A Homeowner’s Guide: Do You Need an Appraisal When Refinancing?

Refinancing your home can be a great way to save money on your monthly mortgage payment. That said, refinancing does come with some requirements. One of those requirements may be an appraisal. To that end, we’ve tried to answer the question, “Do you need an appraisal when refinancing?” Keep reading to find out more.

What does it mean to refinance your home?

Put simply, when you refinance your home, you take out a new mortgage loan to replace your old one. Typically, the new home loan will have much better loan terms, such as a better interest rate or a loan term that matches your current needs.

in total, there are two different types of appraisals that people can ask their lenders to perform. On the one hand, there is a rate and term refinance, which allows you to keep your same loan balance but changes your loan terms. Then, there is also a cash-out refinance, which allows you to leverage the equity that you’ve built up in your home and use it as cash to cover a big expense.

Why you might need an appraisal when refinancing

Since refinancing is really just replacing one home loan with another, you can expect to go through many of the same steps that you did when you first took out your mortgage. In all likelihood, one of those steps will be getting a new appraisal on your home. For those who need a little refresher, an appraisal is a current valuation of your property by a qualified third-party professional.

In all likelihood, the appraisal will probably be required as a condition to receive your new loan from your lender. In this case, the appraisal protects the lender from accidentally lending you more money than the property is worth. It is one of several measures that lenders take to ensure that they will eventually get a full return on their investment.

That said, even if an appraisal is not required, there are several reasons why you may want to get one as the homeowner. First and foremost, an appraisal is key in determining your current loan-to-value ratio. In general, the lower this ratio is, the better. A lower ratio can help you build up more equity in your home and get rid of a private mortgage insurance requirement.

How to skip your appraisal when refinancing

Still, it’s worth noting that skipping an appraisal could help you save time and money on your refinance. Typically, an appraisal adds between $300 and $400 to your closing costs. It can also add a few days to a week onto your closing timeline.

If you want to skip your appraisal, the path you will follow will depend on what type of loan you have. If you have a government-backed loan like an FHA loan or VA loan, your best bet is to opt for the streamlined version of their refinancing program. However, if you have a conventional loan, you will want to ask for an appraisal waiver from your lender instead.

In either scenario, the process works much the same. Here, the lender will use desktop appraisal tools to get an estimation of the value of your home instead of having a trained appraiser come out to the property. Keep in mind that this method will not be as accurate as a true appraisal.

The pros and cons of getting a refinance appraisal

Pros

• You’ll recieve a more accurate home valuation: This valuation can help you build up more equity in your home or get rid of a PMI requirement.

Cons

• It takes time and money: If an appraisal is required on your home, you will likely have to pay about $300 – $400 and your time for closing on your new loan may be extended in a little bit.

The bottom line on refinance appraisals

At the end of the day, there is a good chance that your lender will require an appraisal when you refinance your home. That said, if you have an option, it’s a good idea to weigh the pros and cons. In general, if you think that your home value has increased a lot since you first bought your home, it may be a good idea to get an appraisal. However, if not, you may be better served by doing a desktop version instead.