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Do You Need an Appraisal for Your Refinance?
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You’ll typically need a home appraisal for refinancing your home, as it solidifies your home’s value and justifies your loan amount. If your refinance appraisal comes in too low, you may not be able to refinance.
Here’s everything you need to know about getting your home appraised for a refinance loan.
What is a home appraisal for a refinance?
A home appraisal provides your refinance lender with a third-party, professional valuation of how much your home is worth. Depending on how much you want to borrow in your refinance loan, the appraisal can determine several things:
- Whether you can refinance your home. If your refinance appraisal shows your home is worth less than the amount you want to borrow, your loan may not be approved.
- Whether you have to pay for private mortgage insurance (PMI). If your loan amount will be 80% or less of the home’s value, you’re typically not required to have PMI.
- How much money you could get in a cash-out refinance. Many cash-out refinance lenders require borrowers to retain 20% equity.
Is there a difference between a purchase appraisal vs. refinance appraisal?
Yes, there are typically two things that are different:
- In a purchase appraisal, the appraiser will look at the purchase agreement and know the agreed-upon price of the house.
- And as the homebuyer — not yet the homeowner — you’ll likely not be in the home during the appraisal.
By contrast, there is no purchase agreement with a refinance appraisal, and you can be present during one.
Exceptions to needing a home appraisal for a home refinance
If you have a government-backed mortgage, you may be able to refinance without an appraisal in a streamlined program:
- FHA streamline refinance loan
- VA interest rate reduction refinance loan (IRRRL)
- USDA streamlined refinance loan
You can read here about how to determine the home refinance option that’s best for you.
How do home appraisals for a refinance work?
When you do need a refinance appraisal, the lender will order the service after they’ve reviewed all your application paperwork toward the end of the process. The results are required no later than three days before your closing date. The appraisal appointment itself — when the appraiser is in your home — can take a few minutes to a couple hours, while the appraisal process can take a few days to a couple weeks. It depends on the size and complexity of your home and the appraiser’s schedule.
The borrower covers the cost of the appraisal — paying for it either as part of the loan closing costs or financing it into the loan amount. For a single-family home, appraisals cost range from $300 to $500. You’re entitled to receive a copy of the appraisal from the lender at no extra cost, according to the Consumer Financial Protection Bureau.
What do appraisers look for?
Here’s a home appraisal checklist of what appraisers typically look out for, and how you can positively influence your home’s value.
- Curb appeal. Does the property look nice from the outside? A fresh coat of paint, a landscaped yard, clean windows and a clean balcony can make a difference.
- Interior walls. Fix any holes or dents in drywall made by active kids or from hanging previous wall art, and consider repainting with light, neutral paint colors.
- Working features. Does absolutely everything work, from each toilet and smoke detector to each light switch and vent fan? Ensure that all the kitchen appliances run, the HVAC works, all the sinks drain and there are no dripping faucets, cracked windows or missing hardware.
- Paperwork. Copies of previous appraisals and inspections, and any documents detailing the costs of recent home improvements are great to show. In addition: Any legal descriptions of the property, real estate bills or written property agreements, including homeowners association (HOA) contracts.
What happens afterward in the home refinance process?
The lender will review the appraisal results and finalize the loan-to-value (LTV) ratio on your home refinance. Unless the appraiser finds something serious and unexpected that lowers your estimated home value, everything should go smoothly in the mortgage closing process.
What if you don’t agree with the home appraisal?
While the appraisal process is designed to be unbiased, there have been instances of discrimination and agencies like the Federal Housing Finance Agency are working to address and prevent such illegal practices.
You can dispute an appraisal that comes in lower than expected. Review the appraisal documents and look out for:
- Errors. Incorrect numbers, such as square footage, missing appliances and features.
- Better local comparables. Another home in your area sold within the last 90 days could be a better comparable transaction that may have not been included.
- The appraiser’s experience and local market knowledge. If the appraiser isn’t a seasoned professional or isn’t from the local area, they may not have the best skill set.
Gather any and all documents that support your case, including legal descriptions of the property and proof of improvements made to the home, and submit them with your dispute letter. Your real estate agent can help you with this.
Frequently asked questions
Do you need an appraisal to refinance?
As mentioned earlier, you don’t always need an appraisal when you refinance. You don’t always need one when you purchase a house, either — there are mortgages with property inspection waivers.
How much is a home appraisal?
For a single-family home, the cost of an appraisal can range from $300 to $500.
When is an appraisal ordered in the loan process?
The home refinance appraisal is ordered by the lender toward the end of the process and results are submitted at least three days before closing.
How long does an appraisal take?
The whole appraisal process will depend on the home’s size, but can take up to two weeks. The appraisal appointment can take up to a couple hours for most single-family homes.