Refinance Appraisals: What You Need to Know
An appraisal is commonly required when refinancing a property because it provides an estimate of the current market value of the property. Lenders use this information to determine the amount of money they are willing to lend and to ensure that the value of the property is sufficient to secure the loan. Additionally, an appraisal also helps the lender to identify any issues with the property that could negatively impact its value.
Are All Home Appraisals the Same?
For a borrower, the main difference between an appraisal for a refinance and any other home appraisal is the purpose of the appraisal. The main goal of an appraisal for a refinance is to determine the current market value of the property in order to help the lender determine the amount of money they are willing to lend. Other types of home appraisals may have different goals, such as determining a retrospective market value of the property for estate planning or tax appeal purposes. The purpose of the appraisal may differ but the process of the appraisal itself is similar.
What Happens During a Home Appraisal for a Refinance?
The appraiser will inspect the property and prepare a report that includes an estimate of the property’s market value, a description of the property, and any issues or concerns that the appraiser identified during the inspection.
The process for a refinance appraisal involves the following steps:
- Scheduling the appraisal: The lender will schedule an appointment with a licensed appraiser to visit the property and conduct the appraisal. The homeowner will be given a date and time for the appraisal and will need to be present for the inspection.
- Inspection of the property: The appraiser will visit the property and observe the property’s interior and exterior. They will take note of the property’s condition, features, and amenities and will compare it to similar properties in the area that have recently sold.
- Completing the appraisal report: The appraiser will complete a written report outlining their findings and the estimated market value of the property. The report will also include a description of the property, photographs, and any issues or concerns that the appraiser observed.
- Review by the lender: The lender will review the appraisal report to ensure that the value of the property is sufficient to secure the loan. If the property’s value is not sufficient, the lender may require additional collateral or may decline the loan.
- Closing the loan: Once the appraisal report is reviewed and approved, the lender will complete the loan process and the refinance can be closed.
The entire process can take several weeks to complete, depending on the lender’s turnaround time and the availability of the appraiser. The homeowner will need to be present during the inspection, and they will receive a copy of the appraisal report from the lender once it’s completed.
How Do You Prepare for an Appraisal for Refinance?
Since the process for all home appraisals are similar, you can prepare the same way. Below are some things you can do to get your home ready for an appraisal.
- Clean and declutter the property: Make sure the property is clean, tidy, and free of clutter. This will help the appraiser to see the property’s features and amenities more clearly.
- Make repairs: Fix any obvious issues with the property, such as leaky faucets, broken windows, or peeling paint. This will help to improve the property’s overall condition and increase its value.
- Provide documentation: Gather any relevant documents such as recent home improvement receipts, warranties, and permits to show the appraiser.
- Make sure all appliances are working: Make sure all appliances, such as the HVAC system, refrigerator, and oven are in good working condition.
- Enhance curb appeal: Make sure the property’s exterior is well-maintained, including the lawn, landscaping, and paint.
- Provide information about the neighborhood: Provide the appraiser with information about the neighborhood, such as recent sales, crime rates, and school district information.
By taking these steps, you can help to improve the chances of a positive appraisal and increase the value of your property, which can ultimately help to lower your interest rate and monthly payments when refinancing.
What is a Refinance Appraisal Checklist?
An appraisal checklist is a tool used by appraisers to ensure that all relevant information is gathered and considered during the appraisal process. Since the process for all appraisals are similar, the checklists are similar too.
The checklist is personalized by each appraiser and includes items such as:
- Property information: The address, lot size, square footage, and age of the property.
- Interior features: The number of bedrooms, bathrooms, and other rooms, as well as the condition of the floors, walls, and ceilings.
- Exterior features: The condition of the roof, siding, windows, and exterior walls, as well as any issues with the property’s foundation or drainage.
- Mechanical systems: The condition and age of the HVAC system, plumbing, and electrical systems.
- Upgrades and renovations: Any recent upgrades or renovations that have been made to the property, such as a new kitchen or bathroom.
- Condition of the neighborhood: The overall condition of the neighborhood and any potential issues that could impact the property’s value.
- Comparable sales: Information about similar properties in the area that have recently sold, known as “comparable sales” or “comps.”
- Market analysis: An analysis of the local real estate market, including any trends or factors that may impact the property’s value.
The use of a refinance appraisal checklist helps the appraiser to ensure that they have considered all relevant information when determining the market value of the property. This information is important for the lender to determine the amount of money they are willing to lend and to ensure that the value of the property is sufficient to secure the loan.
Can You Get the Appraisal Waived for a Refinance?
In some cases, a borrower may be able to get the appraisal waived for a refinance. This occurs when the lender has access to other information that can be used to determine the value of the property. For example, if the property has been recently appraised for another purpose or if the lender has access to automated valuation models (AVMs) which can provide an estimate of the property’s value.
Another way to waive appraisal is through a no-appraisal refinance, also known as a “limited cash-out refinance” or “rate and term refinance” where the borrower is not taking cash out from the equity of the property, and the lender can use the original appraisal from the purchase loan.
It’s important to note that not all lenders will waive an appraisal and some may still require one as a condition of the loan, even if it’s not required. It’s a good idea to consult with the lender to understand their specific requirements and to see if an appraisal can be waived for your refinance.
It’s important to note that even if a lender offers an appraisal waiver, the borrower should still consider getting an independent appraisal done, to ensure that the value of the property being used as collateral is accurately reflected.