What does the mortgage lender rely on to decide how much to lend on real estate?

The mortgage lender primarily relies on the appraisal report to decide how much to lend on real estate. An appraisal is an unbiased professional opinion of a property's value, conducted by a licensed appraiser. It assesses various factors such as the property’s condition, location, and recent comparable sales in the area to determine its market value. This valuation is crucial for lenders, as it helps ensure that they are not lending more than the property is worth, providing them with a safeguard against potential losses in case of default.

While market analysis, sales contracts, and assessor's determinations all contribute valuable information, they serve different purposes. A market analysis evaluates broader market conditions and trends but is less formal than an appraisal. A sales contract indicates the agreed-upon price between buyer and seller, but it may not reflect the fair market value if the property is over or underpriced. An assessor's determination provides an estimate of the value for tax purposes, which may differ from the market value used by lenders. Therefore, the appraisal report is fundamentally the most critical document influencing the lender's decision on how much to lend.