Home Appraisal For Refinance: What to Expect

Home Appraisal For Refinance: What to Expect

Written by Jeanette Arnholt
Article • 01/18/2022 • 10 minute read

Home Appraisal For Refinance: What to Expect

When you purchased your home initially, you may recall needing an home appraisal. While it may have just seemed like a frustrating addition to the process and overall cost, it’s actually a very important part of the homebuying process.

If you’re looking to refinance, you may need to get a home appraisal again. And it works in pretty much the same way. So, if you need a refresher, here’s everything that you can expect when it comes time to get your home appraised.


What Is a Home Appraisal?

A home appraisal is an unbiased, professional opinion regarding the value of your home. It takes into account other factors such as home’s condition, location, and what other comparable homes have sold for.

The point of an appraisal is to make sure that homeowners are not borrowing too much money from the lender. Your home serves as collateral in the event that the homeowner becomes delinquent on payments. In other words, if you’re unable to pay off your mortgage, the home appraisal ensures that the lender is not lending out more than it might be able to recover if they need to sell your home.


Home Appraisals for Refinance

A home appraisal for a refinance occurs for the same basic reason – security for the lender. However, the appraisal process for a refinance has less to do with ensuring that the home’s price is appropriate for the given location and more with the assurance that a lender isn’t lending out more money than your home is currently worth.

The reason you may need another appraisal for a refinance, even if you already got one when you initially purchased the home, is because property values fluctuate rapidly over time, especially in the current market. What your home was worth a few years ago may be completely different than what it is worth now. One important consideration to make when it comes to home appraisals for refinancing is that if the appraisal value of your home puts your home equity at less than 20%, you’ll need to pay for private mortgage insurance (PMI).


The Appraisal Process

If an appraisal is required, you will need to pay up front.

A qualified appraiser, which is someone with a professional license or certification to appraise homes, will come to your house and conduct a physical observation. You have the option to attend the appraisal, but you don’t have to.

They’ll conduct a thorough evaluation of the home's exterior and interior and note features that might affect your home’s value. They’ll then run an analysis to determine the fair market value, which compares your home’s hypothesized price to homes that have been sold in your area recently.


What Influences an Appraisal?

Qualified appraisers are checking for a number of different characteristics in your home. These are some of the conditions that they’ll be looking for.


Condition of the Home

If you’ve got some laundry on the bed or some dog toys lying on the living room floor, the home appraiser won’t dock you for it. When we say the condition of your home, we mean that the appraiser is checking for health and safety measures, as well as basic amenities.

For instance, they’ll count the number of bedrooms and bathrooms. They’ll make note if you have a basement, attic, pool, sauna, hot tub, or other features that can affect the market value of your space.

They’re checking to make sure that someone can reasonably live in your home. If they assess that someone cannot, you can expect the value of your home, and therefore your access to refinancing funds, to drop substantially compared to other properties in the area. Or may not be able to refinance at all.

They’ll also check safety features such as the functionality of your HVAC and air-cooling systems. They may also check to see if your water heater works and if your home appears to be structurally sound.

They will also check for certain state required items such as straps on your water heater or carbon monoxide detectors. And any unpermitted items or additions to the home.


Nearby Property Characteristics

Appraisers aren’t just concerned with what’s going on directly within your property. They’ll also check characteristics outside of your home, such as zoning and off-site improvements.

This might include observing alleyways, streetlights, sidewalks, and curbs that may serve as enhanced safety measures to the home. They may also check to see if the property exists within a flood zone, as well as special hazards in the area like proximity to a cliff or factory.

Not all of these will affect the market value of your home – but they might. For that reason, a qualified appraiser will take them into consideration.


Home Improvements

Appraisals will also check to see permanent home improvements that you’ve made which can affect the listing price of your property. These must be permanent features that cannot be taken with you if you decide to move.

If you’ve remodeled your kitchen, bathroom, or incorporated a finished basement, it may increase your home’s value higher when compared to other homes in the area. The same can be said if you have a new roof or HVAC system.

External features like porches, or sheds may or may not add much value to your home. However, the appraiser will take them into consideration when compiling the appraisal report.


Other Homes Nearby

Appraisers will also take a look at the listing price of other recently sold homes in the area. This is because the location is a major factor in determining the price of a home, so appraisers use what’s called “real estate comps” and check current market trends to see if the value of your home falls in line with similar properties nearby.

Real estate comps, or comparables, are similar homes in the specific area where your home currently resides.


