How to Get the Most of a Mortgage Refinance Appraisal

If you bought your home long ago, you may not remember how the home appraisal process works. A refinance appraisal is just like a refinance appraisal. It’s just as important when you refinance as it was when you bought your home because it gives you a professional opinion of how much your home is worth. And tells you how much of your home equity you can borrow against. Read to know more about a mortgage refinance appraisal. 

Why do lenders need a mortgage refinance appraisal? 

Your lender will want to know that your home is worth enough to cover the amount of your new loan. That’s because if you don’t pay your mortgage, the lender will sell the house, which is the security for the loan, to get its money back. The main things that affect the value of your home are the market and the quality of the structure. 

The value of a home usually goes up, but it can sometimes go down. This can happen if you buy the home at the peak season, and then home values in the area drop because of an economic event or a drop in demand. If you try to sell your home during one of these times, it may not be worth as much as it used to be.  

In the worst cases, you could end up underwater on your mortgage. If the appraised value of your home is less than what you owe on it, you may not be able to borrow as much, or you may not be able to refinance at all. Lenders also want to know if you’ve been taking care of your property. If you don’t, your home’s value could decrease, hurting the lender’s investment. 

Home appraisal vs. home inspection 

Home appraisals are necessary for refinancing. It helps you figure out how much you can borrow based on the value of your home. The lender doesn’t care much about the repairs your house needs unless they affect how much it’s worth on the market. 

On the other hand, a home inspection is done at your request and is not required for a refinance. A home inspection makes sure that the house is in good shape, shows the buyer how to take care of the house, and finds any major problems or warning signs. 

What should you expect from an in-person appraisal? 

Based on the reason for the refinance and the amount of equity in your home, your lender may request an in-person appraisal. A complete appraisal will necessitate a house visit. When it comes to refinancing appraisals, you have the option of attending the appraisal. 

The appraiser will thoroughly evaluate the home’s exterior and interior to assess its condition and note its size and features. The appraiser will then conduct a study to estimate the home’s fair market value by comparing it to similar houses that have previously sold in the region. 

What factors influence a refinance appraisal? 

Your mortgage company does not perform appraisals. Most states require that an appraisal be performed by a licensed and impartial third party. Know that your mortgage lender may assist in scheduling or arranging the assessment. An appraiser looks at various home factors during the inspection to establish its value. Here are some factors that influence a refinance appraisal: 

• Basic condition of the home 

While assigning a value to a home, the appraiser will not check to see if the outlets are working or examine the paint color on the walls. But they will analyze the home’s basic condition. The appraiser counts the number of bedrooms.  

They also look into health and safety issues, such as the existence of lead paint. Also, whether the ventilation and cooling systems are operational. They will also ensure that someone can live in the house comfortably. If they conclude that someone cannot, the assessment value will be much lower than the surrounding properties in living conditions. 

• Upgrades 

Your appraiser will consider any upgrades or enhancements you’ve made to the property. If you want to raise the value of your property, the upgrade must be a permanent fixture.  

Your appraiser is unlikely to consider it an upgrade if you can take it with you when you move. The appraiser also examines upgrades outside of the home’s living space, such as improvements to the garage, pool, or basement. 

• Comparable homes in your area 

When assigning a value to your home, appraisers do more than just look at it. They also look at public data of other residences in your neighborhood.  

The location is an important aspect in evaluating a property’s worth. Appraisers utilize real estate comps to assess what similar homes have recently sold for and how property prices trend. 

Alternatives to in-person appraisals 

Your lender may require an appraisal, depending on their refinance criteria and your circumstances. Lenders have found non-invasive appraisals and virtual appraisals to cut appraisal expenses and speed up the appraisal process. 

• Hybrid appraisal 

Hybrid appraisals enable appraisers to complete an appraisal without ever physically seeing a home by utilizing information provided by a third-party source.  

Appraisers may use images from the home inspection in some situations or engage someone to acquire site-specific information per the lender’s standards. 

• Desktop appraisal 

The COVID-19 epidemic has contributed to the rise in the popularity of desktop appraisals. A desktop appraisal is similar to a hybrid appraisal in that no third party is engaged.  

The appraiser gathers information for an appraisal from internet sources, such as property records, floor plans, and comparable listings.  

