Refinancing Assessment: How It Works and What to Expect

The refinancing appraisal is part of the underwriting process for obtaining a new loan to replace the existing one. The lender may request an appraisal to determine the market value of your home and ensure that it is sufficient to secure the new loan. This helps the lender establish the loan maximum and amount.

Why do lenders require home appraisals for refinancing?

The lender requires you to obtain a home appraisal before refinancing for several reasons, including:

• The appraisal allows the lender to confirm the current value of your home. This information is important because the lender does not want to lend more than your home is worth, as the home serves as collateral for the loan. If you are unable to repay the loan for any reason, the lender may decide to proceed with foreclosure on the home and sell it to recover their funds. Therefore, knowing the value of your home helps the lender understand how much of a loan they can offer.
• If you are looking for cash-out refinancing, where you receive an additional amount, the appraisal clearly defines how much equity you have in the home. Your equity is based on the current value of the home, minus any remaining mortgage balance. The cash amount you can receive is determined based on the size of your equity in the home.
• The appraisal gives the lender an idea of how well-maintained the property is and how it compares to other similar homes in your area.

The appraisal can also help the homeowner. By providing a current appraisal of your home, the appraisal can be useful if you are considering selling your property. If the value of your home has increased since you purchased it, you may happily discover an increase in your equity.

Do I always need an appraisal for refinancing?

Not every refinancing requires an appraisal. However, the decision is entirely up to the lender.

For example, Bank of America requires a refinancing appraisal “to accurately assess property value and transaction risk,” according to Ann Thompson, a retired senior specialist executive at Bank of America. She states that appraisals “provide independent verification of other critical information such as occupancy, completion, project condo information, and health and safety.”

However, the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) offer streamlined refinancing programs that do not require qualifying borrowers to obtain property appraisals. Some of the key benefits and requirements of these programs include:

• The FHA streamlined refinancing program, called “streamlined refinancing,” offers either a lower interest rate or changes to the loan terms, or a switch from an adjustable-rate loan to a fixed-rate loan.
• When using the streamlined FHA refinancing, you cannot withdraw more than $500 (in cash), your mortgage must be in good standing, and it must be an FHA loan.
• VA-backed refinancing, known as Interest Rate Reduction Refinance Loan (IRRRL), typically offers a lower interest rate and reduced monthly payments; it can also switch from an adjustable-rate loan to a fixed-rate loan.
• You can only refinance with an IRRRL if your original mortgage is a VA loan and if the new interest rate is lower.

What factors do refinancing appraisers consider?

When reviewing a home, whether for refinancing or a new purchase, appraisers will focus on a few factors:

• Location. This is one of the most important factors. The appraiser will evaluate things such as recent sale prices of nearby homes of similar size and amenities. They will also consider how close your home is to desirable community landmarks such as parks and shops.
• Size. The available space of your home will play a significant role in the appraisal. The number of bedrooms and bathrooms will also affect this.
• Design and functionality. The appraiser may also consider whether the design of your home is modern or outdated. Better functionality can increase the value of the home.
• Improvements

the temperature. Make sure your home is at a comfortable temperature for the appraiser.

• Make necessary repairs. Fix any minor issues, such as leaky faucets or squeaky doors, to present your home in the best possible light.
• Gather important documents. Have any relevant documentation ready, such as a list of recent upgrades or repairs, as well as property tax information.

By taking these steps, you can help ensure that your home is in the best possible shape for the appraiser’s visit, potentially leading to a higher refinancing appraisal value.

Conclusion

A home appraisal is a critical part of the refinancing process. Understanding what affects the appraisal value and how to prepare can make a significant difference in the outcome. Always communicate with your appraiser and consider their advice on how to enhance your home’s value during the evaluation process.

Temperature

. Make sure to set the heating or cooling to a reasonable temperature to ensure that the interior is comfortable.

How much does a refinance appraisal cost and who pays for it?

The appraisal fees are included in the closing costs that the borrower pays. According to the “2023 Appraisal Survey” conducted by the National Association of Realtors, the typical cost of an appraisal is $500 in 2023, with 86 percent of respondents reporting appraisal costs exceeding $400.

Meanwhile, Angi estimates that the national average cost for a home appraisal in 2023 is $355, with prices typically ranging from $313 to $422.

What you pay can vary significantly based on the size, location, and uniqueness of your home. You may have to pay for the appraisal upfront, but you may also be able to include these expenses in the loan and add them to your closing costs.

The cost of the appraisal is the responsibility of the borrower to pay. However, you do not have to pay these fees until you close on the loan. They will be among the closing costs you incur when finalizing the refinance.

What to do if your home appraisal is low?

A low property appraisal can impact your chances of a successful refinance. Even if you have an excellent credit score, if the lender believes you have little equity in the property, they may deny the refinance. A home with a low appraisal represents a higher risk for the lender because you could find yourself underwater on the new mortgage.

If you received a low appraisal, you can do a few things:

• Thoroughly review the appraisal report to ensure that all the information about your home is accurate. Carefully check for any errors. The appraiser may not have realized that you upgraded your HVAC system, or they may have recorded a functioning stove as inoperable, overlooked one of your bathrooms, or recorded an incorrect number of cabinets or square footage.
• Challenge or appeal the appraisal report. Be ready to provide evidence supporting why your home should be valued higher, such as recent comparable home sales in your neighborhood.
• Request a second opinion if allowed by the lender. This involves paying for another appraisal from a different professional.
• Consider applying for a cash-out refinance instead of a full refinance or agree to pay private mortgage insurance (PMI) if necessary.
• Seek a different refinancing lender and go through the appraisal process again.

Frequently Asked Questions about Refinance Appraisals

What is the difference between a refinance appraisal and a home inspection?

The purpose of the appraisal is to assess the market value of the home only. A home inspection evaluates the condition of the property, including safety and the functionality of its systems such as plumbing, electricity, heating, etc. The inspector conducts a thorough review of the property to uncover any hidden issues, as well as more obvious problems. The inspector does not provide any assessment of the home’s market value.

What are the benefits of getting an appraisal for refinancing?

Many lenders require a mortgage appraisal; without it, your new loan will not be approved. Additionally, if your home’s current market value is higher than what the lender assumes and you end up with a loan less than 80 percent of the home’s value, you will be able to avoid private mortgage insurance (PMI). This is because you will now have 20 percent equity in the home.

Furthermore, refinancing can work to your advantage when the value of your home increases. If the appraisal shows that your home’s value has risen, you may qualify for a lower interest rate or may be able to access more cash in the refinance. Finally, if your home’s value has increased, your chances of getting approved for refinancing could also improve.

What

What happens after the refinance appraisal?

After the refinance appraisal, you move to the underwriting process. At this stage, the lender reviews your application materials to ensure everything has been completed and submitted correctly. Based on this information, the lender will either approve or deny your application. If your application is incomplete or incorrect, you may be granted a conditional approval. Once approved, you can proceed with closing the loan.

What are appraisal sites?

Appraisal sites collect data about your home and interpret it using mathematical calculations through an algorithm. However, this is not always accepted by all lenders for refinancing, as the sites will not be an accurate substitute for a person who can consider more details about your home and the neighborhood.

Source: https://www.aol.com/refinance-appraisal-works-expect-213857060.html

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