What is a Home Appraisal?

A home appraisal is an unbiased professional assessment of your property’s value. The appraiser evaluates the condition, location, and features of your home, then compares it to similar homes that have recently sold in your area. This process is critical because the appraised value of your home helps determine how much equity you have in the property, and it can impact the terms of your refinancing, such as the loan amount, interest rate, and whether or not you’ll be able to refinance at all.

Steps Involved in a Home Appraisal During Refinancing:

1. Lender Orders the Appraisal

• Who orders it? The lender (or mortgage broker) typically orders the appraisal once you’ve applied for refinancing.

• Why? Lenders need an accurate, professional estimate of your home’s value to ensure that it covers the amount of money you’re borrowing. This protects them in case you default on the loan.

• Cost: You generally pay for the appraisal upfront, but the cost varies based on your location and the size of your home. Typically, it ranges from $300 to $600 or more.

2. Scheduling the Appraisal Appointment

• The lender will either arrange the appraisal directly or will let you know the appraiser’s contact information. You’ll then schedule an appointment with the appraiser.

• The appointment typically takes about 30 minutes to an hour, depending on the size of the home and the complexity of the evaluation.

3. The Appraiser Visits Your Home

• What does the appraiser look at? The appraiser will conduct a thorough inspection of the property, including both the interior and exterior. Here’s what they typically evaluate:

  • Exterior: Overall condition of the structure, roof, foundation, and yard. They also look for any curb appeal factors like landscaping and overall neighborhood quality.

  • Interior: They assess the layout, square footage, number of rooms, condition of appliances, and any improvements or upgrades you’ve made (like renovated kitchens, bathrooms, new flooring, etc.).

  • Other Factors: The appraiser will also consider things like:

    • Age of the home: Older homes may be valued lower depending on condition and updates.

    • Condition: The state of repair of the home’s systems (plumbing, HVAC, electrical), and any other visible damage or wear-and-tear.

    • Amenities: Things like a finished basement, a pool, or a garage can increase the value.

    • View or Location: Your home’s proximity to schools, shopping, parks, or highways can influence its appraised value.

4. The Appraiser Gathers Comparable Sales Data

• The appraiser will also research comparable sales (comps), which are recent sales of homes similar to yours in the same neighborhood or area. These homes should have similar square footage, age, and features. The appraiser will use these sales to help determine the market value of your home.

• If there aren’t many similar homes nearby, the appraiser may look at other factors like the economic conditions in your area or any long-term development plans that could affect property values.

5. Appraisal Report

• After the visit, the appraiser compiles all the information into a detailed report. This report typically includes:

  • Description of the property: This includes the address, the age of the home, the number of bedrooms and bathrooms, and other features.

  • Assessment of the home’s condition: The appraiser will note the overall condition of the property and any necessary repairs or improvements.

  • Comparable sales data: The appraiser will list the sales of comparable homes and use this to justify the appraised value of your property.

  • Market conditions: The report might also touch on local real estate market conditions, such as whether prices are rising or falling.

6. Appraised Value Sent to the Lender

• Once the appraisal report is complete, it’s sent to the lender. The appraised value will be compared to the amount of equity you have in the property (i.e., the difference between your current loan balance and the appraised value).

• If the appraised value is higher than expected, you may qualify for a larger loan amount or a better interest rate. If it’s lower, it could limit your refinancing options.

7. Outcome of the Appraisal

• If the appraisal comes in high: A higher-than-expected appraisal value can be a good thing, as it means you have more equity in the home. This might allow you to refinance to a lower interest rate, remove private mortgage insurance (PMI), or take out cash for other needs (if you’re doing a cash-out refinance).

• If the appraisal comes in low: A lower-than-expected appraisal can be a setback. If the value is too low compared to your loan balance, you may not be able to refinance at all or will need to borrow less money. In some cases, you may be able to dispute the appraisal, but this is typically only successful if there was a significant error in the appraisal process.

8. What Happens Next?

• Once the appraiser submits the report, the lender will use it to finalize the terms of your refinance. This could involve adjusting the loan amount, the interest rate, or other terms based on the appraised value.

• If you’re dissatisfied with the outcome (for example, if the appraisal value is unexpectedly low), you might have the option to request a second appraisal or dispute the findings. However, this isn’t always easy or successful.

Why the Home Appraisal is Important:

• Determines Your Loan-to-Value Ratio (LTV): Lenders will use the appraised value to calculate your LTV ratio(the ratio of your loan amount to the home’s value). A lower LTV can help you secure a better rate.

• Influences Interest Rates and Loan Terms: If the home is appraised at a higher value, you might qualify for a better interest rate or better refinancing terms. Conversely, a lower appraisal might result in higher rates.

• Ensures You Don’t Borrow More Than the Home is Worth: The appraised value protects both the lender and you from borrowing too much, especially in cases of declining property values.

The home appraisal is a key part of the refinancing process that directly impacts how much you can borrow, your interest rate, and the overall feasibility of refinancing. It’s something to be mindful of, especially if you’ve made significant improvements to your home or if market conditions are volatile.