Your Mortgage Refinance: How to Understand Your Property Appraisal

When mortgage rates are low, many homeowners rush to refinance. If you, too, are thinking of refinancing, take the time to check out the housing market in your area to get some idea of how much your home may be worth. Property appraisals are crucial to mortgage lenders in the refinance process. Checking out housing values in your area before applying for a home refinance helps avoid any surprises later.

What's an Appraisal?

An appraisal estimates the current market value of your property. The detailed report:

• Assesses the condition of your home and the surrounding neighborhood
• Pinpoints recent sales prices of homes that are similar to yours.
• Assesses how long it is taking homes to sell in your area.
• Determines the cost of replacing your home if it were ever destroyed.

Low Appraisals End Plans to Refinance

It's gotten tougher to get refinancing these days because so many homes have lost significant value during this recession. Some homeowners have found their mortgage loan applications derailed by appraisals that came in much lower than they expected. A low appraisal can either end your attempt to refinance unless you want to bring in enough cash at closing to reduce the loan amount to an acceptable balance, usually no more than 80% of the home's appraised value. That's why it's a good idea to visit a real estate site such as Cyberhomes.com to get a rough idea of the estimated value of your home. Just type in your address to get an estimate. You'll also see values for homes in your neighborhood.

Foreclosures and Short Sales

You're home's value is affected by nearby foreclosures and short sales. Short sales are homes sold for less than the homeowner owes on a mortgage loan, and these sale prices can come in below what homes are actually worth. The value of about 69.5 million homes is expected to drop this year due to nearby foreclosures, according to the Center for Responsible Lending.

Make it a point to know what's going on in your neighborhood. For instance, the closer you live to a foreclosure property, the more it affects your property value. A study by researchers at the Federal Reserve and University of Connecticut found that people who lived within 300 feet of a foreclosed home saw a 1.3% drop in the value of their property. If they were 300 to 500 feet from a foreclosed property their home value dropped 0.6%.

Preparing Your Property for an Appraisal

In some cases appraisers will actually come into your home. However, many times they evaluate homes from the outside and rely on a comparative market analysis of your neighborhood. Get your property ready for the appraisal by cleaning up the outside of your home and making repairs. A fresh coat of paint if needed and nice landscaping can improve your property value. It's also important to make sure the appraiser is aware of any interior renovations or home improvements that could boost your appraised value.

What Qualifications Do Appraisers Have?

New law now takes all control over the appraisal away from anyone who might benefit financially from the transaction--and that includes you as well as the loan agent you are working with. Many have found that this results in the use of appraisers who are unfamiliar with the neighborhood or new to the job--and who come up with very different values than an established local professional would. If you don't like your appraisal, you can appeal it, or ask for a second one if you are prepared to pay for it. Or try another lender that uses a different appraisal management company.

Summary

• Property appraisals are very important when applying to refinance a mortgage loan.
• The appraisal gives a detailed report of the condition of your property and similar homes in the neighborhood.
• Falling home values have taken many homeowners by surprise when they attempted to refinance.
• Nearby foreclosures and short sales can depress your home's value.
• Consider ordering your own appraisal before attempting to refinance.
• Clean up your property before the appraisal.
• Property appraisers should be licensed professionals.