How to refinance without an appraisal

How to Refinance Without an Appraisal

Whether you’re wanting to apply for a mortgage or refinance, an appraisal can be stressful and nail-biting. After all, this simple process is what will determine your home value and ultimately, whether your application is approved.

Did you know that it’s possible to refinance without an appraisal? Let’s dive deeper into this concept and see how you can waive the appraisal and still get your refinance.

What exactly is an appraisal?

Before we start talking about how you can refinance without a home appraisal, you should first understand what an appraisal is.

In short, an appraisal is when the authorized personnel estimates the value of a property. This can be a piece of real estate, business, or even an antique object. The appraiser should be selected and licensed by a regulatory agency.

Mortgages in general require an appraisal to determine how much the home is valued. Moreover, it helps the lender to know if the property is worth the purchase price and can cover the amount you owe in case you default on the loan.

Can you refinance without an appraisal?

The short answer is yes, you can refinance even without a home appraisal. While this won’t always be the case most of the time, you may be able to waive the appraisal if you’re on a VA, FHA, or USDA mortgage.

VA streamline refinance

The first option for waiving an appraisal when refinancing is if you originally have a VA loan, which means you can apply for a VA streamline refinance. It’s also known as an interest rate reduction refinance loan or IRRRL.

This allows you to refinance up to 120% of the value of your first mortgage. It can be extra helpful if you owe more than your property’s value. While a lot of IRRRLs do not require an appraisal, note that there are always special cases that still call for one.

What do you need to apply for an IRRL?

  • You should already be on a VA loan
  • You should currently be living in the home that is being refinanced
  • You can only refinance to change loan terms and rates, not to cash out the equity
  • You should have made a minimum of six consecutive monthly payments on time
  • At least 270 days have passed since you closed your VA loan
  • There should be a clear reason why you want to refinance

FHA streamline refinance

Quite similar to the previous option is the FHA streamline refinance, which has no minimum equity amount so that there is no need for an appraisal. Some situations will still require an appraisal, but you can generally forego it. This loan type also lets you reduce your mortgage insurance premium to just 0.5%.

Note that you can’t apply for a cash-out refinance and consider that you get a tangible benefit from your refinance. This can be anything from a reduced monthly payment, lower interest rate, or even switching from an adjustable rate to a fixed-rate loan.

Additionally, if you are trying to benefit from lower rates or a shorter loan term, there are some limitations to pay attention to. It includes how much you can alter your rates and monthly payment amount, so don’t forget to consult with your mortgage advisor if you have one, or simply talk it through with your lender.

Can you qualify for an FHA Streamline?

  • Your current mortgage should be an FHA loan
  • 210 days at a minimum should have passed since your closing date
  • 6 months should have passed between your first monthly payment and refinance closing
  • You should have already made six months of payment on your mortgage
  • You should not have more than a single late payment in the last 12 months

USDA streamline refinance

Next up is a streamlined refinance option from USDA, which is available for those whose original mortgage is backed by the USDA.

This is a great way for you to skip home appraisals when refinancing to change your interest rate or loan term. Just like the VA streamline refinance, there are still certain requirements to consider before you apply.

Here are what you need to apply for a USDA streamline refinance:

  • Your initial mortgage should be a USDA loan
  • You should already have made at least 6 months of consecutive on-time payments
  • It should be at least 12 months between your USDA mortgage closing date and refinance application
  • You should meet or surpass the debt-to-income standards from USDA
  • You can only refinance to change your rates or loan term, not to cash out

USDA streamline-assist refinance

Last but not least is the USDA streamline-assist refinance, which you can qualify for if you have had a USDA loan for a minimum of one year. This can be one of the most appealing options for refinancers because you don’t need an appraisal, credit check, or even have a minimum DTI ratio.

Do you qualify for the USDA streamline-assist refinance program?

  • You are not removing anyone from the mortgage unless the person has passed away
  • The refinance should result in a lower monthly payment of at least $50
  • Your existing USDA mortgage has been going for a minimum of 1 year
  • You should have been making timely payments for the last 12 months
  • You cannot refinance to cash out your home equity

Summary on non-appraisal refinancing

Remember that an appraisal essentially involves assessing the value of your home. Several things can affect the result, including its physical condition and property values in the local area. Most lenders would also want you to conduct an appraisal before approving your refinance, as this reassures them that the loan is worth it

However, you may be able to waive it if your loan is backed by FHA, VA, or USDA. You can even reduce appraisal requirements if you use a streamlined refinance program. Don’t forget that each type of loan will have different requirements and qualifications, so it’s still important to research as much as you can!

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