Refinance Appraisal: What You Can Expect And How To Prepare
Refinancing your home can offer some major perks, such as a lower interest rate, better mortgage terms or the ability to borrow your home equity. Refinancing is taking out a new mortgage, so the process is going to be familiar in many ways, such as your lender ordering a home appraisal.
What Is A Refinance Appraisal?
A refinance appraisal is a professional estimate of your home’s current market value. An licensed appraiser will evaluate your property and compare it to recently sold homes in the area to determine its fair market value. The results will affect your refinance in several ways, especially if you’re doing a cash-out refinance.
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Do I Need To Get My Home Appraised For A Refinance?
Most refinance lenders require an appraisal even if the market or your home’s condition is largely unchanged since you bought it.
You may be able to skip the appraisal if you have a government backed loan. This includes mortgages backed by the Federal Housing Administration, Veterans Affairs or U.S. Department of Agriculture.
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Why Does A Lender Need A Home Appraisal For A Refinance?
A lender almost always requires a home appraisal when you refinance because they want to be sure they’re not lending you more than your home is worth.
What Does A Refinance Appraiser Look For?
The state of the market and your home’s condition are two primary factors an appraiser will review to determine your home’s value.
Market Condition
Most homes appreciate in value. The longer you’ve owned your home and the more you’ve paid down your mortgage balance, the more equity you’re likely to have.
If demand for homes is high in your area, an appraisal may find your home’s current value provides you with more equity than you expected.
If the economy has slowed or homes sitting on the market for a while before selling, your home may appraise for less than you expect and you’ll have less equity to borrow. In some cases, you may find out you owe more on your home than it’s worth, which means you’re underwater on your mortgage and likely unable to refinance.
Home Condition
Appraisers consider improvements and renovations when evaluating a home’s interior and exterior. These upgrades may boost your home’s value, while neglect can reduce its appeal and value in the market.
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What Happens If My Appraisal Is Too Low?
If your appraisal comes in too low, your lender likely won’t refinance your mortgage. Appraisers work independently to ensure an objective evaluation of your property. By law, lenders can’t influence an appraiser’s estimate.
Lenders rely on an appraiser’s professional assessment to determine your loan eligibility and protect you and the lender from future financial problems.
What To Do With A Low Appraisal
If your home appraisal comes in low and you disagree with the result, you have a few options:
- You can appeal or ask your lender to request a new appraisal. Be prepared to offer proof that your home is worth more than the appraiser’s estimate. Homeowners typically challenge an appraiser’s final result when they discover obvious errors in the appraisal report, such as incorrect square footage or the wrong number of bedrooms.
- You can cover the difference in your closing costs. But if the appraisal is significantly lower than the loan amount, refinancing may not be an affordable option.
- You can wait to refinance until the home values in your neighborhood go up or you’ve paid down your mortgage balance enough to have sufficient equity.
What Do Appraisers Look For In A Refinance Appraisal?
Appraisers evaluate several critical factors to determine how much a home is worth.
- Condition of the interior and exterior
- Condition of the plumbing, electrical and heating and cooling systems.
- Number of rooms in the home and any additions
- Upgrades and improvements since the home purchase
- Location of the home
- Comparable sales in the area
Your Refinance Appraisal Checklist
You can do a lot to improve your chances of getting a higher appraised value. You certainly want to do as much as you can to eliminate the risk of a low appraisal. Check out the recommended tasks in our handy refinance appraisal checklist before an appraiser pays a visit.
Add Some Curb Appeal To Your Home
Enhance your home’s first impression by sprucing up the landscape, adding amenities like outdoor lighting or painting your front door. Your home’s first impression is critical. Ensuring the front yard is in good condition can go a long way toward potentially increasing your home’s reappraisal value.
Declutter And Organize Inside Your Home
A clutter-free home looks more organized and feels more spacious and well maintained. Try organizing each room to showcase your home’s interior as effectively as possible. If you’ve lived in the home for quite a while, you should know how to show off your home.
Test And Repair Major Systems In Your Home
This step should be obvious, but it’s still worth highlighting. Double-check that all your essential systems, like heating, cooling, plumbing and electricity, work. If necessary, replace parts like furnace filters or vacuum surface ducts to maximize efficiency and the odds of boosting your home’s market value.
Make Small Upgrades That Increase Your Home’s Value
Small upgrades to your home can only help with the appraisal refinance. Minor cosmetic changes, such as replacing faucets and sink handles, a new coat of paint or new appliances, may be value-boosting investments. While these upgrades may be minor, they could have a major impact on your home’s market value.
Research Comparable Homes
Look at similar, recently sold homes in your neighborhood to see how property values are trending. Appraisers typically rely on real estate comps to learn what comparable homes in the area have sold for, which can affect your home’s valuation.
If the appraisal is lower than anticipated based on your research, you may be able to challenge the appraiser’s estimate.
Types Of Appraisals For A Refinance
Depending on your lender, the loan program and its guidelines, you may be eligible for alternative types of appraisals in addition to the traditional in-house appraisal.
Drive-By Appraisal
With a drive-by appraisal, also called a summary appraisal, an appraiser doesn’t enter the home. They examine the outside of your home and research real estate records to appraise the value of your property.
Hybrid Appraisal
A hybrid appraisal is very similar to a traditional appraisal. However, with a hybrid appraisal, the appraiser uses a third party to examine inside and outside the home. The appraiser reviews the third party’s findings on the home’s conditions and conducts their own market research on comparable properties to create an appraisal report.
No-Appraisal Refinance
Some refinances don’t require an appraisal. They’re known as no-appraisal refinances. The following loans don’t require a home appraisal for refinance:
- FHA Streamline refinance: If you have an FHA loan, you may qualify for an FHA Streamline refinance to refinance without an appraisal. Refinancing may offer a lower interest rate or monthly mortgage payment.
- VA Interest Rate Reduction Refinance Loan: VA loans also offer a Streamline refinance option that doesn’t require an appraisal. It’s called a VA Streamline refinance or VA Interest Rate Reduction Refinance Loan.
- USDA Streamline: Like FHA and VA loan Streamline refinance options, a USDA Streamline refinance doesn’t require an appraisal because the USDA already has an established value on your home from your original USDA loan.
How Long Does A Refinance Take After An Appraisal?
A refinance typically takes 30 to 45 days to complete from start to finish, but how long does it take after the appraisal?
After the appraisal comes in, it shouldn’t take longer than two weeks to close on your new mortgage. However, it’s impossible to tell how long this process will take because external factors or third parties can cause delays.
Your lender can help you gauge how long the process will take. Be forthcoming with any information so you don’t inadvertently delay the process.
FAQ
Here are answers to common questions about refinance appraisals.
The Bottom Line
Homeowners who refinance may be eligible for several appraisal options. Some refinances don’t even require an appraisal. When necessary, the refinance appraisal must consider changing market conditions and documented property improvements.
