Mortgage refinancing means your bank or lender pays off your existing mortgage with a new one. It is replacing your existing loan with a new one, usually through a different bank or a different lender.
Before you can apply for refinancing, you need a home appraisal – finding the true market value of your property to know whether refinancing is possible or not or whether it makes monetary sense or not. There are two types of appraisals: exterior-only appraisal and full appraisal. Which appraisal your property needs is decided by the lender depending on multiple underwriting factors.
Why do homeowners refinance their mortgage?
One of the commonest reasons why homeowners decide to refinance their mortgage is to get a mortgage with a lower interest rate or to shorten the term of the mortgage. Other reasons include:
- To switch between adjustable-rate mortgage and fixed-rate mortgage (whichever makes more financial sense) for rate and /or term reduction.
- Use the home equity to raise funds to take care of a financial emergency.
- Finance a large purchase.
- Consolidate debt.
What is a home appraisal?
A home appraisal is a professional opinion on your property’s value. The appraisal is conducted by a licensed or a certified appraiser. It is arrived at based on the research of recent sales of comparable home properties in the area, the overall condition and analysis of the property, and the appraiser’s judgement.
A professional home appraisal can cost you anywhere between $300-$500 for a standard single-family home. Complex real estate properties may cost more. Although a lender or a bank hires the appraiser, it is the property owner who pays for the services of the appraiser.
Why is a home appraisal needed for mortgage refinancing?
A mortgage loan amount depends on the actual appraised value of your property. The value of the property depends on the condition of your home and the comparable property values in your locality.
During a mortgage refinance, it is through your home appraisal that the bank or the lender ensures that it is not lending you more money than your property’s worth. In future if the property goes into foreclosure, the lender should be able to resell the property to get its money back.
Knowing the real value of your property also helps you in deciding whether it makes financial sense to go for a mortgage refinance or not. If the value of your property has gone down over the period, the refinancing may prove to be costlier and counterintuitive. On the other hand, if the value of your property has gone up, you can get a favorable deal on refinancing.
Checklist to maximize your home appraisal value for refinancing
The positive appraisal of your home property depends on the condition of your house. Remember that when the appraiser visits your property, he or she may visually assess various features of your property and make note of them.
You cannot control the external factors that affect the value of your property, such as the crime rate, the civil amenities, the climate, the sociocultural dynamics, the access to schools, colleges and hospitals, the condition of the roads, and other attributes, but you can certainly control the condition of your own home.
When an appraiser visits your property for evaluation, he or she will be observing the following attributes of your property:
- The overall condition of the interior and exterior.
- The total room count.
- The number of bedrooms.
- The number of bathrooms.
- Improvements in the kitchen.
- The condition of heating, electrical and plumbing systems.
- The condition of doors and windows.
- The condition of the roofing.
- Exterior amenities: detached garages, porches, and decks.
- Pool and hot tub, if applicable.
- The consistency or inconsistency of the exteriors with the overall neighbourhood.
- The condition of the lawn.
- The level of contemporariness of amenities and living facilities.
Listed below are some steps you can add to your checklist to make sure that you derive maximum benefit out of the appraisal to increase your chances of a successful mortgage refinancing.
Improve the exteriors
The first impression, as they say, is the last impression. You may think that when it comes to your home property, this may not hold true, but on many occasions, it does. Besides, the condition of your immediate exteriors are taken into consideration when appraising your property. Make sure you take care of the following:
- Mow your lawn: If the grass is more than 3 inches long, make sure that you mow it. It helps if your lawn looks green and lush.
- Do some landscaping: Plant some flowers. They will improve the aesthetics of your property. There are many easy-to-plant flowers available in the neighborhood nursery.
- Do some sprucing up: Replace the broken lawn light. Remove or replace the worn-out furniture. Get rid of broken bicycles and spare parts from your lawn. Make your interiors look as prim and proper as possible.
Declutter your home
A cluttered home doesn’t represent a well-kept property. It may also impede a fair inspection of the property because some portions of the property may be rendered inaccessible due to the clutter.
The problem with clutter is that after years of living amidst it, you don’t even notice it. But a person coming to appraise your property will immediately take note of it.
Hence, if you have been postponing decluttering your interiors, now is the right time before the appraiser visits you. Get rid of the stuff you don’t need.
Conduct a thorough inspection of your garage, bedroom, kitchen, living room and the storeroom.
Document the upgrades
Upgrades increase the value of your property. If you have switched to solar lighting it can increase the value of your property. If you have installed sprinklers in your garden, then this can also increase the property value.
Similarly, if you have improved the central cooling system or upgraded the tiles of the roof, erected a fence around the property, or replaced the windows, make a file of all the invoices, zoning permits and receipts. These can significantly augment the value of your home.
Do the repair work
Make sure that all the amenities and facilities work. Check your heating and cooling system. Double check your home security system. Open and close doors and windows multiple times. Check the switches. Double check the kitchen appliances. Turn and twist the knobs.
Arrange for your kids and pets to be taken care of
It is difficult to do an appraisal when kids are running around, or the pets are pouncing upon the appraiser or scurrying between his or her legs. It can be disastrous if the appraiser is allergic to the furry members of your family and is constantly sneezing and blowing nose while doing his or her job. Why take a chance?
If the kids are small, you can perhaps leave them with your relatives or your neighbor’s, and if they are a bit older, you can brief them about the importance of maintaining an order. You can also assign the older kids the responsibility of keeping the pets away from the appraiser.
We are pretty sure that this checklist is going to help you. Getting your home appraised for mortgage refinancing is something that you don’t do on a regular basis. Hence, it pays to take care of the basics to increase your chances of getting a good appraisal.