Can Refinancing Work Without an Appraisal?
Without an assessment, refinancing saves time and money. And luckily, this possibility is growing as Fannie Mae and Freddie Mac make appraisal waivers more prevalent. Government agencies like FHA, USDA, and VA also provide appraisal-free possibilities.
Are you prepared to initiate your no-appraisal refinance? Let’s look more closely.
How to Acquire a No-Appraisal Refinancing
The valuation of your house is a crucial component of any mortgage transaction, whether you are purchasing or refinancing. Lenders need to know the value of your home to ensure they are making a safe investment. And here is when a third-party evaluation comes into play.
A review is nearly always necessary. However, if you satisfy specific criteria, you can bypass this phase of the refinancing procedure.
Here are three refinancing options without an appraisal:
- Fannie Mae and Freddie Mac, the entities that govern conventional loans for house purchases, may let lenders forgo appraisals for stronger refinancing candidates if they waive appraisals.
- A program for Streamline Refinance: Streamline Refinances are available for government-backed loans, including FHA, VA, and USDA. These loans are intended to save money by decreasing your mortgage rate without incurring substantial upfront closing expenses. The government organizations guarantee these loans do not require appraisals, but your lender may need one.
- An automated valuation model (AVM): An AVM might show you have sufficient equity for a no-appraisal refinance if you’ve had your existing mortgage for a long or paid a substantial down payment, allowing you to avoid the expense and trouble of a standard house appraisal.
Please note that Streamline refinancing does not permit cash back. And you’ll have the best chance of securing an appraisal waiver if you refinance your property without taking money out.
Let’s examine each of the no-appraisal refinance options in further detail.
Refinance With Appraisal Exemption
Your lender may be able to forgo the appraisal if you are refinancing with a conventional loan. An appraisal waiver indicates that Fannie Mae or Freddie Mac, together with the borrower’s lender, agree that no appraisal is necessary and let the homeowner skip this stage.
Waivers of appraisal requirements are uncommon. Fannie Mae states, “Most transactions will not obtain an appraisal waiver offer; thus, a skilled home appraiser will be required to determine the market value.”
In some instances, a waiver may be provided. “Appraisal exemptions are not uncommon for borrowers with at least 20% equity and a property valuation that does not exceed $1 million,” says Jon Meyer, The Mortgage Reports lending specialist and registered MLO.
The greater the strength of your application in terms of income, credit score, and equity, the greater your likelihood of receiving an appraisal waiver.
How Can You Qualify for an Exemption From an Appraisal?
Fannie Mae’s Desktop Underwriting program can consider the following appraisal waivers:
- Single-family homes, including condominiums
- Primary and secondary houses with a loan-to-value (LTV) ratio of 90% or below.
- Investment homes with an LTV of less than 75%
- Refinances with cash-out for principal homes with an LTV of 70% or less
- Refinances with cash-out for second homes and investment properties with an LTV of 60% or less
LTV, or loan-to-value ratio, is another method for measuring home equity. If you have 20% equity in your home, your LTV is 80%.
“You can only acquire a waiver on an investment property if you don’t utilize any rental revenue to qualify,” observes Meyer. This might be challenging for many borrowers.
The following are ineligible for a waiver of appraisal offer:
- Construction loans
- Multi-unit properties
- HomeStyle loans for homes with property values of at least $1 million
- 50(a)(6) Texas loans (Cash-out refinances in Texas)
- Real estate has limitations on sales, such as leasehold properties and community land trust residences.
- Cooperatives and mobile homes
- Loans on which the mortgage insurance company demands an evaluation
- Loans whose qualification is based on the subject property’s rental revenue.
- Home loans for which the lender determines an appraisal report is necessary.
The Automated Collateral Evaluation (ACE) program of Freddie Mac can also exclude your refinancing from an appraisal. The rules of this automated underwriting system mimic those of Fannie Mae.
Certain lenders refer to these as Property Inspection Waivers (PIWs).
To utilize either program, your lender must initiate the procedure. Even if Freddie or Fannie agree to forgo the requirement for an appraisal, your lender may still require one.
Use a No-Appraisal Streamline Refinance
Government-backed loans, such as FHA, VA, and USDA mortgages; each has its requirements about whether an appraisal is required for refinancing.
Typically, an appraisal is not required for an FHA-to-FHA, VA-to-VA, or USDA-to-USDA Streamline Refinance. This loan type replaces your current mortgage with a new mortgage of the same kind.
In most situations, the amount of your new loan will equal the balance of your existing loan at the time of refinancing. Therefore, you cannot borrow further funds against your equity. However, the loan can be closed without a fresh evaluation.
Why Streamline Refinances Do Not Require an Appraisal
A Streamline Refinance makes it easy for homeowners to reduce their existing mortgage’s interest rate and monthly payment. This minimizes the likelihood of default and reduces the risk associated with the loan for lenders and investors.
Therefore, a Streamline Refinance is advantageous for all parties. Consequently, they are more lenient about evaluation standards.
Please note that your mortgage lender might still request one even if the government does not demand an assessment. Read the lender’s disclosures or ask your loan officer whether the lender intends to obtain an appraisal before applying.
Here are further details on Streamline Refinances for mortgages guaranteed by the government:
FHA Streamline Refinance
Federal Housing Administration (FHA) guarantees FHA loans. An FHA Streamline application must be submitted and approved to refinance an FHA mortgage without an appraisal.
You must be current (not overdue) on your mortgage loan to qualify. And it must have been at least six months since you obtained the loan.
