Refinancing your mortgage can help you save some on interest, change your loan term or even get some extra cash. However, before the lender will approve your new loan, he may order an appraisal of your home. If the appraised value is too low, the lender will deny the application, so do everything you can to make sure your home's appraisal is as high as possible.
Estimate Your Equity
Most lenders require that you have a certain amount of equity in your home before they will approve a refinance. If the value of your home has fallen, or if the closing costs associated with the refinance cause your equity to fall below this limit, you may not be able to refinance. Likewise, many lenders offer better interest rates to borrowers with equity above a certain amount, such as 20 percent. Before applying for a refinance, estimate your equity by dividing your outstanding loan balance by your home's value and subtract from one.
Even if your home appraised for $300,000 two years ago, there is no guarantee that it will reach that level again. Before you try to refinance, estimate the current value of your house by researching recent home sales in the area. If sale prices of similar homes are close to what you would expect when selling your own, your home appraisal will probably be fine. If not, you may need to reconsider refinancing. If decide to move forward, your research will also provide you with some information that you can give to the appraiser, which may help your property appraise at a higher value.
Not every issue in your home will result in a lower appraisal, so there's no need to scour the walls for chipped paint or clean your kitchen floor with a toothbrush. However, obvious defects like a bad roof or other structural damage will certainly decrease the appraised value of your home. If possible, take care of any serious problems with the house and surrounding property before the lender orders the appraisal. Refinances are usually faster than home purchases, so it may be wise to start on these repairs before you apply.
Keep it Clean
Appraisers aren't supposed to pay attention to clutter when they estimate the value of a home. However, according to ABC News, they do anyway. On the day of your appraisal, make sure that your grass is mowed, your landscaping is manicured and the interior of your home is spotless and well organized. If your home is visually appealing to the appraiser, the appraisal is more likely to be successful.
Skip the Appraisal
With some refinance programs, such as FHA streamline, the lender may not require an appraisal at all. If you are worried that the appraisal won't come back high enough, or if you simply don't want to deal with the hassle of preparing for it, look for one of these programs. Some lenders may also approve refinances with "drive-by" appraisals. In such cases, you only need to worry about your home's external appearance when the appraiser comes by.
Get a Second Opinion
If your appraisal comes back too low to refinance and you think the appraiser may have made a mistake, it never hurts to ask for a second opinion. Most lenders are willing to order a follow-up appraisal if you can show evidence that your house may be worth more than the first appraiser's estimate.
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