Borrowers looking for a private second mortgage need to understand the importance of home appraisals. Accurate property valuations are essential because private lenders are more interested in equity than credit scores.
The equity is that part of any property that’s paid off. A home appraisal helps to determine that, and understanding how to boost your home’s value makes the process go smoothly.
What Is a Home Appraisal?
As the name suggests, a home appraisal estimates a home or property’s market value. A private second mortgage application needs one of these appraisals because the loan amount will be based on factors like equity, which is the amount of the home or property that is mortgage-free and has been paid off.
A second mortgage from a private lender can be used for unexpected home repairs or even to get the money to stop a power of sale or foreclosure.
Several key factors go into a home appraisal, including the condition of the property, the neighbourhood, and the location. Other features, such as the size of the land and the different features available in the home, also make a difference.
A physical inspection is necessary by a licensed appraiser. In Ontario, appraisers must adhere to specific professional standards set by the Appraisal Institute of Canada (AIC). They will also look at recent sales in the area before coming up with a market value.
The Appraisal Institute of Canada offers a search tool to start the process.
The Importance of Accurate Valuation
It’s important to get this right. Private lenders determine the amount they will lend for a second mortgage based on the equity.
Homeowners looking for a second mortgage can tap into their home equity, and an appraisal clearly outlines how much is available. One gives an accurate, current market figure, subtracting any balances on existing mortgages.
Two Appraisals Ahead of Second Mortgage Applications in Ontario
During the power of sale process, typically, two appraisals can be done to ensure the lender understands the market value at which they are legally bound to sell the property. More than that, an accurate valuation or appraisal protects what the lenders invested by way of a loan.
If you’re looking for one of these second mortgages from a private lender, you’ll want to get the highest market value possible. That means increasing the value of your property.
Ways to Increase Your Home’s Value
Boosting your home’s value before an appraisal to determine your equity for a second mortgage is a good plan. Depending on your time frame and your financial situation, there are a few strategies you can adopt, including:
Boosting The Curb Appeal
It’s best to start with simple, fast fixes when you want to increase your home’s value ahead of second mortgage applications in Ontario. Licensed appraisers primarily focus on objective factors such as the property’s size, location, structural condition, and market comparables, but, a positive first impression is an excellent way to influence the appraiser, and that means boosting your curb appeal.
- It can be as simple as painting your front door. Consider a bold colour that will make it stand out.
- Adding colourful flowers to your front lawn and trimming overgrown hedges and plants can make a big difference.
- Bumping curb appeal before an appraisal can be as simple as replacing your house numbers with newer ones.
The things that make a difference to your home value don’t need to be expensive.
Minor Upgrades
Fresh coats of paint on interior walls can make a big difference. Similarly, replacing old fixtures with modern, energy-efficient ones can make a room look brighter and more contemporary.
Installing new hardware like drawer pulls, door knobs, and cabinet handles in bathrooms and kitchens is a low-cost way to boost the home’s value.
Renovations
Then there’s the renovations if you have the time, that can make a more significant difference.
- Remodeling a kitchen can yield excellent returns and increase the value of your property. Replacing appliances, cabinets, and even countertops is a good idea. Quartz or granite are two of the most durable, long-lasting, and low-maintenance materials.
- Another good renovation to undertake is the bathroom. Adding value here can be as simple as replacing old tiles and installing water-efficient shower heads and toilets.
The easiest way to prepare for an appraisal is to deep clean and declutter all the rooms. Start by cleaning up storage areas and closets.
You can do a few other things to get ready before applying for a second mortgage.
Preparing for the Appraisal
Getting ready for an appraisal means understanding why one is essential. An appraisal is part of determining the market value of a property. The market value and the equity are important because private lenders use the loan-to-value (LTV) ratio for loans.
The loan-to-value (LTV) ratio is the most important factor for a private lender. The LTV ratio is the percentage of the property’s value owed in mortgages. If a homeowner has a home worth $1,000,000 with a $500,000 first mortgage and is requesting a $250,000 second mortgage, the LTV ratio for the requested mortgage is 75% of the property’s value. The loan amount is the old loan, plus the new loan, divided by the appraised value
LTV = Total Loan Amounts / Appraised Value of the Property.
Ensuring your home is ready to reflect its actual value means preparing.
- It’s always a good idea to list the amenities around your house. Remember public transportation, shopping centres, parks, and schools.
- Providing some compatible sales numbers for other homes in your neighbourhood offers context.
- Put a file of your utility bills together and highlight the ones with energy-efficient upgrades.
If you have any questions about how to get the most from an appraisal and a second mortgage from a private lender, the best way to get started is to talk to an expert.
