Refinance Appraisal: How It Works and What To Expect

When refinancing your mortgage, your lender may want to have a professional appraise your home to determine its market value. Appraisal results can impact your new loan, such as determining whether you need to pay for private mortgage insurance (PMI).

Knowing what to expect from the appraisal can help you navigate the refinance process with more confidence.

What is a refinance appraisal?

A refinance appraisal is often part of the underwriting process when replacing your current mortgage with a new one. Your lender may order an appraisal to determine your home’s market value and confirm it’s sufficient to secure the new loan. It helps the lender determine your borrowing limit and the size of your loan.

As with the appraisal conducted when you first purchased the home, a refinance appraisal evaluates the property’s condition and compares it to similar homes in the local real estate market. The process may be more streamlined, especially if you’re working with the same lender.

Why do lenders require home appraisals for a refinance?

Lenders typically require a home appraisal before approving a mortgage refinance, because it helps them assess the home’s value and condition to ensure the loan makes financial sense.

An appraisal can serve several purposes:

• Confirm the home’s current value. The appraisal assesses your home’s current value, ensuring the lender isn’t offering more than the property is worth, since the home serves as collateral if you default.
• Measure your equity for cash-out refinances. Your equity — the difference between the home’s appraised value and your remaining loan balance — determines how much cash you may be able to take out with a cash-out refinance.
• Evaluate the property’s condition. The appraisal also provides the lender with a snapshot of how well the home has been maintained and how it compares to similar properties in the area.

Do I always need an appraisal to refinance?

Not all refinances require an appraisal. The decision, however, is entirely up to the lender.

Bank of America, for example, requires a refinance appraisal “to accurately assess the value of the property and the risk of the transaction,” says Ann Thompson, retired specialty lending executive for Bank of America. She further says that appraisals “provide independent validation of other critical information such as occupancy, completion, condo project information, and health and safety.”

Some government refinance options allow you to skip the appraisal entirely if you qualify:

• FHA streamline refinance: This program offers reduced rates or better loan terms without the option to take cash out. To qualify, you must already have an FHA loan in good standing and meet other criteria set by the lender.
• VA interest rate reduction refinance loan (IRRRL): Available to qualified borrowers with an existing VA loan, this option lets you refinance to a lower interest rate or switch from an adjustable-rate to a fixed-rate mortgage without an appraisal.

What factors do refinance appraisers consider?

Appraisers look at several aspects of your home to estimate its current market value, including:

• Location: Appraisers evaluate recent sales of similar homes in your area. They also consider your proximity to schools, parks, shopping and other amenities. This is one of the most important factors.
• Size: They assess your home’s square footage as well as the number of bedrooms and bathrooms.
• Layout and functionality: A modern, open layout or an efficient floor plan can contribute positively to the appraised value.
• Home improvements: Updates to key areas, such as the kitchen, bathrooms and roofing, may boost your home’s value.
• Exterior amenities: Garages, decks, porches and general curb appeal are taken into account during the evaluation.
• Condition of home systems: Appraisers check the state of your plumbing, heating/AC, electrical and other major home systems and may flag any issues that affect value.

If you’re refinancing with the same lender or appraiser, they may give extra attention to changes or upgrades made since the original loan.

How is a refinance appraisal different from a purchase appraisal?

Refinance and purchase appraisals follow a similar process, but they differ in how value is determined and the level of involvement allowed for the homeowner.

• Purchase appraisals: These rely on the home’s agreed-upon sale price as a reference point. The appraiser uses that figure as a benchmark and often aligns the valuation closely with the contract price.
• Refinance appraisals: These do not have a recent sales contract to guide the valuation. Instead, the appraiser bases the home’s value entirely on factors such as comparable sales, property condition and current market trends.

With a refinance, you can usually be present during the appraisal. Being there gives you a chance to point out any upgrades or repairs and provide documentation of improvements that may help support the home’s value.

How the appraisal process works

The refinance appraisal typically occurs early in the loan process, after you submit your application, but before final approval. Your lender will order the appraisal and coordinate directly with a licensed professional to assess the current value of your home.

The process can vary by lender, but generally follows these steps:

• Appraisal order: Once your refinance application is underway, the lender requests an independent appraisal from a licensed appraiser.
• Scheduling the visit: The appraiser contacts you to schedule a time to inspect the property. In most cases, you can be present for the visit.
• Appraisal walk-through: The appraiser evaluates both the interior and exterior of the home, checking for structural integrity, safety issues, room count, layout and any recent upgrades or renovations. The physical inspection typically lasts anywhere from 20 minutes to a few hours, depending on the size and complexity of the property.
• Market comparison and report: After the visit, the appraiser reviews recent comparable sales and prepares a report estimating the market value of your home, which is sent to your lender.

The process itself is generally straightforward, but its timing can vary. The appraisal typically takes a few days to complete, while the full refinance process often takes 30 to 45 days or longer to complete.

