Appraisals and Underwriting
The Underwriting Process
After all your documents are submitted, your lender will work on underwriting your loan. This is where the underwriter checks all the details on your mortgage application and supporting documentation to make sure everything's accurate and fulfills the necessary guidelines. Your application not only has to meet the criteria set by your lender, but also the investor of your loan – the institution that gives your lender the funds for your mortgage.
Underwriting your loan typically takes a week or two, but any third parties involved in the underwriting process – such as the appraiser – can slow this down.
How the Appraisal Can Impact Your Refinance
Just like when you bought your home, you'll need an appraisal to confirm the value of your property. The appraiser will inspect your home and compare it to similar, recently sold homes in your area to determine an opinion of value.
In some cases, your lender won't require an appraisal for your refinance. For instance, if your home has been appraised in the last 120 days, you may be able to have the appraisal waived.
Low Home Appraisal
Lenders usually can't finance more than the appraised value of your home, so a low appraisal can be quite problematic for a refinance. These are some options you might have if your appraisal comes back low:
- Decrease the amount of the refinance: In some cases, you might have to bring cash to the table to cover the difference between the loan amount and property value. In other cases, such as with a cash-out refinance, you might be able to just lower the loan amount.
- Cancel the refinance: A low home value might mean that refinancing isn't right for you at this time.
The best-case scenario is that your appraisal comes back higher than or on par with what you expected. If you cancel the refinance as a result of a low appraisal value, you may still have to pay the appraisal fees and any other required lender fees. That's why doing your research upfront to estimate your property value is so important.
Once the underwriter approves all the required paperwork, your refinance is nearly complete. Your lender will then get in touch with you to schedule your closing and review your final mortgage numbers.