When applying for a conventional or insured mortgage in Canada, you may wonder whether you need an appraisal. An appraisal is an estimate of the value of a property, typically performed by a licensed professional, that helps lenders determine the amount of money they are willing to lend you for the purchase of a home.
Suppose you are applying for a conventional mortgage. In that case, the lender will typically require an appraisal to determine the property’s value and ensure the loan amount is not more than the property’s allowable loan-to-value. The appraisal helps protect the lender’s investment and reduces its risk. In Canada, an appraisal is generally required for conventional mortgages but not for insured mortgages.
There is an exception to the rule for physical appraisals to be performed for conventional mortgages. Lenders now have Auto Evaluation software. If the property meets specific guidelines, the lender may use their Auto Evaluation software, saving time and expenses.
For insured mortgages, various mortgage insurers provide insurance to the lender if the borrower defaults on their loan. In this case, an appraisal is not typically required because the insurer assumes the risk of default.
However, it is essential to note that some lenders may still require an appraisal for an insured mortgage, even though it is not required. This is because the lender wants to ensure that the property is worth the amount of money they are lending.
In conclusion, if you are applying for a conventional mortgage in Canada, you may need a formal appraisal. Please note that the lender orders the appraisal, not the borrower. If you are applying for an insured mortgage, the lender may still require an appraisal, but it is not a requirement. To ensure you know all the requirements related to appraisals, talk to your mortgage broker, and they will be able to guide you on the requirements.