An appraisal introduces an element of risk into the refinance process, since it's possible that the property won't appraise for what you expect, and you won't get the loan that you originally hoped for. In response to this, refinance programs have arisen that allow you to take out a new loan without getting an appraisal. These programs don't apply to every mortgage, though, and if you don't qualify for them you will probably still need to get an appraisal to refinance.
When you get a traditional refinance from a conventional lender, you will almost always have to get an appraisal. It's an automatic part of many bank's processes, and the bank will want to ensure that its loan can be covered in the event of a foreclosure. As long as you have ample equity in your property, the appraisal should just be a formality, even though it can take some time to do and carry a minimal cost.
Appraisal Loan Benefits
Taking out an appraisal with your refinance mortgage has some real benefits. Generally, if you want to pull cash out of your house, your bank will need to know what it's worth to determine how much you can borrow. An appraisal that shows that your home's value is high enough that your mortgage will be less than 80 percent of that value can also get you out of paying for private mortgage insurance, lowering your monthly payment or your up-front closing costs.
In some cases, an appraisal-free loan might be a better choice. These are particularly valuable if you want to refinance when you owe more than your property is worth. Many of the government-backed streamline programs, such as those administered by the Federal Housing Administration or Department of Veterans Affairs, offer appraisal-free refinances, as of the date of publication. Some refinances of loans owned by Fannie Mae and Freddie Mac under the Home Affordable Refinance Program may also qualify for an appraisal-free refinance.
Another way that you may be able to get the benefits of a refinance loan without an appraisal is to have your lender adjust your interest rate. While these adjustments are not common, some lenders that hold their own loans will sometimes lower the rate on existing loans to hold on to the business. Generally, to qualify for one of these adjustments, you will need to be a good customer that pays on time. The only to find out if you can get one is to call your lender's customer service department, let it know that you're considering a refinance to lower your rate, and ask if it will change your loan to a better interest rate to retain your business.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.