An FHA Streamline Refinance does not involve a review of your income or credit, so you do not need flawless finances to qualify.
In addition, Streamline refinancing may reduce your mortgage insurance fees (MIP) to 0.5 percent of your loan amount.
VA Streamline IRRRL (Interest Rate Reduction Refinance Loan)
Loans supported by the Department of Veterans Affairs assist veterans, active-duty service members, and certain surviving spouses in purchasing houses.
A VA Streamline Refinance, also known as a VA IRRRL mortgage, is available to homeowners with an existing VA loan who wish to reduce their interest rate or monthly payment.
This program does not need income or asset documentation, nor does it require an assessment. It is the most straightforward refinance option available today for individuals who qualify for VA loans.
USDA Streamline Refinancing
The United States Department of Agriculture guarantees house purchase and refinance loans for low- and moderate-income borrowers in rural regions.
Existing USDA homeowners can also get Streamline Refinances via the agency.
Its rules differ somewhat from those of FHA and VA Streamline. For instance, USDA loans are only available with fixed rates and 30-year durations.
Additionally, a monthly payment decrease of at least $50 per month is required to qualify for some USDA refinancing alternatives. And you must still meet the program’s income requirements. If your salary exceeds 115% of the area’s median income, you will not qualify.
In addition, the scheme does not permit cash-outs, and the property must continue to serve as the borrower’s principal residence.
Though the property was located in a rural region when the initial USDA loan was issued, you can still execute a Streamline USDA refinancing even if the area no longer qualifies as rural.
Use an AVM to Forego the Refinancing Appraisal.
An Automated Valuation Model (AVM) determines real estate values using a computer algorithm instead of a human assessor. If you have ever viewed property prices on Zillow or other comparable real estate websites, you have witnessed an AVM.
These computer models assess the market worth of a home using data. The data may consist of the following:
- Other assessments: If current estimates of market worth already exist, an AVM can include these in its calculation.
- Comparing the selling prices of comparable homes: Similar to a real estate agent, an AVM will use recent sales of comparable properties to determine your home’s market worth.
- Recent price for the property: If you purchased your house for $200,000 four years ago, an AVM would integrate this information into its analysis.
During the epidemic caused by the Coronavirus, the use of AVMs to determine the worth of a property developed in popularity.
However, statistics can only sometimes offer a complete picture of the worth of your house. Unlike a human appraiser, an AVM cannot stroll around your property to observe the significant changes you’ve made.
Therefore, a lender may insist on a standard appraisal unless it is evident that you have substantial equity. This may be the case if you made a substantial down payment or purchased your house a decade ago and have yet to refinanced it.
Ask potential mortgage refinancing lenders whether they may substitute an AVM for a standard evaluation as you shop around.
Should I Refinance Without Getting an Appraisal?
If refinancing your mortgage may improve your financial condition, an assessment may be worthwhile.
Meyer suggests that if you decide whether to take a waiver or attempt to increase the home’s appraised worth due to renovations, you should take the waiver. Frequently, work must be done before a house appraisal may be authorized.
According to House Advisor, the typical cost for a home evaluation is between $310 and $420. Nonetheless, the typical cost of a house evaluation might be significantly higher in other places. Meyer adds, “I can state with certainty that the typical cost in California is between $600 and $800.”
If you save $100 per month by refinancing, the assessment fee will be recouped in three to four months.
And there are further compelling reasons to refinance.
If your home’s value has increased to the point that you may reduce your private mortgage insurance costs by refinancing, you should likely do so. You may recover the cost of an assessment in only a few months without mortgage insurance.
To access your home’s equity via a cash-out refinancing, home equity loan, or home equity line of credit, you will likely require an appraisal (HELOC).
Because home equity lending is some of the least expensive money accessible, the cost of an appraisal may not be a significant concern.
What if the Appraisal for My Refinance Is Too Low?
Occasionally, an appraisal will reveal a lower market value than anticipated by the borrower. A low appraisal will boost your LTV, jeopardizing your intentions to refinance.
To avoid mortgage insurance on your new loan, you would need an LTV of 80% if you’re refinancing out of an FHA loan to eliminate mortgage insurance.
If your appraisal report reveals an LTV of 85%, private mortgage insurance (PMI) is still required for your new loan. This would undercut the objective of your refinancing.
If you wish to cash your home equity, a poor assessment may hinder your refinancing plans.
Typically, a cash-out refinance you to leave at least 20% of your home’s worth intact. And if the value of your house is lower than anticipated, this might restrict the amount of cash available for withdrawal.
Borrowers who get poor assessments can appeal the appraisal, select a different lender to obtain a fresh appraisal, or delay the refinance procedure for a period. None of these possibilities are ideal, but you may have few other choices.
Can an Appraisal Help You Save Money on You Refinance?
Appraisals increase your refinancing closing expenses by hundreds of dollars. The procedure might add a week or more to your closure time. And an appraisal that is too low will delay your home loan application. Therefore, waiving the assessment is enticing at first glance.
However, there are situations where a new appraisal report might save you money throughout your loan.
For instance, you may be eligible for a reduced mortgage rate if the appraisal comes in higher than anticipated. A higher appraisal reduces your loan-to-value ratio, and a lower LTV indicates that the lender is risking less and may be ready to provide a cheaper interest rate.
However, LTV is simply one element that influences mortgage rates. Your credit score and debt-to-income ratio are also quite important. Therefore, there is no assurance that a high appraisal would save you money.
However, a fresh assessment may increase your refinancing savings if you have made several home improvements since you first purchased your house.