Hi I am a little confused on how a home equity loan works. Based on my understanding, the loan amount you can receive is based on the amount of equity present in a property. This is found by subtracting the remaining Loan Amount from the Fair Market Value of the Home. (Feel free to correct me if I am missing anything) My confusion comes from this idea. How is Fair Market Value determined? I know it is calculated during an appraisal process. However, I am unsure of the details that go into the appraisal. I would assume that the value is gated by comps, but I do not know to what degree this affects the final value that a lender comes to. Please let me know your thoughts. Happy holidays!

Lenders use appraisals to determine value. A residential appraisal (1-4 Units) is based on 3-6 sold comps or occasionally listed comps that are within 1/2 mile of the subject that is most like the homes design, layout and appeal as the subject property. 

When the appraiser chooses their comps, they are choosing sq. ft. that will bracket the subject homes sq. ft. So if the home is 1400 sq. ft., then the appraiser will choose some comps smaller, the same size and larger then the subject. Typically they try to stay within 200-300 sq. ft. of the homes size. They choose like type home designs, meaning comp a ranch to other ranches. Comp a 2 story to other 2 story homes. They can expand the half mile radius, but will only do so if there are no usable comps close enough by. They also want comps that are sold within the last 3 months ideally, but can expand the time out to 6 or maybe even 9 months. 

Then they grid the comps and make adjustments based on amenities and quality of amenities, age of improvements and effective ages (meaning how well cared for or overall condition compared to new). There are preset standards that individual adjustments and the overall adjustments must adhere to to be within USPAP rules.  Then after all adjustments, they can then make their final determination of value based on the adjusted comps values. 

I hope this helps?

http://www.firstam.com/mortgagesolutions/solutions...

They might use a company like this and have a real estate agent like me go out and take pics of the house, then the agent returns to their desk to complete a form that provides comparables and neighborhood information as well as pictures and they use that evaluation in conjunction with their internal appraiser to determine the FMV. The internal appraiser has to agree with the agent's report (comps & opinion of selling price) before they can submit it to the mutual client.

That is pretty much all I know, I don't know what they use internally to determine the actual loan amount, I just am a vendor completing a specific inspection and that's it. 

I hope this shed light on how they figure out FMV and how they obtain the information needed to complete the loan.

I'm sorry if I am wrong in anything that I posted and have a happy new year to all.