Mortgage 101

Refinance Appraisals: When Do I Need One?

Published on: October 5, 2021

If you’re looking to refinance your home, it’s important to understand how the appraisal fits into the refinance process. The appraisal is significant because it could affect the types of fees you’ll need to pay on your new loan, such as private mortgage insurance, or the interest rate you’ll ultimately receive. If you’re interested in being approved for a cash-out refinance, the amount your home’s appraised for will affect the amount you can borrow.

Understanding the role of a refinance appraisal will help you prepare your home as best you can and increase your chances of success.

What is a refinance appraisal and is it required?

A home appraisal is the process in which an appraiser assesses and determines the current market value of a property. This certified or licensed professional acts as an unbiased third party to determine a home’s value, but they have no involvement as to whether you’ll be able to refinance based on the value of your home. 

Ultimately, there’s no huge difference between a refinance versus a purchase appraisal. An appraisal for a home purchase is conducted to determine how much you’ll be approved for your primary mortgage. For a refinance, the lender orders an appraisal and the appraiser visits your home to evaluate your property. They will then look at recent sales records of properties similar to yours in your neighborhood to determine how much your home could sell for today. The lender uses this value to determine how much to lend you.

Appraisals for refinancing your home help protect the lender so they don’t lend you more money than your property is worth. The lender requires an appraisal to ensure they will be able to recoup their losses if you end up going into foreclosure.

For instance, an appraisal can give the lender insight into how well you’ve maintained your home. Poor home maintenance can lower your home’s value, increasing the risk to the lender. Or, if you purchased a home when the market was high and now demand has fallen, your home value may have dropped. If your home value went down significantly so that you owe more on your mortgage than your home is worth, you may not qualify for a mortgage refinance.

For these reasons, an appraisal is usually required for a refinance. However, depending on the lender, you may be able to waive the appraisal or the appraiser may determine the value of your home without a physical inspection.

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

Typically, a refinance appraisal for a single-family home costs about $300 to $400, according to data from HomeAdvisor, an online home services platform. However, your exact cost will depend on several factors, including the type and size of our home, the amount of detail required for the appraisal, and the value and condition of your property. For instance, a larger home in a more expensive neighborhood may cost more.

As the homeowner, you will need to pay for the home appraisal when you close on the home. In some cases, you may be able to waive the appraisal altogether, though that will depend on the lender and type of mortgage you’re considering. Typically, cash-out refinance applications that have up to a 70%  loan-to-value ratio are eligible for an appraisal waiver. So if you owe $210,000 on your current mortgage and your home is valued at $300,000, you may qualify for a waiver.

What do appraisers look for in a refinance?

When it comes to the refinancing process, there are several factors appraisers review to determine the value of your home. These include:

  • Age and home condition: While a home appraiser won’t look at details such as whether your stove works, they will look at the general condition of our home. The appraiser will look at your home’s age, size, and whether major components like the air conditioning and plumbing are working. They’ll also look for safety issues, such as lead paint and whether the home is considered habitable. The better the condition (and the newer your major home systems are), the higher your home might appraise for.
  • Comparable properties: Appraisers evaluate recent home sales of similar homes and any relevant property trends. For instance, the appraiser will look at homes that have three bedrooms and two bathrooms if your home has the same number of spaces.
  • Add-ons and upgrades: If you’ve made any permanent improvements or upgrades to your home, those projects could affect your home’s value. For example, if you added an in-ground swimming pool or finished your basement, those items might lead to a higher appraisal value.

How to get a higher appraisal for your refinance

Knowing how to increase the value of your home for a refinance appraisal will better your odds of being approved for more favorable terms. While some factors are out of your control, such as how much comparable homes have sold for in your area, you do have power over others.

Here are some suggestions on how to get a higher appraisal value for your home refinance:

  • Declutter: Having a clean home ensures that the appraiser gets a more accurate feel for your home’s condition. Besides, clutter can hide renovations and make your home feel smaller. Consider getting your home deep cleaned, clearing clutter out of major areas, and rearranging furniture if you need to.
  • Improve curb appeal: Your home’s curb appeal could affect your home’s value significantly. Consider mulching flower beds, adding patio accents, and planting flowers in strategic places.
  • Outline home improvements you’ve made: It might not be obvious what home improvements you’ve done, so detailing these for the appraiser and offering tangible proof is a smart idea. For instance, if you’ve recently replaced your windows or upgraded the HVAC system, provide receipts or a contractor’s invoice so the appraiser includes it in the refinance appraisal report.
  • Ensure everything in your home works: The appraiser won’t go into every room and test all your electrical outlets, but they’ll want to make sure major components are working properly. Before the appraiser comes, test your home’s main systems and, if needed, schedule repairs ahead of the appraisal.
  • Consider small upgrades or improvements: You’d be surprised at how much of a difference a small upgrade can make. Some examples include replacing outdated hardware on cabinets and painting the exterior trim.
  • Check public records: Checking for inaccuracies in public property records helps you to correct any recording errors about your home. That way, the appraiser won’t use the wrong information when assessing your home’s value.

What to do if your appraisal comes in low

The appraisal value may come in lower than you’d like or what you think your home is worth. In most cases, you probably won’t be able to dispute it unless you can provide significant proof that the appraiser made an error. For instance, if they counted the wrong number of bedrooms or failed to include a large home feature, such as in-ground pool, then you may have a case.

Start by getting a copy of the appraisal report from your lender to see how the appraiser arrived at their conclusions. You can then contact the lender and try to appeal for a new appraisal. Otherwise, you can hire your own appraiser and submit their findings to see if the lender might reconsider.

If you aren’t able to successfully challenge an appraisal, it doesn’t mean you won’t be approved for a refinance. Speak with your lender to determine what the results of the appraisal mean. You may be approved for the refinance but have to pay mortgage insurance. Or you might not be able to take out as much cash as you had hoped. It could also mean that you’ll have to wait until local home prices go up or you’ve made significant upgrades to increase your home’s value.

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