How Refinance Appraisals Differ from Purchase Appraisals
Whether you’re trying to purchase a home for the first time or refinancing the mortgage, you may need to go through the process of appraisal. But what exactly is the difference between a refinance appraisal and a purchase appraisal?
Today, we will look at some of the key differences between these two types of appraisals. Can you refinance without an appraisal? This is also something we’ll be discussing in this post. Plus, we have a few handy tips to make the most of your appraisal!
Definition of home appraisal
What is a home appraisal? In a nutshell, it is a professional estimate of your home’s worth in the current property market. This will generally involve a comparative analysis of similar homes in the area, as well as a visit to examine the physical condition of the home.
It’s important to have a home appraisal before you buy a property, as it assures that you’re not paying more than what it’s worth in the market. Plus, it also gives comfort for the lender as they will only lend the appropriate amount. It will prevent financial loss for both parties.
For a similar reason, you will most likely need an appraisal to refinance too. This is because your lender would want to confirm if the home is worth the loan amount before they make an offer.
Refinance appraisal
More often than not, lenders will want a new appraisal of your home when you’re applying for a mortgage refinance. Here’s what you can expect from a refinance appraisal.
Do you need a home appraisal to refinance?
This is the ultimate question for most homeowners who are looking to refinance. In most cases, the answer is a resounding yes. But there are certain types of refinance programs that allow you to waive the appraisal process.
- VA IRRRL: If your original loan is a VA and you qualify for a VA IRRRL, it’s possible to refinance your mortgage without an appraisal. This can help you save even more on costs as you change your loan term or rate. Sometimes, they may even let you waive the underwriting fee too!
- FHA streamline: A lot of FHA streamlines also offer a no-appraisal option for homeowners, although there are still a set of requirements that you may need to pay attention to. The credit requirements for an FHA streamline are also usually lower, which can be helpful.
- USDA streamline: Meanwhile if your mortgage is USDA, you can use the streamline option to skip appraisals. There might even be a streamlined assist program that you can qualify for. You can waive other things too like the credit check and debt calculation.
With that said, you can only ever skip the appraisal if you are refinancing to adjust the term, rate, or interest structure of your mortgage. If you’re planning to switch the loan type or cash out your equity, you will still need an appraisal.
What if your appraisal comes back lower?
An appraised value that is lower than the initial expectation can cause problems for the sale or refinancing process. If this is the case with your home appraisal, the first thing to do is double-check and look for any errors that might cause this unexpected result.
If you are a buyer and the home appraisal comes out lower than the sale price, you can back out if there is a contingency. Of course, you can always negotiate and try to agree on a price that is closer to the appraised value.
Purchase appraisal
An appraisal is required to apply for a mortgage when you purchase a new property or home. The only situation where you don’t need an appraisal when buying a new home is if you’re not applying for a mortgage. In other words, you’re buying in cash.
Don’t worry as appraisals are not just adding pointless fees on your purchase costs. You’ll benefit from it because appraisals can ensure that you don’t pay more than your home’s worth.
On the other hand, if you are selling a home, you should expect the buyer to request a home appraisal and inspection. Try to do any necessary repairs before the buyer makes an offer, which will smooth out and speed up the sales process.
Maximizing your home appraisal value
You don’t want a low appraisal value that is less than what your home can be worth. Whether you’re buying, selling, or refinancing, it’s important to do as much as you can to truly benefit from the appraisal.
- Keep a record of all the home improvements you’ve made.
Try to keep a comprehensive list of all the upgrades and improvements you have done on the home since you first moved in. These upgrades will increase the home value, so make sure that the appraiser knows about them.
- Employ staging tricks to dress up your home.
We’re not talking about building an entirely new bedroom out of thin air before a refinance appraisal. But you can always use staging tricks to make your home look as beautiful and well-kept as you can. Clean up any clutter, replace flickering bulbs, and use mirrors to create an illusion of space.
- Create an offer list.
Our next trip is to provide an offer list if you’re selling the property. You can present this list to the appraiser. Multiple offers that are in a similar price range will indicate that your home is valued at the right price.
- Know the contingencies.
If you are a future homeowner looking for the perfect home, make sure that you know the contingencies. A lot of agreements for home purchase let you retreat from a deal if the appraised value is lower than the selling price. This means you won’t be overpaying for the home, which is always a good precaution to have.
Conclusion
A home appraisal is essentially an approximation of your home’s worth by an authorized person. It helps ensure that you’re not buying or loaning money that’s more than the worth of your home.
Of course, an appraised value that is lower than the sale price can induce all sorts of issues for buyers, sellers, lenders, and refinancers. Remember that it’s possible to request a new appraisal if the result is much lower than expected.