Getting an appraisal when you refinance your mortgage is not just a pain and a $400 to $500 cost. If your appraisal comes in too low, you may not be able to refinance your mortgage at all. All of that time and expense you put in to tidy up in the interior and exterior of the home could all be for naught.
Having a home not appraise was a major problem in the mortgage meltdown of 2008 and 2009. As homes lost value – a total of $6 trillion in home equity was lost in the US from 2006-2010 – many people owed more than their homes were worth. They had no equity, and often negative equity.
This meant that many people were foreclosed upon and had to rent a home or apartment. The US government wants to avoid this scenario as much as possible, so there are now ways for people to get a refinance easier.
This means being able to refinance without getting an appraisal. Below are two of the best ways to refinance without an appraisal. These should work for many homeowners, unless you have a jumbo loan above $417,000:
#1 Government Backed Financing
If you have a government backed loan, such as FHA, VA and USDA, you often can get a streamline refinance through the government agency. This is also called an interest rate reduction refinancing loan. The appraisal requirements and rules vary depending upon which loan you have, but they all three have these things in common:
- You should be able to use your old appraisal to qualify for your government home loan.
- You can include your closing costs in the new loan, but may not pull out equity even if you have it.
- The refinance has to leave you in a stronger financial position. This means you either need to be reducing your monthly payment, moving you into a shorter term loan, or going from an ARM loan to a fixed rate loan.
- Lenders may impose some underwriting requirements, such as a credit score review, but the lending standards are usually relaxed.
If you have a loan from FHA, VA or USDA, you cannot beat the streamline refinance program. This program has allowed millions of homeowners in trouble on their mortgages to refinance into a lower rate. It does not allow you to pull out cash, but just being able to have a lower payment each month can make all the difference in the world to many people.
Note that you need to be current on your payments; you generally cannot have had any late payments in the last 12 months.
#2 Fannie Mae and Freddie Mac Mortgages
If you do not have an FHA, VA or USDA loan, there is a good chance that your mortgage is insured by Fannie Mae or Freddie Mac. The Home Affordable Refinance Program or HARP allows you to refinance no matter what you owe on your home. The is another reason that this no appraisal mortgage program has been so popular over the last few years.
The only requirement on your current loan is that you did not make any late payments in the last six months. As long as you took out your loan before June 2009, you should be able to refinance with HARP without a new appraisal.
A no appraisal HARP loan from Fannie or Freddie also means that you will not have difficulty qualifying. In many instances, these limited-time programs allow borrowers to get a 100% mortgage without an appraisal because, Loan to Value is not the driving factor to qualify. Most of these loans come with very relaxed credit standards. It benefits the US government to help to rescue as many homeowners in trouble on these mortgages as is feasible. After all, the US government needs to pay back lenders if the buyer defaults, so this helps all parties.
Why No Appraisal?
There are many benefits to refinancing without an appraisal.
First, as noted earlier, if owe more on your home than it is worth, refinancing in a traditional sense is often off the table.
Second, you will not need to spend the time and money to get an appraisal. Many people who need to refinance are in trouble and need to cut their expenses. You can save at least $400 and several weeks of your time by not having an appraisal done.
Also, not having an appraisal means a faster closing process. There are situations where the closing takes longer than anticipated, and a new appraisal has to be ordered, which adds more time and expense.
Most people who refinance with conventional lenders will need to order a new appraisal. This is often fine, but it can become a problem if home prices are declining in a down market. In that case, many people cannot refinance, cannot save on their monthly payments, and could be in danger of losing their homes.
With the above programs we outlined, you can often refinance without an appraisal as long as you are current on your payments. You also will need to not have had any late payments in the recent past.
Being able to refinance without an appraisal means many more people can refinance and stay in their homes. It also means that they can save substantially on their monthly payments.