You want to refinance your existing mortgage loan to enjoy the monthly savings that come with lower interest rates. But first, your home needs to be appraised. If your home doesn't appraise for a high enough value, your chance for a refinance could be scuttled. There are steps you can take, though, to prepare your home for a refinance and boost its appraised value.
There's a reason why an appraisal matters: most mortgage lenders require you to have at least 20 percent equity in your home before they'll refinance your mortgage loan. The appraisal determines the current market value of your home, an important step toward figuring your equity. If you owe $100,000 on your mortgage loan and your home appraises for $200,000, you have $100,000, or 50 percent equity, more than enough for mortgage lenders.
The Appraisal Process
When determining the value of your home, an appraiser looks at several factors. First, he will study comparable home sales, the sales of residences similar to yours in your neighborhood. He will also tour the inside and outside of your home, looking for any improvements you made that can boost the value of your property. The appraiser will also consider your neighborhood and how desirable it is. You can't change your neighborhood, your home's style or what other homes have sold for. You can, though, do everything possible to present your home well for an appraiser.
Before an appraiser arrives at your home, repair all the little things wrong with it. If your living room walls are cracked, plaster them and give them a fresh paint job. If your dishwasher is not working, replace it or repair it. If your driveway is cracked, repave it. If your home's roof is leaking, patch it. Your appraiser won't care if there are dirty dishes in your sink or if your son has left his clothes scattered around his bedroom. The appraiser will note, though, any signs of deferred maintenance. Neglect can lower a home's value. You need to show your appraiser that you are keeping your home in good shape.
Certain improvements can add significant value to a home. Buyers are especially focused on bathrooms and kitchens. Modern kitchen remodels or bathroom renovations, then, can boost your home's final appraised value. Make sure that your appraiser knows how much work you've put into your home. Show her photos showing your old bathroom and your new modern master bathroom. Show her the paperwork listing the amount of money you've sunk into your new kitchen. Even if you've taken on the unglamorous task of rewiring your home or installing new plumbing, present your appraiser with the paperwork detailing these jobs. These are improvements that can up the worth of your residence.
Market your Neighborhood
You're not working for your neighborhood's chamber of commerce or tourism bureau. But when an appraiser is in your home, you need to do some marketing of your community. A desirable neighborhood can boost the value of your home. So tell your appraiser when new shops or specialty restaurants have moved into town. Tell the appraiser about the new streetscape plan put into motion by your local government. Tell her about the high test scores turned in by students at the local high school. Your appraiser might not be from your community, and might not be aware of these potentially value-boosting additions to your town.
Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.