A formal appraisal is ALWAYS required when?

A formal appraisal is ALWAYS required when?

• A. The market demand is low
• B. The lender wants to sell the mortgage to the secondary market
• C. The buyer has a low credit score
• D. The property is being sold at auction

Answer: (B)

A formal appraisal is always required in situations where the lender intends to sell the mortgage to the secondary market. This requirement is primarily due to the need for an independent evaluation of the property's value to ensure that it meets the standards set by the secondary market investors. These investors, which may include government-sponsored enterprises like Fannie Mae and Freddie Mac, mandate that lenders provide a formal appraisal to confirm that the investment in the mortgage aligns with the market value of the property. In contrast, a low market demand, a buyer's low credit score, or a property being sold at auction do not inherently necessitate a formal appraisal. While these factors might influence the terms of a loan or the specific requirements imposed by lenders, they do not constitute a universal mandate for an appraisal across all transactions. The involvement of the secondary market distinctly elevates the need for a formal appraisal to protect the interests of investors and maintain proper standards in the mortgage origination process.

A formal appraisal is always required in situations where the lender intends to sell the mortgage to the secondary market. This requirement is primarily due to the need for an independent evaluation of the property's value to ensure that it meets the standards set by the secondary market investors. These investors, which may include government-sponsored enterprises like Fannie Mae and Freddie Mac, mandate that lenders provide a formal appraisal to confirm that the investment in the mortgage aligns with the market value of the property.

In contrast, a low market demand, a buyer's low credit score, or a property being sold at auction do not inherently necessitate a formal appraisal. While these factors might influence the terms of a loan or the specific requirements imposed by lenders, they do not constitute a universal mandate for an appraisal across all transactions. The involvement of the secondary market distinctly elevates the need for a formal appraisal to protect the interests of investors and maintain proper standards in the mortgage origination process.