Refinance Appraisal: How It Works and What To Expect

A home appraiser evaluates your home and determines its market value. When you decide to refinance your home, your lender might require you to get an appraisal before approving the new loan. However, a refinance appraisal might not be required in all cases.

Advantages of a refinance appraisal

There are a few advantages to getting a refinance appraisal. While you might be tempted to skip an appraisal, here are some reasons to consider moving forward with one.

Avoid private mortgage insurance

One of the biggest advantages of a home appraisal for a mortgage refinance is the potential to get rid of your private mortgage insurance (PMI). If the market value of your home has increased to the point where your mortgage loan amount is less than 80% of the home’s value, you can avoid PMI on your new mortgage. That could potentially save you thousands of dollars.

Read On: How to Get Rid of Private Mortgage Insurance (PMI)

Get a lower interest rate

Right now, mortgage refinance rates are near historic lows. Refinancing could help you take advantage of that lower rate, and if your home comes in at a higher value, you could get an even lower rate. This can translate to a lower monthly payment as well as interest savings over the life of your home loan.

If you’re ready to see what refinancing rates you qualify for, Credible can help. Get started by comparing rates from our partner lenders in the table below.

Potential for a larger cash-out amount

With a higher appraisal, you might be able to cash out a higher amount if your mortgage refinancing goal is to get extra money from the deal. Combined with a lower interest rate, this might allow you to reach some of your other financial goals in a more cost-efficient manner.

Find Out: How to Refinance Your Mortgage in 6 Easy Steps

Disadvantages of a refinance appraisal

Even though there can be some advantages to an appraisal, there are also some downsides. Before you move forward, weigh the potential disadvantages to having an appraisal.

Cost

The cost to refinance includes a home appraisal fee as one of the expenses. The average cost of a home appraisal typically ranges from $300 to $500. That’s something to keep in mind.

Lower property valuation

Another downside to an appraisal is that you could end up with a lower property valuation. If that’s the case, you could be stuck with PMI. There’s even a chance you might not be approved for a refinance because of your higher loan-to-value (LTV) ratio.

 

When it makes sense to skip a refinance appraisal

Depending on your situation, you might be able to skip a home appraisal for your refinance. One of the main factors in whether you can avoid the appraisal has to do with your LTV ratio.

• Conventional loans: If you own a primary residence and aren’t getting a cash-out refinance, you might be able to get an appraisal waiver if your current LTV is 90% or lower. Fannie Mae will even allow you to skip the appraisal on a cash-out refinance if your LTV is 70% or lower.
• FHA loans: Use an FHA streamline refinance to avoid an appraisal and receive lower documentation requirements. This type of refinancing is designed to lower your principal and interest payments.
• VA loans: If you’re just looking for an interest rate reduction on your VA loan, you can use their streamlined loan and skip the appraisal.
• USDA loans: As long as you’ve made on-time payments for the last 12 months and your refinance will reduce your monthly payment by at least $50, you can qualify for a streamlined USDA refinance that doesn’t require an appraisal.
• ARM loans: If you have an adjustable-rate mortgage, meet LTV requirements, and are switching to a fixed rate, you might be able to avoid an appraisal.

Pros and cons of skipping an appraisal

Learn More: Cash-Out Refinancing vs. Home Equity Loan: How to Choose

What appraisers look for in a refinance

When getting a home appraisal to refinance your mortgage, it’s important to understand that the appraiser will compare your home’s features to those of similar homes recently sold in the area.

Some of the items considered during an appraisal include:

• Local public schools
• Water quality
• Whether there are busy streets nearby
• Whether there’s nearby shopping or other amenities
• How close airports are
• What type of economy there is

What to look out for during a refinance appraisal

Realize that there are a few things that can go wrong during an appraisal. One of the biggest issues to be aware of is repairs. If there are repairs that need to be accomplished ahead of the closing, it could hold up the process — and impact the overall appraisal.

Additionally, if you have to get the home appraised again, or if there are other issues, the closing on your refinance could be delayed and that could result in paying the cost of a rate-lock extension or a higher interest rate.

There are some no-closing-cost refinance options, but some of them might roll the expenses into the loan and cost more in the long run. Be aware of that before you move forward.

Learn More: How Often Can You Refinance Your Home?

How to prepare for a refinance appraisal

Before opening your doors to an appraiser, it’s important you come prepared. Here are a few ways to best prepare for a home appraisal:

1. Be present: Make sure you’re on hand to answer questions from the appraiser. You can also point out the unique features that make your home more valuable.
2. Know if your lender requires an interior inspection: Some lenders only expect an exterior inspection for a refinance appraisal, while others might expect the appraiser to go inside. Be prepared for that if it’s necessary.
3. Clean, well-maintained home: Make sure everything is clean for the appraisal and that you highlight how your home has been maintained. You’re more likely to get a higher appraisal when you’ve paid attention to curb appeal and the inside is free of clutter.
4. Ask the appraiser: Find out when the appraiser is coming and what they are looking for. This allows you to prepare ahead of time.
5. Turn on all the lights: Create the feeling of light in the home so it’s more attractive.
6. Open all doors: Opening the doors can create a better feeling in the home and add to its overall attractiveness.
7. Finish small projects: Any small projects you have should be wrapped up before the appraisal. That way, you don’t have to worry about your appraisal being conditional.
8. Be realistic about your valuation: Research ahead of time so you have a realistic idea of what to expect. You can appeal an appraisal or get a second opinion, but it will cost you money.