If you have lived in your home for a while, refinancing your mortgage might be a great idea. Refinancing can help you to lower your monthly payment while possibly getting a lower interest rate. The advertisements for refinancing seem to be everywhere and of course, they make the process of refinancing your mortgage seem easy. You find the lender with the repayment terms and conditions that you approve, fill out the application, get approval, and voila-you have a new loan with a lower interest rate.
Actually, it is not really as simple as it may seem. You are going to to have several refinancing options you will need to learn about. While getting approved for refinancing is the first step, the lender is going to require that your home is appraised. Since they are going to lend you a new loan in order to pay off the existing loan, they want to make sure they are not giving out more than your property's worth.
As a result, they turn to a home appraisal in order to establish the value of your home. The appraiser acts as a neutral third party that is licensed to provide home valuations or appraisals. If you are trying to refinance your home you need to understand what to expect from the appraisal process and know what actions you can take in order to increase your chance of getting a good appraisal?
Getting approved for refinancing depends on the results from the appraisal. If the appraiser assesses your home and discovers its value is low, the lender can reject your application for refinancing and you may be out of luck.
The appraisal will also help the lender determine the amount of equity you have in your home, equity is the value of your home minus the amount you owe. For a conventional refinance 20% equity should be the goal. 5% will get the refinance done without 20% equity, you’ll be paying a higher interest rate and be required to carry mortgage insurance.
Depending on your current interest rate a refinance with a slightly higher interest rate and mortgage insurance may still be attractive. In most cases the 20% equity is what makes the refinance process attractive.
Equity is really important in the refinance process. In many cases equity can help if you have bad credit. Eric Jeanette over at Dream Home Financing writes about "Bad Credit Mortgage Refinance Options"
The Home Appraisal Process is pretty straight forward. The appraiser will visit your home, measure for the true square footage and verify things like bedroom count, amenities and upgrades.
The appraiser will say that the appearance of the home has no bearing on the valuation they provide. The truth is that appraisers are human and condition certainly must have some influence.
On the other hand maintenance or more specifically deferred maintenance does impact the value. This means things like missing roof shingles, broken windows, leaky faucets, etc… It’s important to make an assessment of your maintenance issues prior to the appraisal and deal with any of these issues.
Another area the appraiser will pay attention to is health and safety issues. This relates to things like CO detectors, smoke detectors, etc…These are the types of repairs that are called out on an appraisal.
If you have improvements to your home, it’s important to keep records and receipts. You will want to share these with the appraiser, it helps them support a higher value. Also, document the permits that are pulled as part of the home improvement projects as well as warranties. Take pictures of your house before and after the renovation to showcase the improvements you have made. Showing the appraiser the documents prove you have put the time, effort, and money to repair and upgrade your home; in return, the improvements make a great impression on your home’s appraisal.
It's also important to share any private sale information of comparable properties you might be aware of with the appraiser. The appraiser will be using the Multiple Listing Service along with existing tax records to find comparable sales and private sales sometimes take a while to get recorded. If the sale is a good comparison but it has yet to be recorded, you can help your cause by tracking down the details of the sale as well as the contact info of the buyers and sellers. Share this information with the appraiser so they are able to verify the sale information and use it as a comparable sale.
Respect the appraiser and their time, treat them with respect and courtesy. You can give them the information you feel they need to assess your property, but don’t be too pushy and obtrusive. Let them do their job and you can offer them assistance once the appraisal is done. There’s no guarantee that you will get a high appraisal, by preparing for the appraisal you are wise to make easy for the appraiser to do their job is most likely to increase the chance.
You may be asking if you have to pay for the appraisal and the answer is yes. The residential appraisal generally costs anywhere between $300 and $700. Pricing varies depending on several factors including square footage, location, and how unique or special the property is.
It’s important to note that the appraisal fee may not be refundable so, if you don’t have at least 20% equity in your home, refinancing may not be an attractive option. This means you will lose the appraisal fee, so do some homework on the current value of your home before you start the refinance process.
You can ask a Realtor for a price opinion. This would come in the form of a CMA (Competitive Market Analysis) or a BPO (Broker Price Opinion). While both of these methods use many of the same techniques to come up with a home’s value as the appraisal unless the Realtor is also a licensed Appraiser their opinion cannot be called an appraisal.
If the Realtors price opinion shows that you have at least 20% equity in your home, you have the green light to proceed with the appraisal. Less than 20% equity doesn’t necessarily mean you shouldn’t proceed with the refinance. That decision will be determined by your current interest rate and the terms of your loan.
Refinancing your home mortgage loan is certainly not as simple as commercials make it seem. On the other hand, a little bit of planning and homework can make the process go smoothly. Depending on your current mortgage, refinancing might be the right move. Before you start the process, talk with a trusted mortgage professional to find out.
About Joe: Joe Boylan has been a Real Estate Broker in the Pikes Peak Region for over 20 years. Joe writes about best practices and provides advice to both Home Buyers and Home Sellers. Visit his website at https://www.springshomes.com/