A home loan refinance can lower your monthly mortgage payments, but having solid financials and a strong credit score when applying may not be enough to get approved. Most lenders also require a refinance appraisal, and the results could affect your loan amount or result in a loan denial.
Read more: 6 times it makes sense to refinance your mortgage
A home appraisal for a refinance is a professional assessment performed by a licensed appraiser to determine the current market value of your home.
Most lenders require home appraisals for a refinance application — and for good reason. They want to avoid lending you more than your home’s value. Doing so protects their interests if you default on the new loan. It also minimizes the chances of you becoming underwater on your mortgage or owing more than your home is worth.
The process is generally the same for refinance and purchase appraisals. For a purchase appraisal, the appraiser is already familiar with the sales price beforehand. However, with an appraisal for a refinance, the appraised value of your home is based on the outcome of your home assessment and the appraiser’s research.
Learn more: What is an appraisal and how does it work?
How quickly are homes moving in your area? If it’s a seller’s market and the economy is going strong, your home may appraise for more than it’s worth. If homes are not selling quickly, you may have little to no equity and struggle to get a lender to approve you for a refinance.
Is your home in tip-top shape, or does it need work? Homes in the best condition with fully functioning appliances, fixtures, and systems, typically appraise higher. Upgrades and renovations to your home may also increase your home’s value.
What have homes in your area recently sold for? Unless an identical home in your neighborhood has recently sold, determining a concrete value for the house is impossible. However, comparable sales give the appraiser an idea of your home’s value.
Square footage and layout
The size of the home, along with the number of bedrooms and bathrooms, is taken into consideration during the appraisal. Home layouts or floor plans also factor into the value; modern and open floor plans are often more popular.
Is your home located in a desirable area or neighborhood? Or maybe it’s close to coveted schools, popular shopping or entertainment locations, or frequently traveled highways. These factors could also help boost your home’s appraised value.
Learn more: Appraised value vs. market value — What’s the difference?
Most lenders require a traditional in-house appraisal. However, there are two alternatives to be aware of:
-
Hybrid appraisal: It involves an examination of both the interior and exterior of your home. However, a third party conducts the actual assessment. The appraiser uses this data and market research to compile the appraisal report.
-
Drive-by appraisal: The appraiser examines your home’s exterior and comparable home sales to create a report.
If you’re a good fit for a refinance, the lender orders a professional home appraisal. The appraiser will then schedule a time to assess your home to estimate its worth. Expect the examination process to take no more than a few hours. The timeline to compile the report could take a few weeks, though.
Once the examination is complete, the appraiser provides a report to the lender. Again, the lender is most concerned with what the appraiser believes the home is worth.
If your appraisal comes in as expected, the lender typically moves your file into the underwriting phase. Most refinance loans close within two weeks of the lender receiving the appraisal report. However, some borrowers face delays that could extend this timeline.
If your appraisal comes in too low, expect a lower loan amount or loan denial. The lender isn’t interested in giving you a loan that is currently or could soon be higher than the value of your home.
If you disagree with the appraisal report, you have options to challenge it, including the following:
File an appeal
If there are discrepancies in the appraisal report, provide written proof to the lender. It helps if you’ve researched and identified recent sales for comparable properties in the area.
Request a new appraisal
You can also reach out to the lender and request a new appraisal if you believe the current one understates the actual market value of your home.
Pay the difference
If you’re eager to refinance, consider paying the difference between what the lender is willing to offer and the market value of your home.
Wait it out
Not in a hurry to refinance? Consider pressing the pause button and waiting until the value of your home appreciates before moving forward.
You want your home to shine both inside and out during the appraisal. Here are some suggestions to help you prepare.
First impressions are everything to appraisers. Start by sprucing up the exterior of your home. Paint your front door if needed, dispose of any debris, and organize scattered objects. If you have a porch, arrange furniture and fixtures and don’t forget to address landscaping issues.
Tidying up doesn’t end with the exterior of your home. Take a look inside and identify areas that could use a purge. The less clutter, the better, as it creates the illusion of more space in your home. Well-organized and decluttered homes also give off the impression that they’re well-maintained.
Read more: Ask a real estate agent — What home improvements should I make?
Inspect and repair home systems
If there are issues with your home’s cooling, heating, electric, or plumbing systems, now’s the time to fix them. Otherwise, your home’s appraisal could come in lower than it should.
Minor cosmetic fixes to your home are another way to boost its value. These include upgraded appliances or fixtures, to name a few. A fresh coat on walls with worn paint could also be a quick fix that helps boost your home’s market value. And don’t forget to plug any small holes in your wall.
Let the appraiser know if you’ve gone the extra mile to make your home more desirable. Mention any significant upgrades or repairs so they’ll know how much you’ve invested in the property.
Although a home appraisal for a refinance is customary, it’s not always required. These loan products let you move forward without an appraisal:
-
Federal Housing Administration (FHA) Streamline Refinance program
-
VA Interest Rate Reduction Refinance Loan (IRRRL) (or VA Streamline refinance)
-
United States Department of Agriculture (USDA) Streamline refinance program
Read more: This month’s best mortgage lenders
Most refinance appraisals cost between $300 and $500, but can tack on as much as $2,000 in fees. This figure varies depending on the size and location of your home. Be sure to inquire with the lender to get an exact figure.
If your home appraises for less than you currently owe, you could face a loan denial. The lender could also lower your loan amount if they decide you’re a good fit for a refinance.
Home appraisals for refinance are typically valid for up to 120 days. If you’re seeking a VA refinance, this time frame increases to 180 days.