Appraisals often are required when you’re refinancing your home, but this isn’t always the case.
Depending on your mortgage loan officer or refinance options, you may be able to skip the appraisal, even if it could be beneficial for you to get one.
How do you know when to get one or not? It can be tempting to skip the appraisal if it’s not required, because it’s an extra cost. But sometimes getting an appraisal will save you more money overall.
Learn more about when you should move ahead with a refinance home appraisal, and when it’s not necessary.
What is the purpose of a refinance home appraisal?
Before you bought your home, you most likely had it appraised to discover the actual value of the property.
A professional appraiser came out to the property and thoroughly evaluated the condition of the home inside and out, including the location, dimension, and amenities.
Between the evaluation of this home and records of similar properties, the appraiser decided the value of the property and what the actual selling price should be. During a refinance appraisal, this third-party professional is going to do the same thing.
This time, their conclusion will determine whether you are able to refinance — and help your mortgage loan officer determine the interest rate and terms. While there are several benefits to a refinance home appraisal, there also are valid reasons to avoid one.
When it’s beneficial to appraise before refinancing
Whether you are required or choose to get a refinance appraisal, there is the potential for major benefits. You might be able to save a lot of money or cash out at a higher amount.
Lower interest rate
Most people choose to refinance when mortgage interest rates are low. If you decide to get an appraisal and it shows your home’s value has increased, you could get an even better rate than you had expected.
Lower interest rates mean greater savings over the life of your loan, plus the potential for lower monthly payments.
No more private mortgage insurance (PMI)
If the appraiser determines your home value has increased, you could end up with a loan that’s less than 80% of the home’s value. This means you have 20% equity in your home, and no longer have to pay private mortgage insurance (PMI).
More cash out
A higher appraisal can mean cashing out more, which you can use to reach other financial goals such as paying down debt or paying tuition to take a class.
When to skip a refinance appraisal
There are certain loan programs and situations that do not require you to get a refinance appraisal.
In these instances, you may decide to move forward without one due to the cost or the potential that your home will appraise at a lower value. For a standard single-family home, appraisals can cost around $300 to $500.
If your home appraises at a lower value, you may not be able to refinance, or your loan may have to be restructured.
FHA streamline refinance
If you have a Federal Housing Administration (FHA) loan and want to refinance, you can use an FHA streamline refinance. This type can result in a lower interest rate or a switch from an adjustable-rate to fixed-rate mortgage.
Your loan officer isn’t required to order an appraisal with an FHA streamline refinance.
VA streamline loans
VA-backed loans have an option called an Interest Rate Reduction Refinance Loan (IRRRL). Similarly to FHA loans, with this option you might be able to get a lower interest rate or switch from adjustable-rate to fixed-rate.
Appraisals are not required with this type of loan.
Conventional loan-to-value ratio
You might be able to get an appraisal waiver if your current loan-to-value (LTV) ratio is 90% or lower.
Appraisal preparation tips
Prior to your appraisal, make sure your home is clean and maintained — inside and out. Perform the following tasks leading up to the appraisal:
- Clean the home and clear up cluttered areas
- Remove weeds and yard waste
- Touch up or repaint inside or outside
- Upgrade old or malfunctioning systems such as the furnace, plumbing, etc.
- Open the doors and turn on the lights
Aim to make your home as bright, cozy, and inviting as possible. Clear your schedule so you can be on hand for questions from your appraiser and point out the home’s best features or recent improvements.
If you put your heart (and effort) into your home’s improvements and the appraisal results are disappointing, you potentially can dispute the appraisal. This usually only yields positive results in your favor if the appraiser actually made errors on the report, though.
Moving forward with your refinance goals
Whether you choose to get or skip the appraisal based on your loan options, you need to have a professional mortgage loan officer in your corner.
Your loan officer will help you through the refinance process from start to finish, and ensure you are aware of your options and requirements. Reach out to the Homefinity team today to get started, or apply now.