When refinancing a home mortgage. A lot of things change on the appraisal because if the value of the home is too low than the underwater, it will be impossible to refinance. If the appraisal process gives a value of less than 20%, there's a high possibility you'll be stuck paying private mortgage insurance or bringing in cash for refinance. Even worse than that, you’ll get low interest rates because the lenders consider borrowers that have less equity to be riskier compared to others. If you're looking forward to refinancing, you should understand the appraisal process and the role it plays.
What is a home appraisal?
An appraisal service is carried out by a certified or licensed professional to gauge the value of a home. The appraiser is usually a third party that is disinterested in the home and gauges its value as it is. Professional appraisers get paid for this and in most cases, they protect the bank by ensuring it doesn't lend more money than the property is worth to the lender. For this reason, in case the property goes into foreclosure, the lender can resell the property and get the money back.
When the appraiser gets to the home, they take anything below an hour to examine all the amenities, evaluate the overall condition, measure the dimensions, and take pictures of the whole place. The appraiser will then examine all records of properties that are similar to yours closer to your neighborhood, especially those that have sold recently.
Based on all those findings, they will come to a conclusion on the overall value of your property and at what price it should be put on the market. The bank will use this information along with your credit history, your current income, and your assets to determine how much they will lend you.
What you should do before the appraiser comes to your home
You need to prepare your home for the appraiser and it is very different from how you prepare it for a buyer. Showing off your home to a buyer, most of the time what you want to trigger is emotional response and you like them to imagine how comfortable and happy they will be in that house. Such things do not apply to an appraiser because they're in a position where they have no interest in the house on a personal level.
While preparing for an appraiser, some of the things you should do are clearing away all clutter in order to allow complete access to both inside and outside your home. This includes the basement and the attic. You should be ready for questions and if the appraisal discovers a problem they will want to know what you intend to do about it or include it in the report.
What are your options if the appraisal is low?
It is incredibly hard to change an appraisal once it is reported as low. However, if you still want to get the refinance, you will either need to do a cash-in refinance or pay PMI.
