Appraisal Refinance: Meaning, Costs, and Types

✏️ Editor’s Note: Realtor Associations, agents, and MLS’ have started implementing changes related to the NAR’s $418 million settlement. While home-sellers will likely save thousands in commission, compliance and litigation risks have significantly increased for sellers throughout the nation. Learn how NAR’s settlement affects home buyers.

On average, around 179,874 homeowners chose appraisal refinance in Q2 2023. That also indicates a 10% jump from Q1 2023.

Apart from this, the average outcome for the refinance of home appraisal in 2023 is recorded as $370,000.

While many homeowners opt for refinancing their property to increase its value and get a new loan, getting an appraisal can still be a risky choice. This is because of the sudden drop in property value for various reasons.

What Is a Refinance Appraisal?

A refinance appraisal implies a home appraisal that a homeowner opts for to get a new loan on the property.

A licensed appraiser gives you the market value of your property. They inspect the property and determine its value. Along with that, the appraiser compares the property with other houses in the local area.

The estimated value from the appraisers will decide whether it’s worth enough to secure a new loan. In some refinances you can change your ongoing loan’s interest rate or loan term without an appraisal.

Several factors determine the market value of a property. According to the estimate, the lender gets to know the amount of loan they would offer or change the term.

Why Do Lenders Need a Refinance Appraisal?

Lenders need a refinance appraisal because they can’t provide a loan for more than the market value of the house. After the value of your house is determined, the lender provides the loan accordingly.

If you fail to repay the loan, the lender will sell your house to recover its funds. Moreover, your home acts as security for the loan. The lender will always provide a loan that is recoverable after the foreclosure of the property.

In addition, the value of your home highly depends on the market stability and condition of your house.

Do You Need an Appraisal to Refinance?

Many refinances don’t require an appraisal, and it depends totally on the lender. If you only want to change your interest rate or loan term, go with the no-appraisal refinance option.

The FHA, VA, and USDA have streamlined programs where you can refinance your house without an appraisal. In these streamlined schemes, the mortgage you are refinancing should be an FHA, VA, or USDA loan.

For the cash-out refinance option, you’ll need an appraisal. In comparison with your mortgage, you’ll get more funds from cash-out refinance.

That’s why the lender carries out a home inspection for refinance. This gives them an estimate of security against the provided loan.

An appraisal for cash-out refinance can be a good option if you want to pay your home loan quickly. It can also boost your credit score. In a cash-out refinance appraisal, home equity determines how much loan you are eligible for.

To calculate equity, subtract the amount you owe from the market value of your home.

How Much Does an Appraisal Cost?

The appraisal for the refinance costs depends on several factors. Generally, the cost runs between $300 and $600 for a single family. On the other hand, the cost can go as high as $2,000 for a multifamily appraisal.

The appraisal cost depends on the size of the house, its location, and more. If the property is in a rural area, the appraiser will compare all the recent sales in that area.

There is a possibility that you may have to make an upfront payment for the appraisal. But if you are unable to pay it, you can roll it into the principle of your new loan or file it into the lender’s credit.

Types of Refinance Appraisal

There are various types of refinance appraisals. You can select one based on your refinance requirements and financial conditions.

• Hybrid Appraisal: Here, the appraiser doesn’t visit the house themselves. Instead, they hire a third party to appraise the property. Based on the third-party report, the appraiser comes up with the appraised value.
• Drive-by Appraisal: The appraiser usually drives by and takes a look at the property. It is more like an exterior home inspection for refinancing. The FHA and VA allow drive-by appraisals.
• No-Appraisal Refinance: Most of the refinance requires a new appraisal or re-appraisal. However, some streamlined programs allow no-appraisal refinances. For example
  • USDA streamline refinance 
  • FHA streamline refinance 
  • VA interest rate reduction loan

What Do Appraisers Look for in a Refinance?

There are various factors that an appraiser looks for, starting from the location of the property to the number of rooms in it. Here’s a list of all the factors that appraisers consider:

• Home Systems: Heating, ventilation, and air conditioning (HVAC) systems fall under necessities and can affect the home appraisal overall. You must ensure there are no issues with the system during the inspection.
• Location: Location is one of the most important factors to consider. The appraiser quotes the value of your home by comparing it with recently sold houses in your area. Parks, shopping centers, and other establishments close to your neighborhood will raise the value of your house.
• Size: The more square footage your home has, the more value it will have. With a larger area, it will have more bedrooms and bathrooms. Thus, it will increase the market value of the place.
• Condition of the House: In the refinance appraisal process, the appraiser will make a property maintenance report. Even the layout of the house matters, whether it looks modern or not, and how well the systems are working.
• Exterior: The condition of the interior matters the most, but the appraiser also evaluates the exterior. The deck, garage, and porches should be clean and functional.
• Improvements: This is an option to get a favorable appraisal. If you make improvements like a roof replacement or plumbing fixtures, it can help in the appraisal.

Refinance Appraisal Checklist

Alongside these factors, you have to check all the boxes to get better results in your appraisal. Here is a checklist to boost your appraisal.

What Hurts a Home Appraisal for Refinance?

The home appraisal process can be problematic when it results in low appraisals for minor reasons. To avoid such circumstances, here’s a list of things that affect a home appraisal for refinance:

• Rural or Unique House: Rural and unique houses face a lot of issues when it comes to appraisal.
• Old and Outdated Systems: Before the house inspection, remember to upgrade all the old and outdated systems. They can negatively impact the appraisal report, which can lead to a lower market value for your home.
• Maintenance: The appraiser evaluates the result based on the maintenance of the house during the refinance appraisal.
• Structure: The worn-out structure of the house, including the siding roof and damaged doors or windows, can affect the appraisal. The house should be energy efficient according to the current standards.

What to Do if the Refinance Appraisal Is Low?

It can be a setback when your refinance appraisal comes lower than you expect. Although, you can apply for a re-appraise to get a higher appraisal.

Additionally, there are chances that the appraiser might not notice the latest upgrades in the report. Henceforth, you can check for any errors and write about them to the lender. 

Still, if the result doesn’t favor you, you can apply for a re-appraisal for refinance. You have to pay more, but it might help you get a higher appraisal.

Should You Go for it?

The need for appraisal refinance depends on the situation you are facing. Also, in case you want to refinance and don’t have a loan from FHA, VA, or USDA, you’ll need an appraisal.

Apart from that, if the appraisal is low, there are chances that the lender will deny the appraisal. In such circumstances, you can think about cash-out refinances.

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Frequently Asked Questions

• Mortgage Refinance