Refinance Valuation: What To Expect
Get a home appraisal for refinancing
First, let’s review the exact definition of an assessment. An appraisal refers to the estimated market value of your home. An appraiser determines the value of your home by inspecting your property and comparing it to recently sold homes in the area. When your home is the subject of a purchase appraisal, you cannot be present. Unlike a purchase appraisal, you can be present for the refinance appraisal.
Let’s learn more about why you might want to refinance and go through the steps to get a refinance appraisal.
Why Do Homeowners Refinance?
Why would you want to refinance your mortgage? Let’s take a look at some of the following reasons:
- To get a lower interest rate or monthly payment through a rate and term refinancing: Interest rate and term refinancing allows you to replace your current mortgage with a new mortgage contract. You would probably do this to get a more attractive interest rate and financing terms.
- To convert your equity into cash for home renovations or debt consolidation using a refinancing of collection: A cash-out refinance allows you to kill two birds with one stone: you convert your home equity into cash and refinance your mortgage at the same time.
- To change your loan from one fixed rate has a variable rate mortgage (ARM) or vice versa: A fixed rate mortgage is a mortgage that pays the same interest rate for the life of your loan. In other words, you’ll keep the same interest rate for the life of your loan.
An ARM, on the other hand, refers to a home loan with an interest rate that is fixed for a period of time and then adjusts over time based on market conditions.
- To get rid of private mortgage insurance (PMI): If you pay less than 20% down payment on a conventional mortgage, a mortgage guaranteed by Fannie Mae or Freddie Mac, two public companies, you will have to pay PMI. Most PMI payments are in addition to your monthly mortgage payment. A lender typically cancels the PMI once you reach 22% of your home’s equity or after your principal balance reaches 78% of your home’s original value. Refinancing can get you there faster.
Do any of these reasons encourage you to refinance? If so, let’s go deeper into a refinance appraisal.
Do you need an appraisal to refinance?
A lender almost always needs an appraisal when choosing to refinance because they want reassurance that they are not lending more than the value of your home. A refinance appraisal can determine if the home has depreciated at all since its purchase.
The main cases in which you may not need to take an appraisal include FHA, VA, or USDA loans.
What to do with a low rating
Sometimes a rating is low. This means that it could cause you problems – you may not be able to withdraw that much equity.
Yes your rating is too low and shows that you are under water, your lender will not allow you to refinance. Remember that the lender may not have had any influence or conversation with the appraiser regarding the appraisal of your property. By law, lenders cannot influence the value of a home.
If your home’s valuation is low, borrowers have several options:
- You can dispute the appraisal and request a new one if it’s cheaper than expected, but be prepared to provide plenty of evidence that your home is actually worth more than the appraiser’s value.
- You can pay the difference in your closing costs, but if the appraisal is much less than the loan amount, this may not be an affordable option.
- You may have to wait to refinance until home values ââin your neighborhood increase.