The appraisal estimates the market value of the house based on sales of comparable houses in the same geographic area, guaranteeing the lender that the value of your new house (your collateral) is substantial enough to support the loan.

The appraisal may assist in determining the Loan-to-Value or LTV. The LTV is the loan amount divided by the lesser of the appraised value or sales price. For purchase transactions, the LTV equals the loan amount divided by the sales price. For refinance transactions, the LTV equals the loan amount divided by the appraised value.