Today’s housing market is currently in a period of prolonged decline and foreclosures have hit all time highs. In many areas home value has stabilized, but failure to read the writing on the wall can be an expensive proposition, leaving you without a refinance and poorer than when you started.
Get an appraisal before the bank does
It would be quite unusual for the bank not to request an appraisal. In all likelihood, they will require a formal appraisal before they approve of your refinance.
An appraisal can be conducted a number of ways, and the bank or lending institution will look at both your home and home’s similar to yours to determine value. If the value of your home is too low, they will not approve of your loan.
You can save money by hiring an appraisal company do a cheaper form of appraisal, like the Automated Valuation Model (AVM) or a simple drive by appraisal. If your home value is on the low side, it is unlikely the bank will approve of the refinance.
Read your Good Faith Estimate with a scrutinizing eye
Your GFE should come within 3 days of your loan’s approval. This is the estimate of all the upfront cost associated with refinancing. If the GFE costs seem unreasonably high, push your lender to assume more of the cost. If many places on the GFE are marked with a zero, your lender may not be playing straight with you—find someone else!
A note on ‘no cost’ GFEs
Though refinancing is an option with some lenders sometimes for not associated cost to you, often these costs are simply rolled into the principal of the loan and will definitely cost you later.