Whether you want to refinance your mortgage to lock in a lower interest rate or change your loan terms, most lenders typically require an appraisal to determine your home’s worth and set borrowing limits.
But depending on your loan type and circumstances, you might qualify for an appraisal waiver. This means you won’t have to get your home appraised to refinance your mortgage.
Though skipping this step might seem like an easy choice, it might not be in your best interest. Here’s what you need to know about getting a no-appraisal refinance:
- What is a no-appraisal refinance?
- Why do most refinances require an appraisal?
- How to refinance your mortgage without an appraisal
- Pros, cons of a no-appraisal refinance
- Frequently asked questions
What is a no-appraisal refinance?
A no-appraisal refinance is an alternative to a traditional mortgage refinance, where your new home loan is based solely on the current market value of your property and your creditworthiness. A no-appraisal refinance allows you to get a new mortgage without having to pay for a property valuation.
With this type of refinance, you can save time and money by avoiding ordering an appraisal. You’ll submit the loan application using your existing mortgage documents and a credit check to determine your new loan amount.
Additionally, as Pennsylvanie-based real estate investor Michael Rhoads of Rhoads Home Buyers explains, “The lender uses other means to determine the value of the property, such as automated valuation models (AVMs) or relying on the borrower’s original purchase price.”
This makes the approval process potentially faster, although market conditions and lender requirements can affect the timing.
While many lenders require an appraisal to refinance, you might be able to get an appraisal waiver if:
- You have a loan insured by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the U.S. Department of Agriculture (USDA)
- Your home was appraised within the last year
Why do most refinances require an appraisal?
Most refinances require an appraisal to assess your home’s value and ensure you’re not borrowing more than your home is worth. Refinancing appraisals differ from appraisals for purchases because they’re usually done at a lower cost and don’t require a full inspection of the property.
Appraisals for refinancing cost anywhere between $300 and $1,500. But these expenses are typically offset by the savings you gain through refinancing, such as lowering your interest costs.
What do appraisers look for when you’re refinancing?
Appraisers assess your home’s value so your lender can determine the size of your loan. When assessing your home, they will consider the following factors:
- Interior and exterior condition of the property
- Condition of appliances and systems (such as HVAC, electrical, and plumbing)
- Quality of repairs and updates
- Local real estate market and comparable recent home sales
- Age and size of the property
- Type of property (such as single-family, multifamily, condominium)
How to refinance your mortgage without an appraisal
The most common option for refinancing your mortgage without an appraisal is a streamline refinance, otherwise known as an interest rate reduction refinance loan (IRRRL). This type of refinancing allows you to get a lower interest rate without a credit check, income verification, or a new appraisal.
If you have a conventional mortgage owned by Fannie Mae or Freddie Mac and meet certain eligibility criteria, you may be able to get an appraisal waiver or qualify for a credit to cover appraisal expenses.
Consider these options if you’d like to refinance your mortgage without an appraisal:
- FHA Streamline Refinance: The goal with this option is to reduce the risk of default by making monthly payments more affordable via interest rate reduction. To refinance, you need to wait until at least 210 days after closing on your FHA mortgage, and have made at least six mortgage payments.
- USDA Streamlined Assist Refinance: This option offers at least a $50 net reduction to your principal, interest, real estate taxes, and homeowners insurance (PITI) payments. To qualify, you must have been current on your existing USDA mortgage for 12 months before refinancing, and your income must meet a specific limit for your home’s location.
- VA Interest Rate Reduction Refinance Loan (IRRRL): This option allows you to lower your interest rate or modify your repayment term via refinancing. You must have an existing VA loan to qualify and you’ll pay a 0.5% to 1% funding fee.
- Fannie Mae RefiNow: You can qualify for an appraisal waiver or a $500 credit if you have a mortgage backed by Fannie Mae, have an income at or below 100% of the area median income, and a debt-to-income (DTI) ratio below 65%.
- Freddie Mac Automated Collateral Evaluation (ACE): If you’re refinancing a mortgage owned by Freddie Mac, you can get your appraisal waived through Automated Collateral Evaluation (ACE). ACE is a tool that uses historical data and public records to allow lenders to underwrite loans without an appraisal.
If you’re planning to refinance, comparing multiple lenders to lock in a low interest rate and save on closing costs is important.
Pros and cons of a no-appraisal refinance
Here are the benefits and drawbacks of refinancing your mortgage without an appraisal:
Pros
- Faster closing: Appraisals can take several weeks to complete and involve considerable costs. By skipping this step altogether, lenders can process the loan more quickly and save you considerable time.
- Lower upfront costs: The cost of an appraisal can range anywhere from $300 to $1,500. A no-appraisal refinance can help you avoid these costs entirely.
Cons
- Higher interest rates: Due to the added cost and risk associated with no-appraisal refinance loans, the interest rate will typically be higher than for a traditional mortgage refinance.
- You’ll miss out on tapping into equity: If the value of your home has increased, you could take advantage of your home equity with a cash-out refinance. If you avoid getting your home appraised, you won’t be able to reap this benefit.
Frequently asked questions
Here are the answers to common questions about no-appraisal refinancing:
Why do I need my home appraised for a refinance?
You need a home appraisal for a refinance to determine the current market value of your home and the amount of equity you’ve accumulated. The lender uses the appraised value to decide how much you can borrow for your refinance.
Can you fail a refinance appraisal?
Yes, it’s possible to fail a refinance appraisal. A refinance appraisal is an assessment of your property’s value, and if the appraisal indicates that the property isn’t worth enough to justify the loan, then the lender can reject it.
Are there alternatives to refinancing?
Yes, there are alternatives to refinancing. One option is to ask your lender for a loan modification, which lets you change the terms of your loan, such as the interest rate or loan length.
Another alternative to refinancing is a debt consolidation loan, which allows you to roll multiple debts into a single loan. Additionally, you could look into debt relief programs such as credit counseling, debt settlement, or filing for bankruptcy.
Can I refinance with poor credit?
While it’s possible to refinance with bad credit, you’ll likely end up with a higher interest rate than you’re currently paying.
If your timeline allows, consider building your credit before refinancing. A few ways to boost your credit are to pay all of your bills on time, lower your credit utilization ratio, and avoid applying for new lines of credit.