• Drive-by appraisal 

Many prospective homeowners may be pleased with a drive-by or exterior-only appraisal. For most refinances, the Federal Housing Administration (FHA) and Veterans Administration (VA) both accept exterior-only evaluations. 

• No appraisal 

Although most refinance require a fresh appraisal, there are those that do not. Appraisals are not required for refinances under the VA’s IRRRL or the FHA streamline programs. 

These programs were designed specifically to assist VA and FHA borrowers to benefit from lower interest rates without suffering the full expenditures of a full refinance. 

What should I do to prepare for a mortgage refinance appraisal? 

When your lender tells you what kind of appraisal they want, you’ll know what you need to do to get ready. On a general note, here are some tips for you to prep well. 

• Make your outdoors look appealing. 
• Clean up the mess and fix the maintenance issues. 
• Make a list of upgrades and improvements and put it in a file. 
• Research comparables. 
• Make sure that the upgrades are functioning. 
• Invest in small upgrades. 
• Make some last-minute plans. 

How much does a refinance appraisal cost? 

It depends on what kind of appraisal your lender needs and where you live. If your property is one of a kind, it can also be hard to value. The more unique your home, the harder it is to determine its fair market value. Once you’ve been preapproved, your lender will figure out how much your closing costs will be.  

The loan agreement includes these estimates, and the final costs will be included in a document sent to you three days before closing. On average, a single-family home appraisal costs between $300 and $400. As the borrower, you’ll have to pay all the costs associated with the start of your new home loan at closing or roll them into the loan. 

What if I don’t agree with my home appraisal? 

Sometimes the appraiser’s value is lower than you would like and lower than you think your home is worth. If you don’t agree with the appraisal’s value, you can write a letter of appeal to the lender or AMC. But it might not be taken into consideration unless you have some solid proof against their judgment. 

What can I do if my home appraisal is low? 

If the appraisal indicates that you have less than 80% equity, you will fall short of the required 80% loan-to-value (LTV) ratio. And you will be required to pay PMI unless you decide to refinance with a cash-in. Adding additional funds at the closing entails reaching the minimum 80%. 

You have the option to pay the PMI. Even if you haven’t yet paid down a large portion of your loan, you can subsequently request that PMI be dropped by giving your mortgage lender comparable sales if property values continue to spike. 

How long does a home appraisal take? 

The time it takes to appraise a home might range from a few days to a few weeks. The property, the complexity of the evaluation, and the schedule of the appraiser determine the time frame.  

The appraiser may visit the house in person for 30 minutes or for up to several hours. It takes a week or two to put together the appraisal report once the appraiser has inspected the property. 

What hurts a home appraisal? 

A solid appraisal is essential whether you’re looking to buy or refinance a home. You might not be authorized, or your mortgage rates might go up if the assessment is too low. Your appraisal may suffer from a variety of variables, including: 

• Putting off maintenance 
• Unattractive or outdated finishes 
• Avoiding disclosure of necessary repairs 
• Market circumstances 
• Expertise in appraisal 

Bottom line 

You will have the best chance of getting an appraiser to place the highest possible value on your property if you are aware of how the appraisal process operates. Refinance assessments are processes with room for subjectivity and errors, so they don’t always come in at the values that the borrowers hope for. A low appraisal can be challenged, but you won’t be successful unless you have compelling evidence to support your position. 

FAQs 

What is a refinance appraisal? 

A refinance appraisal is a property evaluation that occurs as part of the loan application procedure. To ascertain your home’s market value and ensure it is valuable enough to support your new loan, your lender can arrange an appraisal. 

Why do you need an appraisal to refinance? 

An appraisal reassures the lender that you aren’t borrowing more money than your home is worth. Most of the time, before you refinance your loan, your lender will request an appraisal. This action serves to safeguard the financial interests of the lender. 

What is the difference between a refinance appraisal and a purchase appraisal? 

The main distinction between the two loans is their intended use: mortgages for purchases make it possible for you to buy a home. You can modify the terms of your initial mortgage through refinancing, which you might want to do for many reasons. The process appraisers use to determine a home’s worth is essentially the same for refinance and purchase appraisals. A buy appraiser has access to the purchase contract and, consequently, the sales price, which is the only distinction. 

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