The short answer is yes — there are a number of loan programs available that will allow you to refinance your mortgage without requiring an appraisal. But it may be worth asking yourself why you want to avoid an appraisal in the first place.
There are a number of reasons why you may think it’s preferable to avoid an appraisal. Perhaps it’s the upfront cost associated with ordering an appraisal, or maybe you have plans to make improvements to the home that would increase its value later or you might be concerned that your house may not appraise for as high a value as you would like. While those are all valid reasons, it is possible that avoiding an appraisal may not be in your best interest.
Often times, people are motivated to refinance their mortgage with the end goal of saving money. In fact, many programs allow the closing costs to be rolled into the loan so you don’t have to bring any money to closing. However, one cost that cannot be financed in this way is the appraisal. It has to be paid out of pocket and may end up costing around $400. While this may seem steep in the moment, it can help to consider your savings long-term.
Loan options that require an appraisal may come with more favorable terms and lower interest rates. Refinancing to a lower interest rate has the potential to save you hundreds of dollars a month—and the lower the rate you can obtain, the more money you will save. As such, even a modest savings would allow you to recoup the cost of your appraisal within a year, yet you will continue to enjoy those savings for as long as you keep the loan.
Remodeling a kitchen or bathroom, upgrading windows or replacing your roof has the potential to increase the value of your home. It makes sense, then, that you might feel that getting an appraisal now wouldn’t necessarily reflect the value—or potential value—you see in your home. Yet waiting even a few months to refinance when your projects are complete could mean missing out on lower interest rates now. Fortunately there is a solution.
There are certain loan programs that allow you to refinance your mortgage (or purchase a new home) while allowing you to finance home improvement costs simultaneously. And what’s better, you pick your own contractors and your appraisal is based on the expected as-completed value of the home, allowing you to make improvements AND take advantage of low interest rates.
According to data from Zillow.com, most states have seen an increase in average year-over-year home values. Yet it is still possible that you home hasn’t seen a significant increase in value since you first purchased it. On the flip side, it’s possible that your home’s value has increased and the only way to know for sure is to conduct an appraisal.
What could an increase in your home’s value mean for you? If you are currently paying mortgage insurance because your loan-to-value (LTV) is greater than 80%, an increase in your home’s value has the potential to reduce your LTV. If your LTV falls below 80%, you may be able to eliminate mortgage insurance, saving you even more money on top of what you save with a lower interest rate. An increase in value may also enable you to refinance to a loan with better terms and fewer limitations.
At the end of the day, your financial situation is unique, as are your mortgage needs. There are many great refinance programs available with or without an appraisal and each are subject to certain criteria. Find a licensed loan officer near you who can explain the many options and help you find the best loan for you.
Castle & Cooke Mortgage, LLC® (NMLS #1251) is a leading independent mortgage lender headquartered in Draper, Utah, with locations across the United States.
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