If you are in the process of refinancing your mortgage loan, your new mortgage lender may require an appraisal prior to approving your loan. Here is what you need to know about appraisals, including tips to help maximize the equity in your home.
Your home’s appraisal is a written estimate of the market value of your property. Mortgage lenders use the appraisal to determine how much of a mortgage you qualify for. When you are refinancing your mortgage, the appraisal will also determine how much equity you own in your home. If you will be borrowing against this equity, the lender will most likely require that you pay for a new appraisal prior to approving your loan.
The appraiser is a licensed professional that will do a market analysis of sale prices for similar properties in your neighborhood and evaluate the condition and amenities of your home. The appraisal will require a thorough inspection of your home inside and out.
When you are refinancing your mortgage your goal is for the appraised value to be as high as possible. There are a number of improvements you can make to your home that will improve the appraised value of your home; however, don’t go overboard. New carpet and a coat of paint will go a long way to improve the appraised value. What you don’t want to do is purchase top of the line appliances; these purchases rarely give you enough of a boost in your home’s value to justify the expense. The best thing to do is make sure your home is up to snuff with your neighbors as far as the amenities and add-ons you invest in to improve your home’s value.
When searching for a home appraiser, look for an experienced professional licensed in your area. Your realtor may be able to recommend a good one; if you are not able to find a recommendation try contacting the Appraisal Subcommittee. The ASC maintains a database you can access on their website to help you locate a licensed appraiser in your area. You can learn more about your mortgage and the appraisal of your home by registering for a free mortgage guidebook.
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Deciding to refinance an existing mortgage is clear cut for some homebuyers. If the home was purchased during the 1990′s, the interest rate on the loan is likely several points higher than current averages. In this case, refinancing may result in much lower payments. On the contrary, if hoping to payoff debts, a cash-out refi can make this possible. Even though most refinances are successful and pose little financial troubles, problems can arise. Consider the following tips for avoiding refinancing problems.
Assess Finances Carefully
When refinancing a mortgage loan with the purpose of obtaining a lower rate and lowering monthly payments, the result is more money in your pocket. On the other hand, some refinance their properties and borrower money from the equity. For example, if the amount owed on the existing mortgage is $80,000, and the homeowner borrowers $20,000 from equity to payoff debts, the new mortgage will amount to $100,000. In this case, their monthly mortgage payments will increase.
Because other debts are paid, many homeowners can afford the higher payments. However, if finances are tight, a higher monthly payment could complicate things.
Unable to Pay Closing Costs
Mortgage refinancing is the same process as acquiring the original loan. Thus, borrowers must provide proof of income and have their credit checked. Even though ownership is not transferred borrowers are still responsible for an appraisal, title search, insurances, and so forth. These additional fees are paid at closing.
Because most homeowners are unable to pay their refinance closing fees, lenders are prepared to include the amount within the loan. This will increase the final loan amount by 3% – 5%. As an incentive to keep customers, some lenders waive certain refinance fees for current customers.
Accumulating Additional Debts
If choosing the cash-out refi option and using the money to payoff debts, homeowners should resist the urge to acquire new debts. Because a cash-out refi involves higher monthly mortgage payments, new debts can create a financial strain.
Homeowners can avoid accumulating debts by paying off credit cards each month, and only using credit cards for emergencies. If necessary, get rid of newer, unused accounts – preferably accounts with lower limits.