Do You Need a Home Appraisal When Refinancing?

Refinancing a mortgage is a lot like getting your original loan. If you remember that process, you probably recall needing a home appraisal. Likewise, an appraisal is often key when refinancing because it provides a current value of your home. This is important because the value can affect your refinancing options, especially if you’re planning to tap into your home’s equity.

Understanding how this process works can reduce surprises and help everything go smoothly.

In this article (Skip to...)

• How the appraisal process works when refinancing
• Do I always need an appraisal when refinancing?
• What appraisers look for
• How appraisal results affect refinancing
• The bottom line

How the appraisal process works when refinancing

The home appraisal process doesn’t take long. Depending on the size of your home, it might only take the appraiser one to two hours to walk through. But while it’s relatively quick, it’s an important step in refinancing.

A general rule is that lenders won’t loan more than what a property is worth, which is why appraisals are key for both buying and refinancing.

Before closing, your lender will arrange for an appraiser to visit your home. Keep in mind, the appraiser doesn’t work for the bank. They’re a neutral third-party, which means they can provide an unbiased opinion of your home’s value.

Your lender will order the appraisal, and you can schedule it for a time that works best for you. You won’t need to do much during the process—just make sure your home is accessible.

The appraiser will carefully inspect your property and take note of things like square footage, overall condition, upgrades, and curb appeal.

They’ll also compare your home to other properties in the area, looking at homes of similar size and style. This helps them come up with an accurate assessment of your home’s value.

After the walkthrough, the appraiser will put together a detailed report with your home’s estimated value. Your lender will then use this information to finalize your refinance.

Do I always need an appraisal when refinancing?

Keep in mind that while home appraisals are common during refinancing, they aren’t always required. It really depends on your loan program and the type of refinance.

For example, if you apply for a Streamline Refinance with an FHA or VA loan, you might be able to skip the appraisal since you’re not pulling equity from your home. Streamline Refinances are pretty simple because they usually only involve adjusting the rate or term to lower your monthly payment.

On the other hand, conventional loans almost always require an appraisal. However, some lenders may let you skip this step if your home was appraised within the last 12 months.

Your lender might also waive the appraisal if they use an automated valuation model (AVM), which estimates your home’s value based on existing real estate data. That said, some lenders prefer not to use AVMs because they rely on recorded information, which isn’t always as accurate as an in-person appraisal.

What appraisers look for

Here’s a closer look at the key factors an appraiser considers during a home appraisal for refinance when determining your home’s current market value:

1. Home condition

The appraiser will carefully inspect both the interior and exterior of your property, taking note of the overall maintenance. This means curb appeal matters too.

They’ll also examine the walls, roof, foundation, flooring, and other fixtures. In addition to determining the home’s value, they’ll note any repairs that need to be made before closing.

The better maintained your home, the higher it’s likely to appraise.

2. Location

Location is another important factor. For example, if your home is near shopping centers, parks, and other attractions, it may appraise higher. On the flip side, homes in high-crime areas might receive a lower appraisal.

3. Square footage and renovations

The size of your home also affects its value. Larger homes typically appraise higher. Also, features like spacious bedrooms, updated bathrooms, modern kitchens, or additions like a finished basement can increase the value.

4. Comparable sales

To ensure a fair estimate, the appraiser will look at similar homes in the area, focusing on recent sales. If buyers are paying a certain amount for comparable properties, it’s likely your home will have a similar value.

For example, let’s say your home is a three-bedroom, two-bathroom house with 1,800 square feet. The appraiser will look for recent sales of homes in your neighborhood that have similar features, such as other three-bedroom, two-bathroom houses around the same square footage.

If a comparable home sold recently for $350,000, the appraiser might use that as a reference point to estimate the value of your home—adjusting for any differences like upgrades, condition, or lot size.

How appraisal results affect refinancing

One important thing about a home appraisal for a refinance is that it reveals how much equity you have, which is crucial for several reasons.

For instance, if you have an FHA loan and want to refinance to a conventional loan to remove mortgage insurance, you’ll need at least 20% equity in your home.

Similarly, if you’re looking to tap into your home’s equity, you’ll need to know your current value to determine how much you can borrow.

Ideally, you want the appraisal to come in higher than expected, as this can increase your borrowing power. But sometimes the appraisal comes in lower than anticipated.

If you don’t have enough equity, this could lead to a loan denial, a higher interest rate, or even prevent you from qualifying for a cash-out refinance. Fortunately, there are options if you face a low appraisal.

You can dispute it and request that your lender order a second appraisal, as the original appraiser may have used outdated or inaccurate information. Also, you can skip the cash-out option and ask your lender about a Streamline Refinance, which might work if your goal is to lower your monthly payment.

Of course, you can also choose to postpone refinancing until you’ve built more equity by paying down your mortgage balance.

Bottom line: Ensuring a successful home appraisal for a refinance

Refinancing is an excellent way to reduce your mortgage rate, lower your monthly payment, and possibly pull cash from your home equity. But the key is a high enough appraisal. So make sure your home is in good shape, complete any necessary repairs, and clean up your yard. These simple steps can improve your home’s value and help you secure better loan terms.