How to Refinance Without an Appraisal
When refinancing your home, closing costs can be expensive regardless of whether you roll those costs into the loan. It is possible to refinance without an appraisal to help reduce your closing costs when refinancing to get a lower rate or to cash out equity.Â
Why do Lenders Require an Appraisal?
If you are purchasing or refinancing a home, lenders will usually require an appraisal. An appraisal will protect the lender from lending more than what the home is worth, or more than what the lending guidelines will allow.
For example, if you are refinancing a home with a loan amount of $200k, the lender will need to be sure the home is worth at least that much if not more. It will require a professional appraiser to validate the true value. Otherwise, the lender could lose a portion of their investment in the home if it is actually worth much less.
When is an Appraisal Not Required?
An appraisal is not required when the mortgage program does not require an appraisal or if you receive conventional desktop underwriter findings that do not list an appraisal as one of the conditions.
Refinance Without an Appraisal Options
If you are looking to refinance without an appraisal, these are the 5 options available to you. Some of these may or may not apply to you but there is an option for everyone to refinance without an appraisal.
FHA Streamline Refinance Without an Appraisal
If your current loan is an FHA loan, then you may qualify for an FHA streamline refinance. One of the benefits of an FHA streamline refinance is no appraisals are required at all. The lender will use your positive payment history of your current mortgage as a basis for issuing an approval on your new mortgage.
In addition to waiving the appraisal requirement, the FHA streamline refinance option also do not have an income documentation requirement. This is also extremely helpful if you have issues with employment or income.
If you would like to learn more or get a quote, please complete this short form and a loan officer will call you to discuss your options.
VA IRRRL Without an Appraisal
The VA IRRRL program also does not require an appraisal and these are the minimum qualification requirements.
- Your existing loan must be a VA loan
- You must occupy the home you are refinancing as your primary residence
- This is a great way to keep your VA loan even if the value of your home has declined.
There are other requirements to get approved for the VA IRRRL refinance and if you would like a quote, please reach out to us by completing this quote form VA IRRRL rate quote.
Conventional Loan with Appraisal Waiver
It is possible to get a conventional loan with an appraisal waiver. The Fannie Mae guidelines outline when an appraisal waiver may be possible if:
- The property is a 1 unit single family residence or a condo
- For rate in term refinance, the LTV is no greater than 90% (75% for investment properties)
- For cash out refinances, the LTV is no greater than 70% (60% for investment properties)
- For purchases of primary residences and second homes, the LTV is no greater than 80%
- The loan casefile received an Approve/Eligible recommendation
- The DU findings do not require an appraisal
Although the appraisal waiver guidelines will allow for higher LTV’s, the reality is the automated underwriting findings from DU typically do not return findings that do not require an appraisal for LTV’s greater than 70%
Loan officers are also seeing other factors that may have an impact on the appraisal waiver. These factors include credit score and debt to income ratio. Those factors are not specifically referenced in the guidelines, but history is showing that they may play a role.
To use an appraisal waiver, the lender must include the Fannie Mae case filed ID and the SFC 801 in the delivery file.
Automated Valuation Model (AVM)
The Automated Valuation Model (AVM) is an automated computer system that helps to determine the true value of the home. It is similar to those real estate sites online which provide estimated values.
The AVM will use a combination of various data sources to help determine the value of the home. Those include the assessed value from your town, recent comps (sales) in the area of similar homes, and if your home sold recently.
Where the AVM loses accuracy in its value determination is when there are recent upgrades made to the home, or if the home is in serious disrepair inside. In those situations, the value provided by the AVM may be too low or too high.
It is ultimately up to the lender to make the decision of whether they want to use the AVM as a basis to extend an appraisal waiver for your refinance.
Pros and Cons of Refinancing Without an Appraisal
These are some of the reasons why refinancing without an appraisal may or may not benefit you:
Pros
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- Save on the cost of the appraisal
- Shorten the time it will take to refinance the home
- Potentially refinance a home that may be under water
Cons
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- You could be paying PMI when it is not needed
- The interest rate could be better if the appraisal shows a much higher value
- You may be limited with cash out refinances
No Appraisal Cash Out Refinance
It may be possible to have a no appraisal cash out refinance if you meet the criteria as outlined by HUD or Fannie Mae.
The maximum loan to value ratio is 70% for a cash out refinance without an appraisal. If you think your home may appraise for more than the value that the lender is using on your loan application, then you may want to consider getting an appraisal.
Other factors may be used to determine whether an appraisal is needed. Some of those may include the type of loan you have now, whether you have been making on time payments, your credit score, and even your debt to income ratio.
How to Get an Appraisal Waiver
An appraisal waiver is when the automated underwriting system is able to electronically determine the value of the home during a purchase transaction which could result in negating the need for an actual costly appraisal.
You could be granted an appraisal waiver if you happen to have a recent appraisal for the home that the lender can rely on to determine the home’s value.
You can increase your chances of getting an appraisal waiver on a purchase if you have a large down payment. This will minimize the lender’s risk because the loan amount should be much less than the estimated home value.
If you are refinancing, you have a better chance of waiving the appraisal during a rate and term refinance versus a cash out refinance.
What Others Are Saying
Moneytips.com – “A no-appraisal mortgage refinance can save a borrower time and money during the refinance application process.”
Fool.com – “Even if you don’t need to get an appraisal, you might want to. If your home has increased in value since you bought it, an appraisal will show that.“
