What Is a Refinance Appraisal?

A refinance appraisal determines your home's current value in refinance underwriting. 

Refinancing your home can make sense if you qualify for better interest rates, a longer mortgage term, or lower monthly payments. You'll need an appraisal to confirm your home's current value as part of the refinance process. Below, you'll find everything you need for a refinance appraisal, including options that don't require an appraisal. 

Let’s go over the basics of refinance appraisal, which will help you enjoy a smooth path to refinancing. Whether you're buying, selling, or refinancing, you may have a few different options.

What Is a Refinance Appraisal?

During a home appraisal, a professional, certified appraiser will walk through the home and assess its major systems, state of repair, neighborhood, and other factors to determine its fair market value. 

An appraisal is essential to the homebuying process because it protects you from overpaying for a new house. It's also vital for most refinancing, as it defines the home's current value for the lender and determines how much of a loan you can qualify for. 

Appraisals protect lenders from lending more money than a property is worth and help prevent you from borrowing more than the home’s value, which can put you at financial risk later. 

Appraisals are important during refinancing because you'll get updated information on your home’s value appreciation or depreciation. This tells you how much equity the home has to use for other goals or pay off the mortgage faster. 

How Does a Mortgage Refinance Appraisal Work?

A refinance appraisal requires a professional appraiser to visit the property and assess its value. Depending on the property size, this can take under an hour to a few hours. Once you have an appraisal appointment, the visit can be completed in a day, and the appraiser should have their report ready within a week or less. 

In addition to an in-person appraisal, some appraisers may use a simplified appraisal for a refinance. These include:

• Hybrid Appraisal: This combines traditional appraisal methods with modern data-driven techniques and third-party assistance, providing additional accuracy. 
• Desktop Appraisal: The appraiser uses tax data on the property, such as size, bedrooms, and bathrooms, along with comparable properties 
• Drive-By Appraisal: The appraiser will drive by the exterior of the property and the location but will not enter the property. They will use other desktop appraisal techniques to complete the appraisal. Also called an exterior-only appraisal, the Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) usually allow exterior-only appraisals for refinances.

Why Do Lenders Need a Home Appraisal for a Refinance?

Lenders need a home appraisal to ensure they're not lending more than the home's value. In most cases, lenders aim for a refinance loan-to-value ratio of 80% or less but may approve a refinance loan-to-value ratio of up to 95%. 

Even if you had an appraisal when you purchased the home, lenders require a refinance because of changes in market conditions and your home’s condition. In favorable market conditions, your home's appraised value may be significantly higher than its previous appraised value. 

Is It Required to Have Appraisals When Refinancing?

Appraisals are not always required when refinancing. The following refinance examples do not require an appraisal:

• FHA Streamline Refinance: If you have a current FHA loan and are refinancing for a new FHA loan, you won't need an appraisal. 
• VA Streamline Refinance: VA streamline refinances don't require a property appraisal. If you qualify, you can skip underwriting for the refinance.
• USDA Streamline Refinance: If you have a USDA-qualified property and a current USDA loan, you can choose a streamlined refinance option and not need an appraisal. However, you'll need an appraisal if you choose a standard USDA refinance. 

What Do Refinance Appraisers Look For?

Appraisers look at various criteria related to the property, from the size and location to the functionality, layout, and amenities. Here's what they typically consider:

• Location: Including amenities in the neighborhood, neighborhood property values, and other factors related to the location (such as a large corner lot or the proximity of a dump).
• Size: The basic square footage of the home, including the number of bedrooms and bathrooms. 
• Basic condition of the home: Is there deferred maintenance? For example, if the roof will need to be replaced or there are issues with the foundation, this can affect the appraised value. 
• Layout and functionality: While size and location are important, if the home's layout is awkward or impractical for most families (such as the main kitchen in the basement), it can affect appraised value. 
• Home improvement: On the plus side, if you've added amenities like decks, a pool, or other improvements, the home's appraised value could increase. 
• Exterior amenities: Exterior amenities include fences and outbuildings such as detached garages, barns, pools, or guesthouses that are part of the property. 

How Much Does a Refinance Appraisal Cost?

A refinance appraisal typically costs between $300 and $600, depending on the property location. In certain high-cost areas, the appraisal cost could be higher, or if the home is in a remote or difficult-to-reach location, you could pay more. Likewise, larger homes with several outbuildings will have higher appraisal costs than a small single-family home. In some cases, you could get an appraisal for free. 

How to Prepare for a House Appraisal For a Refinance

As a borrower, there are major advantages to getting a higher appraisal. Fortunately, there are certain steps you can take to help reduce the risk of a low appraisal. To prepare for a mortgage refinance appraisal, consider the following:

• Improve curb appeal: Most people judge a home by the first impression. You can easily add curb appeal with attractive landscaping, flagstone walkways, cleaning up the yard, or even potted flowers or window boxes. 
• Clean up: While obvious, decluttering and cleaning the home before the appraiser arrives can improve the impression of your home. 
• Make repairs: If you know an issue with a major home system, like the HVAC system, get it repaired before the appraiser arrives. You can also get a trusted contractor to test and repair the home’s major systems. Likewise, consider cosmetic upgrades like a fresh coat of paint or replacing old flooring or carpets. 
• Do your research: Before applying for a refinance or an appraisal, you can research “comps” or comparable properties in your area that have recently sold to understand how your property might compare. 

Tips on What to Do if Your Refinance Appraisal Is Lower Than Expected

No one wants a low refinance appraisal, but if it happens to you, here are a few options:

• If you suspect errors: If you think the appraiser had incorrect numbers, such as square footage, missing appliances, or upgraded features, you can contact them and ask for a correction or to verify the information used. You can also send the appraiser any comps you looked at that sold within the previous 90 days to ask if those were considered. 
• If the appraisal is correct: You have two options: drop the refinance and keep paying your current mortgage or request a lower loan amount. Lenders won't approve loans for more than the property's value. 

Find the Best Mortgage Refinance Lenders From Benzinga’s Top Providers

You can find some of the best refinance offers from Benzinga's top providers. Start your comparison search here:

Final Tips on Refinance Appraisals

Preparing yourself and your property can help you secure a more favorable mortgage appraisal. Regardless of market conditions, cleaning the home, improving curb appeal, and performing regular maintenance can help you secure a more favorable appraisal. Before you refinance, look at “comps” in your area to understand your property's current value. 

Then, remember to compare lenders' best offers to get the best refinance terms. Finally, if you have a government-backed loan such as a USDA, VA, or FHA loan, you could avoid an appraisal entirely with a streamlined refinance. 

If you're ready to apply for a refinance, read about common refinancing questions, see if you meet refinancing qualifications, get the best mortgage refinancing tips, and review appraisal requirements for various property types. 

Frequently Asked Questions