Do you need an appraisal to refinance a mortgage?

Before you refinance your mortgage, you're going to want to understand all the steps involved. Like, do you need to get an appraisal to refinance? If you're unsure, then you're in the right place — after all, refinancing your mortgage doesn't have to be complicated.

If you're looking to refinance your mortgage, here's what you need to know, particularly, whether you need an appraisal to refinance. And if so, what that entails exactly.

Do you need an appraisal for your refinance?

Nearly all mortgage lenders require homeowners to undergo a home appraisal. Homeowners who have a USDA or VA loan may not be required to conduct another appraisal, said Jackie Boies, a senior director of housing and bankruptcy services for Money Management International, a Sugar Land, Texas-based nonprofit debt counseling organization.

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“Every lender and loan type has requirements around appraisals, and they do vary,” she said. “Your home appraisal lets both you and the lender know the fair market value of your home.”

You can also use an online mortgage refinance calculator to determine the new monthly costs.

People who have a conforming conventional loan from Fannie Mae or Freddie Mac could also avoid a home appraisal if the loan-to-value ratio is “already where it needs to be based on the original value,” said Timothy Garrity, chief operating officer and broker at Copper Hill Real Estate in Philadelphia.

Pros and cons of mortgage refinance appraisals

Pros

There are several benefits of refinance appraisals, including:

1. The value of your home could increase
2. You could get lower refinance rates

1. The value of your home could increase: One advantage is that the home may receive a higher valuation, which is helpful if a homeowner is seeking a cash-out refinance.

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2. You could get lower refinance rates: “On the upside, you may discover that your home is worth more than you thought,” Boies said. “A higher value may put you in a position to obtain a lower interest rate. You may be able to eliminate or avoid private mortgage insurance (PMI) if the home value is higher and you have a loan that is less than 80% of that value.”

Cons

There are also several downsides to refinance appraisals:

1. You have to pay for it
2. It could impact your loan amount

1. You have to pay for it: One drawback is that homeowners have to pay for the appraisal.

2. It could impact your loan amount: If the appraisal comes back at a lower value, that changes the amount a homeowner can borrow or even put themselves in a position of not being able to refinance, she said.

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What does an appraiser look at for refinancing?

A homeowner could receive different values from three appraisers, said Cara Ameer, a real estate agent at Coldwell Banker Vanguard Realty in Ponte Vedra Beach, Florida.

“Appraisals are subjective and considered an art, not a science,” she said.

Appraisers look for several things in a mortgage refinance, including:

1. Prices of comparable homes in the area that were sold recently.
2. The condition of the house, such as the roof and heating and air conditioning system along with the size of the home, number of bedrooms and bathrooms, and overall square footage.
3. Any upgrades, high-end finishings, and recent remodels are factored into the appraisal and can positively impact it, Boies said. Strange floor plans, outdated kitchens, and bathrooms or poorly done finishes can negatively impact it.

How should you prepare for an appraisal?

Here is how you can prepare for a refinance home appraisal.

1. Stage your home
2. Clean, declutter and organize
3. Prepare a list of upgrades and new features

1. Stage your home: Have your home “show ready” as if you are inviting a guest into your home, said Carol Lynn Upshaw, senior mortgage originator with Atlanta-based Hyperion Mortgage.

“If there are minor things that need to be repaired, I would suggest going ahead and doing them, so they will not be noted in the appraisal and discounted,” she said.

2. Clean, declutter and organize: Homeowners should clean, declutter and organize their items and add a plug-in or light a candle so the home has a nice scent, said Timothy Garrity, chief operating officer and broker at Copper Hill Real Estate in Philadelphia.

“Who doesn't get a good feeling when they walk into a nice smelling home,” he said. “Appraisers are busy and they are always on the road, going from home-to-home and neighborhood-to-neighborhood. Anything you can do to make their job and experience more pleasant is usually appreciated.”

3. Prepare a list of upgrades and new features: Prepare a list of upgrades and features of your home and have a copy of your floor plan and the survey available for the appraiser.

“The appraiser will still need to measure your home and take photos of the exterior and interior for purposes of the report, but the easier you can make it as far as supplying information, the better,” Ameer said. “Appraisers go into numerous homes each day compiling information and are typically under a tight timeframe to turn around an appraisal report which is quite detailed.”

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Today's mortgage and refinance rates

• Average 30-year refinance mortgage: 2.81%
• Average 15-year refinance mortgage: 2.32%

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