Pros and cons of refinance appraisals

Better chance for approval. Homeowners not eligible for a streamline program, such as the FHA or VA option, may find that ordering an appraisal (that reflects an acceptable loan-to-value ratio) may be the only way to get a new loan approved, Warren says.

"If you can qualify for a regular refinance, you don't want to lose the opportunity to save money and get a lower rate," she says.

Spot rising trends. While many people look to real estate agents to identify when a market rebounds, professional appraisers have that ability, too, says Austin Robbins, a real estate agent in Marietta, Ga.

"If the appraiser is familiar with the area, they should be able to spot a rising trend in prices and document it in the appraisal," Robbins says.

Professional appraisers are expected to have geographic competence -- meaning they should be knowledgeable about the communities where they conduct appraisals, he says.

Cons of mortgage appraisals

On the other hand, appraisal drawbacks that experts say homeowners need to recognize include:

Cost. According to Creech, appraisals cost around $400. This can be an expensive price to pay for homeowners who are trying to refinance and lower their monthly payments, she says.

Low valuations. An appraisal may find a home's value is significantly lower than what the homeowner (and lender) anticipated. Robbins says a large drop in price can occur if the home's neighborhood has had recent short sales and foreclosures, where homes were purchased at below-normal rates.

"The value can fluctuate quickly," he says.

Warren says a price decline would likely affect the refinance options available to the borrower.

"If the value is lower than the maximum loan-to-value that your lender allows, you probably won't get to refinance after all," she says.

To avoid surprises, Warren suggests contacting a professional who can offer an idea of what a home is worth. It's best to do this before starting the refinancing process.

"If you're curious about what the value of your property is, ask a real estate agent to do a market analysis and tell you," Warren says.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

News alert Create a news alert for "refinance"


Show Bankrate's community sharing policy
          Connect with us

Connect with us