Appraisal

Appraisals are written estimates of a property's value, used in this context to protect the lender's interest in the property. Mortgage lenders, like anyone who loans out money, want to make sure that they can recoup their investment should the borrower default on the loan. One of the ways they might lose out is if the property is worth far less than the amount on the note.

Professional appraisers will visit the property in question, measure some dimensions and note the condition of the property. They will then prepare a report for the lender comparing the property to similar properties in the area and make an estimate of the actual property value. And yes, you as the borrower will pay their fee.

Though relatively few loans are denied based on an unfavorable appraisal, it's at least comforting to know that it's difficult to pay far too much for a financed home. If you're lucky like I was, you'll be happy when your appraisal comes in higher than the selling price.