Clean up the landscape, clear debris in your garden, trim hedges and clean gutters to make your home more attractive. Make minor repairs: Small corrections, such as touching up chipped paint or replacing a broken door handle, can also help increase the value of a home. Marcus Reeves is a writer, editor and journalist whose writings on business and popular culture have appeared in several prominent publications, such as The New York Times, The Washington Post, Rolling Stone and the San Francisco Chronicle. He is an adjunct professor of writing at New York University.
When considering refinancing your mortgage, a lot will depend on the appraisal. If the value of your home is so low that it's underwater, then you can't refinance. If the appraised value places the equity in your home at less than 20%, then you'll have to pay private mortgage insurance (PMI) or you'll need to bring some cash to the table to do a cash refinance. What's more, you may not get the lowest interest rate available, as lenders consider borrowers with less equity to be riskier.
If you're thinking about refinancing, you need to understand the essential role of appraisal in the process and how you can prepare your home, which is key to successful refinancing. An appraisal is a professional opinion of the value of your home and is an important step in the homebuying process. Evaluations are conducted by licensed or certified professionals, who provide unbiased third party reviews. The appraiser is paid to value your home, but it has nothing to do with whether you qualify for a mortgage or refinance as a result of your estimate.
They then examine transaction records for properties similar to yours—ideally, properties in your neighborhood that have been recently sold. Based on the home visit and these records, the appraiser gets a professional opinion of how much your property would sell if you put it on the market. The bank uses this value together with your income, assets and credit history to determine how much it will lend you and under what terms. Appraisals are also necessary if you want to refinance your mortgage.
As with a purchase appraisal, a refinance appraisal protects the bank by ensuring that it does not lend the borrower more money than the property is worth. If the property later goes into foreclosure for any reason, the lender wants to be able to resell the property and get your money back. Federal regulations dictate how lenders and appraisers should behave throughout the appraisal process. After the housing crisis of the mid-2000s, the U.S.
UU. The government wanted to increase the independence of appraisers to avoid the possibility of loans based on inflated housing values. The Dodd-Frank Act and the Truth in Lending Act are among the regulations that require appraisals and evaluations to be conducted independently, according to established criteria and without outside influence. Because federal appraiser independence requirements define a limited scope of acceptable interactions between an appraiser and loan officers, lenders fear that having any contact with appraisers could be interpreted as a violation of the law by attempting to influence the appraiser's opinion before it is perform the appraisal.
completed. Lenders are cautiously mistaken to avoid the possibility of severe disciplinary action. Loan officers and brokers cannot select the appraiser, nor the borrower. The lender may request the appraisal through a third party called an appraisal management company (AMC).
Many lenders, especially small and local lenders, have direct referral relationships with a small group of individual appraisers and cannot use an AMC. Or, the lender may have an in-house independent appraisal department. The appraiser must have local knowledge of the area (called market competition). Appraisers are expected to follow the Uniform Standards of Professional Evaluation Practice (USPAP) issued by The Appraisal Foundation, a professional organization.
However, these rules are not law. The borrower must pay the appraisal regardless of whether the loan is closed because the appraiser still did the work. While the fee may seem useful if it allows you to get the refinance terms you want, it can seem like a waste of money if a low appraisal means you can't refinance. Because lenders cannot discuss the value of a home or the anticipated “target value” with an appraiser at the time of allocation, homeowners cannot get a rough estimate from the appraiser on whether their home is likely to have an appraisal high enough that they can refinance sooner to pay for the service, as they did before.
the new regulations. At best, you can search for recent comparable sales on websites such as Zillow and Redfin, but these records may be inaccurate or incomplete. The value the appraiser places on your home depends largely on recent sales prices of comparable properties. Anyway, you're wrong if you think you can't do anything to help your home reach the highest limit of its potential appraised value.
Appraising your house is similar to going on a first date, says Ailion. While you have no idea how you will like or evaluate your partner, being well-groomed substantially improves your chances of being considered attractive. It's a good idea to point out features that may not be immediately apparent and that could increase the appraiser's opinion of the value, Parsons says. If you believe you have been discriminated against on the basis of race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take.
One of those steps is to file a report with the Consumer Financial Protection Bureau (CFPB) or the U.S. Department of Housing and Urban Development (HUD). Keep in mind that the home appraisal process is also subject to bias; go back if you think your home price has been unfairly devalued. Preparing your home for an appraiser visit is different from preparing it for a prospective buyer.
These subjective considerations do not apply to an assessment. Vaccari adds that a landlord would not make any changes, such as tearing old carpets to reveal hardwood floors for an appraiser, as he would for a salesman. Still, refreshing the paint on the home, both inside and out, can help, as can eliminating clutter to allow full access and viewing of all areas of the home, including the basement. Make sure everything works (e.g.
e.g. Finally, Ailion says, “If the tax records are incorrect, point out that. Sometimes, the appraiser's value is not only lower than what you would like it to be, but also lower than what you think your home is worth. Given the strict federal regulations governing the process, can you do anything about a low valuation? “If the homeowner doesn't like the value of the appraisal, they can write an appeal letter to the lender or the AMC, but the likelihood that an appraiser will change their mind is very small, unless the landlord has overwhelming evidence that the value is low,” Benton says.
Your appeal will only be successful if you can show that the appraiser made a significant error, such as incorrectly posting square footage or room counts; ignoring an important service, such as a pool or spa; or ignoring a comparable sale that can support a higher value while “carefully choosing a value lower” suitable comparable that would indicate a lower value, says Parsons. It could also make a case, Ailion says, pointing out that the comparables used were in a lower school district or lower subdivision that did not have a homeowners association with swimming pools and tennis courts, that all comparables were auction sales or real estate ownership, or that they had other negative externalities that influence value, such as being on a busy street. If you can't successfully challenge a low appraisal, how do you ensure refinancing takes place? If the appraisal sets you at less than 80% of the principal, then you won't reach the required loan-to-value ratio (LTV) of 80% and you'll have to pay the PMI unless you decide to do a cash refinance, which means adding enough money at the close to reach that magical 80%. You can choose to pay the PMI for now.
If home values continue to rise, you can later provide comparable sales to your mortgage servicer and ask it to eliminate the PMI, even if you have not yet paid much of your principal. Understanding how the appraisal process works will give you the best chance of getting an appraiser to assign the highest possible value to your property. Purchase and refinance appraisals don't always have the values borrowers expect, and they are a human process with room for subjectivity and error. You can appeal a low appraisal, but you will only succeed with data strong enough to support your claim.
Department of Housing and Urban Development. Govinfo, USA. Consumer Financial Protection Office. .
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