucks and Nike aren't your cup of tea, then you might want to move into a place where they have local coffee houses and mom-and-pop stores nearby; the world is your oyster.

The last stage is to compare mortgage deals to see where they differ in terms of monthly payments. Your safest best is to sign up with a mortgage deal that takes no more than 36% of your gross monthly income. For more information on how much house you can afford, click here.

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