If you are in the market for a mortgage, learning the basics will help you avoid making common mistakes that can cost you thousands of dollars. Here is what you need to know about appraisals and your mortgage.

Your homes appraisal is an estimate of the homes value prepared by a licensed appraiser. The appraised value of the home is based on recent sales in your neighborhood and the sale of similar homes in your area. The appraiser will also evaluate the physical condition of your home by inspecting the home inside and out.

The mortgage lender will use this appraised value to determine your loan-to-value ratio. The loan-to-value ratio of your home is simply a comparison of the value of your home to the amount of mortgage loan you are requesting. Most lenders prefer loan-to-value ratios less than 80 percent. To calculate your loan-to-value ratio simply divide the amount of the mortgage loan you are requesting by the appraised value of your home and multiply by 100.

Before you have your home appraised you might want to ask for recommendations for appraisers in your area. Your Realtor should be able to recommend a good appraiser or you can contact the licensing agency of your State government for a list of licensed appraisers in your area. To learn more about saving money on your mortgage loan, register for a free mortgage guidebook using the links below.