Mortgage refinances often require appraisals. However, in some cases it is possible to get the new loan underwritten by the lender simply assessing the property – no appraisal needed. In these cases, you are opting for an appraisal waiver (aka property inspection waiver).
Do you want a refinance appraisal, though? If you have the option for a waiver, what are the pros and cons of completing the process?
3 pros of refi appraisals
#1. It can lower your interest.
Along with other factors, such as debt-to-income ratio and credit score, your home value will determine your refinance rate. You could end up with a better interest rate if the appraisal is high.
#2. You can access more cash.
A higher appraisal could allow for a higher payout in a cash-out refinance.
#3. You can remove the PMI.
If your loan to value (LTV) ratio is 80% or more, you will typically need to pay for private mortgage insurance (PMI). However, you may be able to remove the PMI if you get the LTV below 80 percent through a high appraisal.
3 cons of refi appraisals
Con #1. It takes time.
You want to complete any upgrades and significant home repairs prior to a refinance appraisal. You also want to generally clean and tidy up your home. You need to have time available to prepare for the appraisal if you want to get the best results. An appraisal could also potentially slow down closing. (Note that you are able to defer appraisals for as long as 120 days post-closing due to COVID-19 in some cases — although rare.)
Con #2. It could boost your LTV.
As indicated above, you want the LTV for your mortgage to be as low as possible. If you get an unexpectedly low appraisal, it will cause your LTV to rise. In a worst-case scenario, your lender may turn down your refinance application. Even if you get approved, you may get a higher interest rate based on the new valuation.
Con #3. It costs money.
Your closing costs will include any appraisal fees. The amount of these fees will vary based on home location and size – but will typically be at least $300.
The best advantage for your mortgage
Are you preparing for a refinance? At Best Advantage Mortgage, we offer the lowest rates in your area and tailor the loan to you. Find out how BAM can help you achieve your goals.