Mortgage refinancing can offer many financial advantages. It allows qualified homeowners to replace their current mortgage with a new one that has more-favorable terms. That could include lowering the interest rate, changing the repayment period, or making the monthly payment more affordable. Refinancing is especially attractive when interest rates drop, or when homeowners want to borrow some of their equity.
Getting a mortgage refinance is a similar process to taking out the mortgage you used to buy the home. It often includes an appraisal of the property, which plays a big role in the lender’s decision to approve the loan and what terms it will offer.
The higher your appraisal, the better. So, here’s how refinance appraisals work, and how you can prepare to get the best result:
- What Is a Refinance Appraisal and How Does It Work?
- Do You Need an Appraisal To Refinance?
- Preparing For a Mortgage Refinance Appraisal
- Home Appraisal Tips for Refinancing
- How Long After an Appraisal Does It Take To Close On a Refinance?
- The Bottom Line on Preparing For a Refinance Home Appraisal
What Is a Refinance Appraisal and How Does It Work?
A refinance appraisal is essentially the same as the appraisal from when you bought your home. An independent professional inspects the property and estimates its current market value based on its condition, features, and location, as well as recent sales of comparable homes in the same area. The lender selects the appraiser, and the process may take several hours.
Mortgages are secured by the property, meaning if you default and cannot repay the loan, the lender can foreclose on the home and sell it to recoup costs. To limit their risk, lenders need to know what a home is worth so they can ensure the loan matches the property’s value. That’s why an appraisal is needed for a refinance.
For example, a lender will not approve a $500,000 loan for property that is worth $100,000, because in the event of foreclosure, it won’t be able to recoup its loss by selling the property.
Who pays for a refinance appraisal?
The homeowner typically pays for the refinance appraisal, either upfront or as part of the closing costs. The cost of an appraisal can vary, but it’s usually between $300 and $600.
Do You Need an Appraisal To Refinance?
Homeowners don’t always need an appraisal to refinance. If you’re getting a cash-out refinance that increases the amount you owe, expect your lender to require an appraisal. But if you’re doing a rate-and-term refinance, your lender might let you skip it, especially if you have a lot of equity in your home.
Certain government-backed loan programs — such as those offered by the Federal Housing Administration, Veterans Affairs, and the U.S. Department of Agriculture — offer streamline refinances that don’t require a new appraisal but may levy other fees.
Refinancing without an appraisal can have its downsides. For example, an appraisal could help you clear the 20% equity requirement to avoid private mortgage insurance, especially if property values have increased since you got your original loan. Showing that you have more equity also could help you get a lower interest rate.
Preparing For a Mortgage Refinance Appraisal
When inspecting your home, the appraiser looks at every aspect of your property. It’s in your interest to prepare for the appraisal so that your home appraises for the highest possible value.
What do home appraisers look for when refinancing?
Appraisers consider many different factors when examining a home for a refinance.
“It’s important to keep in mind that external factors, including real estate comparable listings, can heavily influence the home’s value,” says Leslie Tayne, a financial attorney based in New York.
Other factors — such as the size of the home, the number of bedrooms, and how recently areas like the kitchen have been updated — also play a role, Tayne says.
Does the appraiser know the refinance amount?
Generally, yes. Most lenders will provide transaction or financing information to appraisers.
One reason appraisers get this information is because home values are subjective. How much you’re asking to finance the home for is a point in favor of the home being worth at least that much.
Additionally, disclosing loan details to the appraiser is required for some types of mortgages, such as loans that conform to Fannie Mae guidelines.
Home Appraisal Tips for Refinancing
When you’re refinancing your home and getting it appraised, you should do your best to make your home appealing. Even things as simple as cleaning up or having a well-maintained front lawn could make a difference in the appraiser’s impression.
Tips for getting a higher appraised value
The higher your home’s appraised value, the better your chances are of getting approved for a refinance. Knowing how to prepare for an appraisal for refinancing gives you an edge and could help you in increasing your home’s appraised value.
“You can make your home stand out with updated interiors that add value,” Tayne says. “Do some sprucing up to improve the inside of the home, and make sure it’s as clean as possible before the appraisal. Finally, increase the home’s curb appeal by mowing the lawn, planting flowers, pulling weeds, and removing outdoor clutter.”
Tips for when your appraisal comes back low
If your appraisal comes back lower than expected, you could ask your lender for a reappraisal of your house.
Tayne recommends homeowners stand up for themselves and request a do-over.
“Look for recent comps to provide to the appraiser that show similar homes, and how yours justifies the higher appraisal,” she says.
Disputing an appraisal
You also could dispute an appraisal that comes back lower than expected. Reasons to dispute an appraisal include inaccuracies in the report — such as the appraiser incorrectly counting the number of rooms — or if you believe they didn’t properly compare your home to similar properties.
When disputing an appraisal, provide a short explanation of why you’re asking the appraiser to reconsider. Make fact-based arguments, and avoid mentioning your estimation of the home’s value. Provide some examples of comparable homes in your area, a sketch of the floor plan, and any other supporting documentation you think may be valuable in the dispute.
How Long After an Appraisal Does It Take To Close On a Refinance?
The appraisal usually comes in the middle of the lending process, after your lender has examined your financial information. Overall, that means your loan should close a week or two after the appraisal.
The Bottom Line on Preparing For a Refinance Home Appraisal
Getting your home appraised during the refinancing process could help you stop paying for PMI, or show that you have enough equity for a lower interest rate. Because you can gain a lot from a good appraisal, making the proper preparations could help you save money in the long run.