Getting A Home Appraisal for Your Refinance: What You Need to Know
You’ll typically need a home appraisal to refinance your mortgage, both to confirm your home’s value and to set your new loan amount. If your refinance appraisal comes in too low, though, you may not be able to refinance unless you use a streamline (no-appraisal) refinance program.
Here’s everything you need to know about getting your home appraised for a refinance loan.
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What is a home appraisal for a refinance?
A home appraisal provides your refinance lender with a professional estimate of how much your home is worth. Depending on how much you want to borrow with your refinance loan, the appraisal can determine several things:
- Whether you can refinance your home.
If a 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 after the refinance.
How to refinance without an appraisal
If you already have a government-backed mortgage, you may be able to refinance without an appraisal using one of these “streamline” programs:
- FHA streamline refinance loan program
- VA interest rate reduction refinance loan (IRRRL) program
- USDA streamlined assist refinance loan program
Wondering which type of refinance you need?
You can read here about how to determine the home refinance option that’s best for you.
If you’re buying a home with a conventional loan, you can’t skip the valuation process altogether, but you might be able to qualify for these alternatives to a traditional appraisal:
- Value acceptance. Formerly known as an “appraisal waiver,” this is when the lender uses a database of existing information about the home to provide an estimated value. That value is then accepted without the need to confirm it with an appraisal.
- Value acceptance plus property data. This option skips the need for an appraisal and appraiser, but still depends on property data collected in person by a third-party professional who is trained to assess the interior and exterior of a home.
- Hybrid appraisal. A hybrid appraisal involves collaboration between a property data collector and an appraiser. The appraiser doesn’t visit the home in person, so this method is only allowed in special cases.
How do home appraisals for a refinance work?
In cases where you do need an appraisal, refinance lenders will typically order one after they’ve reviewed all your application paperwork, as part of the closing process. The results are required to be in 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 full appraisal process can take a few days to a couple of weeks. It depends on the size and complexity of your home and the appraiser’s schedule.
What happens if the appraisal comes in low or high?
Your home’s value, as established by an appraisal, will affect the loan-to-value (LTV) ratio of your refinance loan. Here’s what that means for you:
→ If the appraisal comes in higher than the purchase price, you’re good to go — your home’s value is increasing and that’s always a good thing. If it’s a cash-out refinance, you may be able to get better refinance interest rates or take out more cash than you had originally planned.
→ If the appraisal comes in lower than the purchase price, you’re on shakier ground. Your lender could charge you higher interest rates, or it may not even approve your refinance. Lenders won’t approve a refinance loan that’s for more than the home is worth.
Who pays for the appraisal and how much will it cost?
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 usually cost between $300 and $500. However, they could be more expensive if your home is unusually large or complex, or if there’s a shortage of appraisers in your area. You can also expect to pay a little bit more if you need a VA home appraisal; you can check VA appraisal rates by county at the VA website.
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 does an appraiser look for?
Here’s a home appraisal checklist of what appraisers typically look out for. We’ll go over what hurts a home appraisal and, on the flip side, how to prepare for an appraisal. If you take the right steps, you can positively influence your home’s value.
Curb appeal: Does the property look nice from the outside?
→ What hurts: A messy, overgrown or unkempt look can bring down your home value.
→ How to prepare: A fresh coat of paint on accents, a landscaped yard, clean windows and a neat porch can make a difference.
Interior walls: Are they structurally sound and in good repair?
→ What hurts: Damaged drywall, chipping paint or wood rot.
→ How to prepare: Fix any holes or dents in drywall made by active kids or previous hanging wall art, and repair any wood damaged by moisture. Consider repainting with light, neutral paint colors.
Working features: Faucets, light switches, smoke detectors and door handles may seem like small features, but they can make a difference in your appraised value.
→ What hurts: It’s not a good look if many of the basic elements of your home — from toilets to fans and appliances — don’t work.
→ How to prepare: 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.
Tip: Don’t forget accessibility
Clutter on the inside of your home shouldn’t affect the appraised value, but in order to see and test everything, an appraiser needs to be able to walk around in every part of the home. Some clutter is normal but everything needs to be accessible, including basements, attics, sheds and crawl spaces.
On the flip side, there are some key factors in an appraisal that you can’t control:
- Comparable sales. Also known as “comps,” these are nearby homes with similar features and amenities that have sold recently. They give the appraiser an idea of how much value your home holds in the current market.
- Location. Location is an extremely important factor in real estate value, but the desirability of any given location can change over time.
- Market fluctuations. The real estate market is sensitive to many factors, including interest rates, the changing cost of construction, income trends, population growth and more.
What happens after an appraisal in the refinance process?
The lender will review the appraisal results and use it to finalize the LTV ratio on your home refinance. Unless the appraiser finds something serious and unexpected that lowers your estimated home value, everything should go smoothly as you head toward the end of the 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 (FHFA) 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 for:
- Errors. Incorrect numbers, such as square footage, missing appliances and features.
- Better local comparables. Another home in your area that sold within the last 90 days and may have not been included could be a better comparable transaction.
- The appraiser’s experience and local market knowledge. If the appraiser isn’t a seasoned professional or 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 to your lender with a dispute letter. Your real estate agent can help you with this.