For those considering refinancing their mortgage, rates have never been better. As many experts anticipate that rates will not stay at this level, it is important for interested homeowners to enter the process as soon as possible. However, for many there will be a major speed bump in the process: the appraisal.
The appraisal process is never exact and, as such, it is hard to predict the results. Sometimes homeowners may be shocked to discover that their property is worth far less than they originally thought.
In fact, it is becoming increasingly common for there to be a discrepancy between the estimated value and actual value of a home. This is important because borrowers must hold a certain amount of equity in order to qualify for mortgage refinancing.
Understanding the Appraisal Process
Appraisals are an important step in pursuing a refinanced mortgage for a number of reasons. Appraisals are typically ordered by mortgage lenders in order to determine the debt still owed in relation to the current value of the home.
This “loan-to-value” ratio is a key determinant in the refinancing application process, and maximum allowances can often vary between lenders, especially as they are easily influenced by outside factors, such as the type of property and the amount of money owed. It is therefore important that the appraisal not undervalue the home in question, because such an action can significantly hinder the chances of an owner being granted a refinancing opportunity.
The most significant factor in determining the value of the home through an appraisal process is any public record of recent sales of similar homes in the area. If there have been no such sales of late, an appraiser may consider foreclosure values instead.
Homeowners should therefore check such sale prices before submitting an application, in order to better know what to expect. Also, it is crucial to make a list of any features that could influence the value of the home. This could include beneficial characteristics, such as any remodelling efforts or updates, or negative features, such as water damage, that could devalue the home.