What role do appraisals play in obtaining a mortgage?

Appraisals are a critical component in the mortgage process as they provide an objective assessment of a property's value. Lenders rely on appraisals to ensure that the loan amount they are providing aligns with the market value of the property. This is important for mitigating risk; if a borrower defaults, the lender wants to ensure that they can recover the loan amount by selling the property. The appraisal helps establish this property value, guiding lenders in their decision-making process regarding how much they are willing to lend.

In essence, the appraisal confirms that the property is worth at least the amount being financed, protecting the lender's financial interests. By providing this valuation, the appraisal serves as a safeguard not just for the lender but also for the borrower, ensuring that they are not overpaying for the property based on market conditions.