Alternatives to in-person appraisals

In some cases, a traditional in-person appraisal may not be required for a refinance. Certain loan programs and borrower profiles allow for faster or more flexible alternatives.

Options may include:

• Desktop appraisal: This type of appraisal is completed remotely using public records, MLS data, tax assessments and other digital property details.
• Hybrid appraisal: A third-party inspector collects data and photos onsite, while a licensed appraiser reviews the information and completes the valuation from a separate location.
• Drive-by appraisal: Also known as an exterior-only appraisal, this involves the appraiser evaluating the property from outside without entering the home. It’s sometimes used for FHA or VA refinances and became more common during the COVID-19 pandemic.

These alternatives can streamline the refinance process, but they’re not available in all cases. Eligibility may depend on your lender, loan type and individual qualifications.

How to prepare for a mortgage refinance appraisal

A little preparation can go a long way in helping your home show well during an appraisal. Simple improvements and basic upkeep may help support a higher valuation.

• Clean up. The appraiser will likely inspect both the interior and exterior, so take time to tidy up your yard and remove clutter inside. Even basic cleaning and organizing can make a strong impression.
• Add lighting. Before the appraiser arrives, open the window shades and turn on the lights to make your home seem bright and inviting.
• Adjust the temperature. Make sure your heating or cooling is set at a comfortable level, so the home feels well-maintained during the visit.

“A homeowner can ask the appraiser what would help them the most when they are at the property,” says Lisa Desmarais, vice president of Appraisal Issues at the Appraisal Foundation, a professional association of real estate appraisers. “Because every property is unique to its own market, only the appraiser who is coming to the property will be able to best advise how the homeowner can prepare for the appraiser’s visit.”

What happens after a refinance appraisal

After the appraisal is completed, the lender uses the results to finalize your loan approval. The value of your home helps determine your equity, loan terms and whether the refinance can move forward.

• If the value meets expectations: The loan proceeds to final approval and closing without major changes. The appraisal confirms the property is sufficient collateral for the loan amount.
• If the value is higher than expected: A higher-than-expected appraisal can give you more flexibility in your refinance. You may qualify for a better interest rate based on your increased equity. If the appraisal pushes your equity past 20 percent, you may be able to eliminate private mortgage insurance. A higher value may also let you borrow more through a cash-out refinance.
• If the value is lower than expected: The lender might reduce the loan amount, require PMI or, in some cases, deny the refinance.

The amount of flexibility you have moving forward depends on the outcome of the appraisal. You may need to reevaluate your options, especially if the appraised value affects your loan-to-value ratio.

How much does a refinance appraisal cost?

Appraisal fees are included in the closing costs a borrower pays. The cost of a refinance appraisal can vary based on the size, condition, and location of your home, as well as the complexity of the report.

The latest Appraisal Survey from the National Association of Realtors found that most respondents reported paying $400 or more for a standard appraisal, with the typical cost averaging about $500.

While some lenders may require you to pay the appraisal fee upfront, it’s often included in your closing costs and may be rolled into the loan if allowed.

What to do if your home appraisal is low

A low appraisal can limit your refinance options, especially if it reduces your equity or pushes your loan-to-value ratio above lender limits. But that doesn’t mean the refinance is off the table. There are several ways to respond:

• Review the report for errors. Review the appraisal carefully to ensure it accurately reflects the features and condition of your home.
• Submit a reconsideration of value. If you find inaccuracies or have better comparable sales, you can ask the lender to challenge the appraisal by submitting supporting evidence.
• Request a second appraisal. Some lenders allow a second opinion. The cost comes out of your pocket, but it may be worthwhile if the initial appraisal appears unusually low or flawed.
• Adjust your refinance strategy. If the appraisal limits your options, you may need to adjust your loan amount, accept PMI or switch refinance loan type.
• Shop around. If you’re not satisfied with the results, you can start over with a new lender and appraiser, potentially receiving a more favorable outcome.

FAQs about refinance appraisals

• What is the difference between a refinance appraisal and a home inspection?
  

  An appraisal estimates your home’s current market value based on factors such as location, condition and comparable recent sales, to determine loan eligibility. A home inspection evaluates the property’s physical condition to protect homebuyers by revealing any potential problems.

• What are the benefits of getting an appraisal for refinance?
  

  If your home has increased in value since you bought it, an appraisal can work in your favor. It might help you qualify for a lower interest rate. You may also be able to eliminate private mortgage insurance if you’ve reached 20 percent equity. If you’re considering a cash-out refinance, a higher appraisal could enable you to borrow a larger amount of money.

• What impact does home maintenance have on appraisal value?
  

  Keeping up with routine maintenance can positively influence your appraisal. Homes that appear well cared for, both inside and out, are more likely to be valued favorably. Cleanliness, functioning systems and visible upkeep can make a strong impression and lead to a potentially higher valuation.