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The results of a refinance appraisal could affect the interest rate or terms of your refinanced mortgage.
Before you can refinance your home mortgage to take advantage of better interest rates, you’ll need a refinance appraisal to confirm your home’s current value. This process is largely the same as when you first had your home appraised during the mortgage process, only this looks to see if the property has appreciated or depreciated to confirm how much you’re allowed to borrow.
Below, you’ll find everything you need about refinance appraisals, including options to speed up the process. Low on cash? Check out our guide to free home appraisals.
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What is a Refinance Appraisal?
A refinance appraisal is the same thing as a home appraisal needed for a mortgage and is done to confirm the current market value of your home. It’s vital for most refinancing as it defines the lender’s current value for the home and determines how much of a loan you can qualify for.
“Keep in mind your home might be worth more or less than when you bought it,” says Eric Bramlett, realtor and owner of Bramlett Real Estate.
You may qualify for a better interest rate if your home has increased in value. On the other hand, if your home has depreciated, you may find it more difficult to qualify for certain refinance loans, especially if you’re looking to tap into your home equity with a cash-out refinance.
During a home appraisal, a certified appraiser will walk through the home and assess its major systems, state of repair, the neighborhood and other factors to determine its fair market value.
Appraisals protect lenders from lending more money than a property is worth and help prevent you from borrowing more than the home’s value, which can put you at financial risk later. It also tells you how much equity the home has to use for other goals or to pay off the mortgage faster.
Pros
- Could help you lock in a lower interest rate
- Some refinance loans offer expedited appraisals
- Cost may be rolled into your new loan
- Not required for some refinance types
Cons
- If your home has depreciated, you may not qualify for some refinancing types
How Does a Refinance Appraisal Work
A refinance appraisal requires a professional appraiser to visit the property and assess its value. Depending on the property size, this can take under an hour to a few hours. Once you have an appraisal appointment, the visit can be completed in a day and the appraiser should have their report ready within a week or less.
“Before your refinance appraisal, spruce up your home, make minor repairs and highlight recent improvements to boost your home’s value,” says real estate investor Martin Boonzaayer, CEO of The Trusted Home Buyer.
In addition to an in-person appraisal, some appraisers may use a simplified appraisal for a refinance. These include:
- Hybrid Appraisal: This combines traditional appraisal methods with modern data-driven techniques and third-party assistance, providing additional accuracy.
- Desktop Appraisal: The appraiser uses tax data on the property, such as size, bedrooms and bathrooms, along with comparable properties
- Drive-By Appraisal: The appraiser will drive by the property’s exterior and location but will not enter the property. They will use other desktop appraisal techniques to complete the appraisal. Also called an exterior-only appraisal, the Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) usually allow exterior-only appraisals for refinances.
Key Things to Know About a Refinance Appraisal
- A home appraisal is necessary for most types of mortgage refinance
- You might not need a home appraisal if you have a government-backed loan and qualify for a streamlined refinance
- You can take steps to improve your home’s appraised value or dispute a low appraisal
Why You Should Trust Us
Benzinga has offered investment and mortgage advice to more than one million people. Our experts include financial professionals and homeowners, such as Anthony O’Reilly, the writer of this piece. Anthony is a former journalist who’s won awards for his New York City economy coverage. He’s navigated tricky real estate markets in New York, Northern Virginia and North Carolina.
For this story, we worked with Eric Bramlett, realtor and owner of Bramlett Real Estate, and real estate investor Martin Boonzaayer, CEO of The Trusted Home Buyer.
Frequently Asked Questions
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A refinance appraisal follows the same procedure as the appraisal done during the mortgage process. It looks at your home, any upgrades, the property and the surrounding area.
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Things that may cause you to fail a refinance appraisal include your home falling into disrepair, losing value, and shoddy landscaping. Before going through an appraisal, it’s important to make any upgrades to the home and clean up before the appraiser arrives.
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Your house should ideally be spotless. Patch any holes, touch up paint and ensure every area of your house is accessible before the appraiser arrives.
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A home appraisal is designed to objectively determine a property’s current market value. In contrast, a home inspection checks the home’s major systems and alerts the owners or potential buyers of the need for repairs.
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