An appraisal is an estimate of the value of a property, made by a qualified professional, called an appraiser. An appraisal of the property you want to purchase is as important as your credit history in obtaining a mortgage and is a critical factor in determining how much of a mortgage the bank or mortgage company will approve. After all, the property you are purchasing serves as collateral for the loan.

The appraiser generally is chosen by the mortgage lender, or you can locate a qualified appraiser by contacting one of the professional organizations, such as the Appraisal Institute or the American Society of Appraisers.

You will be refused a mortgage, or offered a smaller amount on the mortgage, if the appraisal falls short of the amount you wish to borrow. You will have to make up the difference with a larger down payment, or renegotiate the sale price with the seller.

To avoid this situation, make certain you ask your Realtor for a Comparative Market Analysis, also known as a CMA or "comps," before you buy your dream home. The CMA shows recent sales of properties in the neighborhood where you want to buy a home. Not only does it let you know whether you're paying a fair price for the property, but it also can provide a clue as to the value of your property from an appraiser's perspective.

The appraiser looks at your home from two separate angles to determine its value:

• What it would cost to rebuild the home.
• How it compares to other properties of similar size, quality and location that have sold recently.

Banks and mortgage companies frequently complain that some borrowers think their properties are worth more than they actually are, and then are disappointed by the loan amount they are approved for. This situation can be avoided if you ask for the CMA report before making an offer on the property.