Essential Tips for Your Upcoming Mortgage Refinance Appraisal
If you’re considering refinancing your mortgage, be prepared that your lender will most likely request a home appraisal to determine its current market value. Don’t worry, you won’t need to carry out extensive renovations for this, but there are certain steps you can take to help ensure an accurate and favorable appraisal, and ultimately a successful refinancing process.
Why is a refinance appraisal necessary? When you initially applied for your mortgage, you’ll remember that an appraisal was required. Lenders need this property valuation as a means to evaluate the risk involved in the loan, since the property is used as collateral. As you’re applying for refinancing, it’s essentially like applying for a new mortgage. But property values can change over time, so lenders won’t base their decision on your home’s original appraisal. What if your property’s value has depreciated since then?
That’s why many lenders require an up-to-date estimate of your home’s value to greenlight a refinancing process. The appraisal can also inform lenders about the suitable amount you should be allowed to borrow, particularly if you’re considering cashing out some of the loans.
John Brennan, a Chief Appraiser at Clear Capital based in Roseville, California, explains, “Although most borrowers aim to repay their loans, unforeseen circumstances can sometimes hinder that. Therefore, lenders need to ensure that your property holds enough value to cover the loan amount in the worst-case scenario.”
While you’re responsible for paying for the appraisal, usually a few hundred dollars, the primary purpose is for the lender’s reassurance. Nonetheless, homeowners can also benefit from a refinance appraisal as it provides an updated valuation of the home, which is handy to know if you’re considering selling. If your home has appreciated since your initial purchase, you might find your equity stake to be pleasantly surprised. And of course, the appraisal will also help determine the size of the loan you can secure, and if you’re planning a cash-out refi, how much money you can withdraw.
When an appraisal may not be necessary Steven Ho, a Loan Officer at the New York City-based Interstate Home Loan Center, says appraisals aren’t always obligatory when refinancing a mortgage. “Sometimes, in cases where only the existing loan is being refinanced without a cash-out at closing, and when the homeowner has significant equity, an appraisal may not be needed,” Ho explains.
Conventional loans are more likely to waive the need for an appraisal compared to non-conventional, government-backed loans. However, exceptions do exist. For example, both the VA streamline refinance and the FHA streamline refinance programs, available to homeowners with VA and FHA loans respectively, don’t mandate appraisals.
How to ready your home for a refinance appraisal If an appraisal is deemed necessary, your lender will order one as part of your refinance application process. The appraiser will then arrange a visit to your home for a brief inspection.
Bill Samuel, the owner of Blue Ladder Development, a Chicago home-buying firm, suggests treating the appraisal like a potential sale, having your home in show-ready condition for the appraiser’s arrival. To increase your chances of a favorable appraisal, consider the following tips:
- Enhance your curb appeal Keep your lawn manicured, and give your porch, patio, and fence a thorough cleaning. Power washing your driveway can also boost your curb appeal. These minor efforts suggest a well-maintained home and can increase your property value by 7 percent or more.
- Declutter and clean your home Clean and declutter your interior spaces. Ensure countertops are cleared of mail, shopping bags, and other clutter. Vacuum your floors and neatly store away any items like blankets, bags, and clothes that might otherwise pile up on furniture.
- Document all home improvements Provide the appraiser with a list of any upgrades or improvements made to your home in the past few years. Details about significant remodeling projects, additions, new roofing, windows, HVAC systems, updated appliances, or added insulation can all add to the value of your home.
- Carry out minor improvements Consider small, cost-effective improvements. While you don’t want to undertake major expenses that may offset your refinancing savings, minor touch-ups like painting over visible chips or cracks, cleaning carpets, or replacing broken windows and doors could add perceived value.
- Study comparable properties in your area After the on-site visit, the appraiser will spend a couple of hours gathering data and comparing your home to similar properties to complete their valuation report. Providing the appraiser with recent sales or listings in your neighborhood could help inform their assessment.
What if the appraisal is lower than expected? If the appraisal comes back with a lower valuation than you anticipated, don’t despair. First, scrutinize the report to ensure there are no errors. If you can’t find any inaccuracies and still believe the valuation to be unjust, you can challenge the report, although you’ll need substantial evidence to do so. Alternatively, you might find it easier to request a second appraisal from a different professional. While this would incur another appraisal fee, your lender may permit it and then compare the two evaluations.
Final thoughts on mortgage refinance appraisals Appraisals are a common element of the refinancing process, so there’s no need to worry if your lender requests one. They don’t take much time and won’t require significant renovations on your part. However, it is worth investing a little time to spruce up your home and research recent sales in your area. This preparation could help secure a favorable appraisal and, eventually, a satisfactory new loan.
