When you do a refinance on your mortgage, everything depends upon getting a good appraisal. If the value of your home is so low that you owe more than it's worth, you cannot refinance for 99% of the available refinancing programs in the U.S. And if you the appraisal puts your equity at under 20%, you have to pay for private mortgage insurance or bring cash to the closing table. Further, you may have to pay a higher interest rate, as lenders think that those will less equity are a higher risk. So, if you want to refinance, it is worth being educated about the appraisal.
An appraisal is a certified professional's opinion about the value of your home. It is provided by an objective third party. He or she is paid for valuing your home, but has no stake in whether the appraisal comes in high or low. In a typical home refinance, the appraisal provides protection to the bank that the bank does not lend more money than it is worth. If the property were to go into foreclosure, the bank wants to know it can recoup its losses when the house is sold.
The appraiser will come to your home and spend up to an hour measuring dimensions, checking which amenities it has and evaluate the overall condition. He will take pictures of the inside and outside and will check records of comparable properties in your area. Based upon the visit and the evaluation of similar properties, the appraisal will come up with a professional opinion of how much the home is worth. The bank will use this value, along with information about your credit history, income and assets to figure out how much to lend you.
Appraisal Not Needed Sometimes
There are a few refinance transactions that do not require an appraisal:
Federal rules state how lenders and appraisers must behave as the house is being appraised. After the mortgage meltdown, the federal government wanted to boost appraiser independence to prevent lending based upon unrealistic home values. Lenders will err on the side of caution in the appraisal process. This is why loan officers and brokers will not select the appraiser, and neither will the borrower. Borrowers also may not submit an appraisal that was done by a different lender. The lender will probably order an appraisal through a third party known as the appraisal management company or AMC. It is not required but this is commonly the way many lenders do it.
Home appraisal fees will vary by state, but appraisers are required to charge a reasonable fee, which is usually from $300 to $500. More complex properties can take longer and may cost more. You have to pay the fee up front when you have the appraisal done, not at closing. Even if the loan ends up not closing, you still have to pay for an appraisal.
Lenders may not discuss the value of a home or its target value with the appraiser. So, homeowners are not able to get an idea of the ballpark estimate on if their home will appraise high enough to refinance your house. You also can ask a real estate agent to check comps in your area and give you an idea what similar homes are worth in your area.
How to Get a Higher Appraisal
The appraiser usually depends largely upon the sales prices of comparable homes, but you can do a few things to maximize its appraisal value. Think of getting your home appraised like you are going on a first date. You do not know if the other person will like you, but you increase your chances if you look nice. The property should be clean and neat, and the grass should be well cut. There should be no clutter and any pets should be put away and their smell masked. You do not want the appraiser to be in a hurry to leave. Some appraisers say that the lawn is not mowed or if the house is dirty and cluttered. However, they also say that if the home looks unkempt, it can suggest that wear and tear is higher than normal and that can affect value.
Here are the things the appraiser cares about:
Before Appraiser Comes
Preparing the home for an appraisal is different than for a potential buyer. It is a good idea to freshen up any paint on the inside and outside, as well as getting rid of clutter to allow access and viewing of all parts of the home. Understanding how the appraisal process works will increase your chances of getting a higher value for your home. The appraisal process is done by humans, and mistakes and subjectivity do come into play. However, you will need strong data to back up any appeal on a low appraisal. So, follow the above instructions to get the best appraisal possible.
Article was written by Jenifer Stone.
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