Do I need an appraisal to refinance my home?

Gina Pogol
The Mortgage Reports contributor

In this article:

Do you need a home appraisal to refinance your mortgage? Not necessarily.

  • Many mortgage lenders use an automated valuation model (AVM) to estimate property values. If you have a lot of equity in your home, you may be able to avoid an appraisal and its cost
  • If you refinance an FHA or USDA mortgage with the same kind of loan (a streamline refinance), you won’t need an appraisal unless you increase the loan amount. The VA allows you to include your refinance costs
  • Properties underwritten with automated systems, like Fannie Mae’s Desktop Underwriter, may be granted appraisal waivers

Understand that in most cases, only rate-and-term refinances allow you to skip appraisals. That means, refinancing in which the new loan amount equals the payoff of the old loan. You can’t usually add in your refinance costs (that’s called a “limited cash-out” refinance), or do a cash-out refinance without an appraisal.

Verify your new rate (Apr 23rd, 2019)

Appraisal waivers: What are they and how do you get one?

Fannie Mae’s established guidelines don’t tell you for sure if you’ll be a lucky appraisal waiver recipient or not. In fact, it instructs lenders, “The majority of transactions will not receive an appraisal waiver offer, which means they will require an appraisal by a qualified residential appraiser to establish the market value.”

But the stronger your application (income, credit score, and equity), the better your chances. Here are the guidelines:

Fannie Mae considers appraisal waivers for the following:

  • 1-unit properties, including condominiums
  • Limited cash-out refinance transactions for primary residences and second homes up to 90 percent loan-to-value (LTV)  or investment properties up to 75 percent LTV
  • For cash-out refinancing, primary residences may get appraisal waivers with LTVs of 70 percent or under, second homes and investment properties are limited to 60 percent

Related: What is a home appraisal, and why do I need one?

The following are not eligible for an appraisal waiver offer:

  • Properties located in a disaster-impacted area
  • Construction and construction-to-permanent loans
  • Two- to four-unit properties
  • Value of the property is $1,000,000 or greater
  • HomeStyle® mortgage products (Renovation and Energy)
  • Texas 50(a)6 loans
  • Leasehold properties, community land trust homes, or other properties with resale restrictions
  • Cooperative units and manufactured homes
  • DU (Fannie Mae’s underwriting software) loan case files that receive an ineligible recommendation
  • Loans for which the mortgage insurance provider requires an appraisal
  • Loans using the subject property’s rental income to qualify

Streamline refinances with and without appraisals

Government-backed loans like FHA, VA and USDA mortgages have their own rules about whether you need to order an appraisal to refinance.

You generally won’t need an appraisal if you can refinance without credit qualifying. So if you already have a government-backed loan, in many cases your credit and home value won’t matter when you refinance.

Related: How can I avoid a home appraisal when I apply for a mortgage?

Think of it the way the government does: it’s already on the hook if you default on your home loan. So if refinancing can put you in a better financial position, the government is less likely to end up with a default on its hands.

Because of this, you’ll only be eligible for a streamline refinance without re-qualifying if refinancing results in a “net tangible benefit” to you. In plain English, your lender applies certain formulas to your application and determines if refinancing will leave you better off — with a lower payment, interest rate, or better terms than before.

FHA streamline refinance

To refinance an FHA mortgage without an appraisal, you must be current (not delinquent) on your mortgage now. You can’t wrap the cost of refinancing into the new loan. However, the lender can cover those costs for you, in exchange for getting a higher interest rate, or you can pay them out-of-pocket.

There may be some money due you at the end of the refinance because of the way payoffs and costs are calculated. But you can’t get more than $500 back with your streamline FHA refinance with no appraisal.

VA streamline IRRRL (Interest Rate Reduction Refinance Loan)

The VA IRRRL mortgage is a little different from FHA’s program. It allows you to wrap the refinance costs into your new mortgage, but you can’t take any cash from the proceeds at all.

Related: VA streamlined refinance rules and rates

While you can only use a VA purchase mortgage to buy a primary residence, you’re allowed to use an IRRRL to refinance a vacation or rental property, as long as you can certify that you did occupy that property as your primary residence at a previous time.

USDA streamline refinance

The USDA only recently rolled out it streamline refinance program nationwide. It has its own rules as well, slightly different from those of FHA or VA streamlines. The only program allowable is a 30-year fixed mortgage. You must see a payment reduction of at least $50  month to be eligible to refinance.

The program allows zero cash out, and the property must still be your primary residence. If the property was in a designated rural area when you took out your original USDA loan, you can still complete a streamline USDA refinance. Even if the area does not meet the “rural” definition today.

Refinance when it makes sense, even if you need an appraisal

If refinancing your mortgage will solve a problem for you, it may be worth the expense of an appraisal. For instance, if your value has risen to the point that you’d be able to drop your mortgage insurance by refinancing, it may be worth doing. You may recoup the cost of an appraisal in just a few mortgage-insurance-free months.

Related: How can I cancel FHA mortgage insurance?

You’ll also probably need an appraisal to pull cash out of your home and make use of its equity. Because home equity financing, whether it’s a cash-out refinance, a line of credit (HELOC) or a home equity loan is some of the cheapest money available, the cost of an appraisal may not be much of a factor.

Got 5 minutes?

If you want to see if Fannie Mae or Freddie Mac will offer you an appraisal waiver, you only need to give up a few minutes of your time to complete a mortgage application. The lender inputs the data into an automated underwriting system, and voila! You know immediately if you’ll have to order an appraisal or not.

Verify your new rate (Apr 23rd, 2019)