Ah, you’ve made the decision to refinance your home. You’ve chosen your lender, filled out your loan application, turned in your paperwork, agreed to your loan terms, and you are just waiting on...the appraisal.
We have all heard about the importance of the appraisal, but did you ever realize your refinance truly hinges on this important step? Let’s take a look at why the appraisal is so crucial and what you can do to aid in the process and avoid delays.
If you are saying to yourself, what is an appraisal? Don’t be alarmed. Many people don’t even know what the word appraisal means much less what it entails. Essentially, the appraisal is the assessment of the property’s value based on the opinion of the person doing the appraisal—the appraiser!
An experienced professional appraiser is a third party with no interest in the transaction. The appraiser is hired through your bank and will come to your home and make a judgment based on the size, functionality, and condition of your home. The appraiser then does a market analysis of other homes in the area, including recent sales, which helps determine the final value of your home. That final value is called the “fair market value”. Sounds easy right?
So, what does all that mean?
Basically, the short and skinny is that the appraisal is very important part of your loan process. It can determine whether or not you are approved for the loan amount you’re asking for or whether you’re able to refinance at all.
Now you are probably thinking, what can I do to be sure I get the best appraisal value? Check out this article for some great tips on how to not let the home appraisal kill your refinance.
If you have an older home, consider doing some home improvements. Minor things that you know need to be fixed or just try giving the home a “facelift”. Updating a bathroom or adding a fresh coat of paint to the walls can easily create a little curb appeal and will certainly help with the cosmetic appearance and feel of the home.
If you don’t have the time or money for the bathroom, the kitchen is another major area that can increase your home’s value if updated. Even minor improvements can help in a major way. For the outside of your home, maybe add some nice plants or shrubbery that is an easy do-it-yourself project but will really help the look of the property. Be sure the grass is cut and looks nice as well. You’d be surprised how little changes can make a world of difference.
Additionally, be sure to fix any leaky faucets or items with noticeable damage. A big hole in the wall or stain on the carpet is hard not to avoid and can negatively affect your appraisal value. If you are not sure what needs to be fixed or repaired, you may also consider hiring a home inspector. A home inspector can look over the home, similar to the one you hired when you decided to purchase your home, and tell you what things need to be fixed or adjusted which can help your appraisal value.
It should be noted that appraisals are very subjective and all depend on who you get. You just want to be sure you have crossed your t’s and dotted your i’s before that appraiser comes in to get the best value possible!
So, what happens now?
The appraiser’s come and gone and it seemed to go smoothly. You made sure the grass was cut, everything was spotless and that you’ve made your home as appealing as you could. Did you bake cookies to make sure the smell lingered?
The results are in and unfortunately the appraisal value comes in low. Now what?
Generally, if your appraisal value comes in low and you are “underwater”, you will not be able to continue with your refinance. Underwater basically means if your appraisal value comes back at, let’s say $100,000 and you owe $115,000. You would be considered “underwater”.
But let’s say the appraisal was low due to a maintenance issue or something that can be fixed. In that scenario, the solution is easy. You can have the repair done and then have the appraiser come back out for another review.
Another reason appraisals come in low is due to comparable sales. Typically, homes in your area will help an appraiser determine the fair market value of your home, but sometimes there is a lack of comparable homes in the area. Foreclosures and short sales can also skew the figures.
The shortfall can affect your appraisal negatively, but why is that your fault? It’s not, but unfortunately there is little that you can do about the other properties in your neighborhood or area. You can be there when the appraiser comes to your home and share any information you have on the homes in the neighborhood, but the appraisers are looking at the area as a whole.
What Happens Next?
If you feel your appraisal value was too low in general, you can always get another one. It will cost you but it may help you save in the long run if you truly think your value should be significantly higher than the original quote you were given. Appraisals cost on average, anywhere between $350 to $500.
The nice part about an appraisal if it comes out well or the way you expected, is that it is possible that the appraisal can help you get an even lower interest rate than you thought. If the appraised value of the home comes out higher than what the bank thought the home was worth, you may qualify for a lower interest rate. Great!
On the other hand, if the appraisal comes out too low or lower than the loan amount, the interest rate could be affected negatively. The bank will see that situation as more risky and will heighten the interest rate in order to protect their interests.
All sounds complicated and tough right? Well we are here to help! At Lenda, we can take the stress out of this already seemingly stressful process. We offer a hassle-free stress-free option for refinancing with no paperwork. You can get your free quote online in just a matter of minutes. Check it out today!