One of the most important factors regarding your ability to refinance is your home appraisal. In order to determine your loan-to-value ratio, your lender needs to determine the current market value of your home. This value will be compared to the amount that you owe on your home.
The maximum loan-to-value ratio can vary by loan type, and there are some loan programs that allow you to refinance even if your home appraisal shows that you owe more than your home is worth. However, a low appraised value can present a roadblock when it comes to refinancing your mortgage.
If you’re thinking about refinancing in order to take advantage of today’s low mortgage rates, there are some things you can do before you get your home appraisal. The first step is to get a rough idea of some recent comparable home values. Keep in mind, you will never be able to pinpoint your home’s value until an actual appraisal is done. But if you’re going to do some research on your home’s value, make sure you’re comparing apples to apples. Looking at recent home sales in your neighborhood can be misleading. If you have a small, 2-bedroom ranch, it’s probably not a good idea to use the sale price of your 5-bedroom, bi-level neighbor as a comparison.
Additionally, it’s important to know that in the post-bubble lending market many home loan and appraisal guidelines are government regulated and much stricter. These guidelines are put in place to protect you, the consumer. The government wants to protect people from getting mortgages they can’t afford, or large loans on houses that don’t have value. That being said, appraisers tend to be very fair, or maybe even a little conservative in today’s market. Beyond the condition of your home, age, home type, location and foreclosures in your area all factor in to your home’s value.
The appraisal is an important part of the refinance process and can often make or break your ability to refinance. If an appraisal comes in low, you may be tempted to blame the lender, but by law the lender cannot have any influence or conversation with the appraiser regarding the valuation of the property. This is another government regulation that was put in place for your protection. The government wants to make sure that lenders aren’t influencing the value of a home in order to put someone in a mortgage.
If you’re home appraisal comes in low, there are still some options available to you if you want to refinance. You can pay the difference in your closing costs, but if the appraisal is much lower than the loan amount, this may not be an affordable option. Unfortunately, if there isn’t a loan available for your loan-to-value, you may have to wait until the values in your neighborhood start to bounce back. The good news is that mortgage rates are still incredibly low, so hopefully the market will continue to be in your favor when your property value meets your needs.
If you have questions about the appraisal process or any home loan questions in general, feel free to contact us at firstname.lastname@example.org.
Amber Hunt is a writer for Quicken Loans, an amazing place to work. Find out more about being a part of our team at Quicken Loans and learn how we Amaze our clients.