A mortgage refinance may seem like a daunting process for many reasons, especially if you are pursuing one for the first time. You likely have multiple questions about which types of loans (fixed-rate mortgage or adjustable-rate mortgage), loan terms, and interest rates are the best fit for you given your financial situation, among other concerns. However, there is also another process to consider when refinancing: a home appraisal.
Home Appraisal & Refinancing
An appraisal is a process that involves an expert’s evaluation of your home. Based on this evaluation, the professional will then provide you with an estimate of your property’s value. Typically, people who conduct home appraisals are licensed by the state in which they work and are unbiased. This means that an appraiser may not have any interest in the estimate of a property. An experienced appraiser will generally compile a report based on his/her inspection and rely on characteristics of the property (condition and amenities, square footage, etc.), as well as existing market trends and recent sales of comparable homes in the area to ascertain your home’s value.
Appraisals Are Commonly Required
Home appraisals are often required before a mortgage refinance. This is because lenders want to ensure that an estimate for a property’s market value has been given and that you (the homeowner) are not attempting to borrow more money than your home is truly worth. An appraisal typically comes with a fee for the borrower and can amount to several hundred dollars. According to the market research firm IBISWorld, the size of the real estate appraisal industry in the United States is estimated at $9 billion and grew at an average annual rate of 0.8% between 2015 and 2020.
Determine The Level Of Interest On A Loan
Your home appraisal can also play a significant role in the interest rate you receive, given that an appraisal is part of what determines your loan-to-value (LTV) ratio. Generally speaking, the lower your LTV ratio, the lower the interest rate you are offered will be because your lender will view you as a low-risk borrower. Should your property’s value increase upon closing, you may have the opportunity to refinance at a lower rate. If your home’s appraisal value is lower than its purchase price, you may be forced to either pay the balance in cash or decrease the purchase price.
May Result In Cash-Out In Refinancing
If your property’s value has gradually increased, you may have sufficient home equity for a cash-out refinance. This essentially replaces your current mortgage with another loan that requires a higher balance due, yet better payment terms and interest rates. This option allows you to obtain the difference between the two mortgages in cash. You can then use this money to pay for other major investments (e.g. a car or your children’s education) or you can choose to save it for future projects (e.g. home remodels).
Remember that if you ever default on your mortgage and enter foreclosure, your lender will sell the property in order to regain its funds (the house serves as collateral). According to Zillow, the average appraisal costs $400. Nevertheless, this figure can often change depending on factors such as a property’s value and size. One of the most effective ways to increase your home’s appraisal value is by performing repairs and improvements. Something as small as making updates to your bathroom or kitchen can help raise your home’s value. If necessary, get more than one appraisal to see how much of an impact on your home’s value these improvements have.
Reach Out To Mathis Title
Reach out to the professionals at Mathis Title Company in Fairfax, Virginia, for more information on how home appraisals affect the mortgage refinancing process. We provide customized real estate settlement services, as well as legal advice, to buyers, sellers, lenders, and agents.
Robin Mathis is an attorney who has more than 30 years of experience in real estate settlement services and who has performed thousands of closings, both small commercial and residential. She is extremely knowledgeable about the buyer and seller sides of real estate transactions. Ann Andreatos is a title agent who has more than 14 years of experience in the title and closing industry. She has a remarkable ability to detect errors in documents and track down lien releases.
At Mathis Title, we know that many different types of legal issues can arise during a mortgage refinance. Therefore, we are dedicated to providing our customers with high-quality, personalized guidance and support through closing. We can order title searches, prepare closing documents, and work closely with your lender, among other things. Call Mathis Title Company today at (703) 214-4020 or contact us online to schedule a consultation with our qualified real estate professionals.