Do you need an appraisal for a refinance? Find out here
If you're considering refinancing your home, one of the first things you may be wondering is if you'll need to have an appraisal done. The answer to that question is...it depends.
There are a few different factors that can determine whether or not an appraisal will be required for your refinance. Below, we'll dive into some of the key considerations you should keep in mind.
1. The type of refinance you're doing
First and foremost, the type of refinance you're doing can play a big role in whether or not an appraisal is needed.
If you're doing a rate-and-term refinance - which means you're basically just changing the interest rate and/or term of your existing mortgage - an appraisal may not be required. This is particularly true if you're refinancing with the same lender you initially got your mortgage from.
However, if you're doing a cash-out refinance - which means you're borrowing more than what you owe on your home and getting that difference in cash - an appraisal will almost certainly be necessary. This is because the lender needs to determine the current value of your home to ensure that they're not lending you more than it's worth.
2. Your loan-to-value (LTV) ratio
Another key factor that can determine whether or not an appraisal is needed is your loan-to-value (LTV) ratio.
Your LTV ratio compares the amount you want to borrow to the value of your home. For example, if you owe $150,000 on your home and want to borrow an additional $50,000 for a cash-out refinance, your LTV ratio would be 67% ($200,000 divided by the appraised value of your home).
Most lenders have specific guidelines around LTV ratios, and may require an appraisal if yours is above a certain threshold. For instance, if your LTV ratio is 80% or higher, an appraisal may be required.
3. Changes to the property
If you've made significant changes or improvements to your home since you initially took out your mortgage, an appraisal may be necessary. This is because those changes could impact the overall value of your property.
For instance, if you've added a pool or finished your basement, an appraiser may need to come out and reassess the value of your home to ensure that it's accurate.
4. The lender's requirements
Finally, it's worth noting that some lenders simply have stricter requirements than others when it comes to refinancing. Even if an appraisal isn't technically required based on the above factors, your lender may still require one as part of their standard loan underwriting process.
In general, if you have any doubts about whether or not an appraisal will be needed, it's always a good idea to check with your lender directly.
The bottom line
So, to answer the initial question: do you need an appraisal for a refinance? The answer is...maybe.
Ultimately, whether or not an appraisal will be needed will depend on a variety of factors, including the type of refinance you're doing, your loan-to-value ratio, any changes to the property, and your lender's requirements.
If you're still unsure about whether or not an appraisal will be necessary, the best course of action is to reach out to your lender directly and ask. They'll be able to provide you with a clear and accurate answer based on your specific situation.