Before you can qualify for a mortgage refinance, you must have your home appraised. During this process, a real estate appraiser determines the current market value of your home, a figure that your mortgage lender requires before deciding whether to approve your refinance request. The good news is that you don't have to personally find an appraiser. Your lender does it for you.
Equity Is Key
Conventional mortgage lenders typically approve homeowners for a refinance only if they have at least 20 percent equity in their homes. Lenders want owners to have "skin in the game," meaning that they have a financial incentive to make their new mortgage payments on time. Mortgage lenders consider homeowners who have paid off at least 20 percent of their loans to be less likely to miss their mortgage payments and default on their home loans.
Lenders turn to real estate appraisers to help determine your equity. An appraisers will study your home and compare it to similar homes in your community. By analyzing the sales prices that similar properties have fetched, and by considering any improvements you might have made to your residence since buying it, the appraiser will come up with a market value for your home. If your home's market value has dropped since you purchased it, you might not have the 20 percent equity that most lenders require for a refinance.
Hiring the Appraiser
The mortgage lender with which you are refinancing will select a real estate appraiser to determine your home's market value. You do not choose this professional. This keeps homeowners from intentionally hiring appraisers whom they think will give their homes a higher market value. During the appraisal process, the real estate appraiser will tour your home briefly.
Though your mortgage lender selects the appraiser, you must pay for the appraisal. The cost of a real estate appraisal varies, but in general you can expect to pay about $400 to $500 for a home appraisal. Most lenders will not refund this money even if they eventually deny your request for a mortgage loan.
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