How to Respond to a Low Refinance Assessment
Lots of walks on a house appraisal when you are trying to refinance a mortgage.
If the appraised value is less than what you owe on the mortgage, you may need to postpone refinancing. A lower-than-expected assessment can also destroy hopes of get rid of private mortgage insurance on a conventional loan, or reduce the amount of money the lender will let you pocket for a cash refinance.
But the review process is not foolproof, and there are options if you think the reviewer was wrong. Here’s what to do if the rating is low.
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Check the accuracy of the appraisal report
Lenders generally require home appraisals for most types of mortgage refinancing. They use the home’s estimated value to assess the risk of making the loan. Since the home is the collateral for the loan, they want to make sure they don’t lend more than the value of the property.
The lender is required to send you a free copy of the appraisal report at least three days before the loan closes. The report documents a lot of property details that the appraiser took into account in the appraisal. Even the best reviewers can make mistakes, so go through the report to make sure all the details are correct, such as:
Number of bedrooms and bathrooms.
Amenities including fireplaces, patios and pools.
Condition of roof, furnace or other major systems listed in the report.
Additional features, such as energy efficient items.
To help determine the home’s value, appraisers take into account the prices of comparable homes that have recently been sold in the area, called real estate comps.
Check which houses have been used. Were they really comparable? How far are the houses and when were they sold?
You may want to ask a friendly real estate agent familiar with your neighborhood for a list of recent comparable sales.
Contact the lender
Promptly document any errors or missing information in the report as well as any additional comparable sales information that you think should be considered. Then submit this written information to your lender and request an appraisal review to resolve the issues.
Although you are the one who ultimately pays the appraisal, the appraiser actually works for the lender. So send your feedback on the appraisal to the lender, not the appraiser.
The information you provide might prompt the assessor to revise the assessment, but only if the additional details are relevant and important enough to move the needle. You can also request a second appraisal or start over with another lender. But appraisals usually cost at least a few hundred dollars, and there’s no guarantee that the next appraisal will be higher.
More Tips for Handling Low Refinance Appraisals
Understand that appraisals are different from home valuation estimates online. The rating is not wrong just because it may be lower than the approximate number you saw online. Home ratings take more detail into account than home search algorithms, so use online ratings for guidance only.
Be objective. Treat your property like a stranger would, warts and everything.
Stick to the facts and be specific. If you think the rating is too low, respond to the information in the rating and provide details to support your claims.
Other refinancing options
Although lenders generally require an appraisal to refinance, there are exceptions. You may be able to ignore the evaluation of these government guaranteed refinance loans:
You may be able to refinance a conventional mortgage – a mortgage that is not backed by the government – even if you owe more than your home’s value. The Freddie Mac Enhanced Relief Refinance program and the Fannie Mae High Loan-to-Value Refinance are options for homeowners who owe more than 97% of their home’s value.