The Appraisal Report

While the appraisal process is an intangible, physical observation, the appraisal report is physical documentation that lenders use to determine your eligibility for refinance. These reports ask the appraiser to describe the interior and exterior features, the location, as well as comparable sales in your neighborhood.

They’ll then draft up an analysis with a conclusion that includes their appraised value of your home. Their report will include the following:

  • Exterior sketch of the building.
  • Square footage, as well as a description of how it was calculated.
  • Photographs of the front exteriors of comparable properties that were used.
  • Streetmap showing the appraised property and comparable sales used.
  • Photographs of your home from the front, back, and street view.
  • Pertinent information like public land records, market sales data, or public tax records.

Appraisal vs. Home Inspection

A home appraisal is a requirement for refinancing as it helps determine the amount of money you can borrow, as well as establish the value and quality of your property. The lender is purely interested in the factors that affect your home’s market value.

While an appraiser may “inspect” elements of your home, appraisals don’t necessarily check for places where your property needs to be repaired unless it affects the market value of your home. This is where appraisals differ from home inspections.

Home inspections are ordered at your request, and they’re not necessary for a refinance. They ensure that your home is in good, working condition and it lets you have a better grasp of maintenance needs in a home. It’s usually recommended before you buy a new home.


Are Home Appraisals Biased?

It might seem like the appraiser is acting in the interest of the mortgage, especially since they typically order the service. However, most state laws require that the appraiser come from an independent and licensed third party that has no affiliation to your lender.

With that said, appraisers can make mistakes and overlook certain circumstances. If you feel like you’ve gotten a bad appraisal, meaning that you feel the value of your home is higher or lower than what the appraiser has suggested, you can look into getting a second opinion, or challenging the appraised value by providing additional sales comps.


Cost of a Home Appraisal

The price tag attached to a home appraisal depends on several factors. First, the type of appraisal that your lender orders affects the end cost. There are a few different types of appraisals besides the standard in-person one.

Drive-by appraisals may be enough for some lenders, programs such as FHA or VA. In this scenario, an appraiser simply examines the exterior of your home rather than ever going inside. These tend to be less expensive than standard appraisals.

Another factor that affects the cost of a home appraisal is where you live. If you live in the countryside without many comparable listings nearby, it can be more difficult. The more unique and “one of a kind” your home is, the more difficult it can be to get a good idea of its value.

With all of that said, most people can expect to pay somewhere between $500 - $700 for a single-family home. The fee for an appraisal is included in the closing costs of your refinance.

Closing costs in total can amount to thousands of dollars, which can be surprising if you’re not ready. At Network Capital, we offer $0 lender fees on certain programs so you can put some of your closing costs to home improvements or other endeavors that are undoubtedly more exciting.


How Long Does a Home Appraisal Take?

The entire appraisal process can take anywhere from seven to 10 days, given the circumstances. Most of this time is spent creating the appraisal report and running the comps.

As far as the physical, in-person appraisal, the appraiser will spend about one to two hours inspecting the interior and exterior, measuring square footage, and conducting other assessments.


Important Considerations for Refinancing Home Appraisals

If you’re trying to refinance a conventional mortgage, getting a low appraisal can prevent you from having the ability to do so. Typically, your home needs to appraise at or above the amount you want to refinance for in order to qualify and get approved for your loan. Keep in mind that if your home’s value has decreased, you may need to add PMI to your loan.


In Conclusion

Home appraisals are a necessary part of both the home purchase and refinance process. An appraisal is a qualified estimate of the value of your home based on factors such as location, safety features, home improvements, and property characteristics.

In a refinance, the appraised value of your home can have an effect on your eligibility for approval. Not to mention, if the value of your home has risen and you own more than 20% equity in your property, you may need to pay PMI.

A home appraisal can be done in person, which is standard. A qualified appraiser will examine the interior and exterior of your home for a few hours before drafting up an appraisal report within about ten days. Drive-by appraisals and hybrid appraisals may also be used, especially during the COVID-19 pandemic.

Refinancing is a lot of work, but we’re here to make it easy. With our simplified and streamlined process, we can get you to the closing table in as little as 15 business days with our simplified and streamlined process. So worry less about your home appraisal and worry more about what you’ll do with all of the money you’ll save on your refinance.

Get in touch with us today to learn more about our competitive rates and favorable loan features for your specific situation.


Sources:
What is private mortgage insurance? | Consumer Financial Protection Bureau
26 CFR § 1.170A-17 - Qualified appraisal and qualified appraiser. | CFR | US Law | LII / Legal Information Institute
Streamline Refinance Your Mortgage | HUD.gov / US Department of Housing and Urban Development