Your dreams of refinancing can go out the window if you don't have enough value in your home. While a home is traditionally an asset that goes up in value over time, certain market conditions combined with the overall condition of the property can cause your home to lose value. When this happens, you may find that your house is worth less than you owe, making it impossible to refinance. That's why it makes sense to find the value of your home before you refinance.
Contact your lender and obtain a payoff figure. This is the total amount to satisfy your loan, including principal and interest, as well as administrative and cancellation fees.
Determine if you want to cash out on your refinance. This means you want additional money above the payoff figure. This amount plus the payoff will be your total loan amount.
Obtain an appraisal of your property. A full residential appraisal typically runs between $250 and $450, depending on the appraiser, the location and the size of your home.
Contact potential refinance lenders. Find out what the acceptable loan-to-value ratio (LTV) is for each. Typical residential lenders allow you to borrow up to 80 percent of the value of your home.
Multiply the value of your home by the loan-to-value ratio. For example, if your home is valued at $150,000 and the acceptable loan-to-value ratio is 80 percent, you can borrow up to $120,000.
- If you find your home is worth less than you owe on it, check with your lender to see if it participates in the Home Affordable Refinance Program (HARP). The program is designed to help "underwater" homeowners refinance their mortgages.
- Your new lender will order an appraisal as part of the refinance process. To avoid getting double-charged, find an appraiser approved to do work for the lender. This way, when you start the process, the appraiser can certify the appraisal to the lender as opposed to getting a whole new report.