Here's How Lenders Are Making It Easier to Refinance Today

Skipping this one step is making the process of refinancing go a lot faster.

When my husband and I refinanced our mortgage many years back, it was a fairly lengthy process. We had to provide a host of financial information, like bank account statements and pay stubs, and our home had to go through an appraisal so our lender could be sure it was worth enough to cover the amount we were seeking to borrow.

But when we refinanced our mortgage this past summer, our lender waived the appraisal portion of the closing process and finalized our new home loan without it. And it turns out that a lot of lenders have been doing that over the past year. Here's why -- and how it benefits borrowers.

What is a home appraisal, anyway?

An appraisal is a financial assessment of your property's value that's conducted by a third party. Usually, during an appraisal, a professional will come out and look at your home, noting things like its square footage and features.

When you buy a new home, you'll pretty much always need to get that property appraised. That way, your lender can be sure it's worth enough to cover the mortgage you're looking to take out. Say you want to borrow $300,000 to buy a home, but that property is only worth $250,000. Your lender won't let you take out that loan because if you were to default on it, your lender wouldn't be able to get all of its money back by selling your home.

It's generally the case that refinance lenders require an appraisal, too. After all, the value of a home can change over time. But these days, it's not as solid a requirement for refinances.

Why refinances don't always need an appraisal

Home values have skyrocketed on a national scale over the past year, and since last summer, many homes have been worth a lot more than they normally would be. And that's a big reason why refinance lenders may be willing to waive a home appraisal -- because they know home values are generally up and there's less risk in letting borrowers take out new loans that are equivalent to their remaining mortgage balances.

There's also the coronavirus angle to consider. Most of the time, having an appraisal means inviting a stranger into your home. During the pandemic, a lot of people weren't comfortable with that, and still aren't. And while there is such a thing as a virtual appraisal, where an assessment of a home is done remotely, some lenders aren't requiring that step.

Now, the main benefit in having appraisals waived is that the refinancing process can wrap up more quickly, allowing borrowers to reap savings sooner. That said, if you're looking to do a cash-out refinance, where you borrow more money than what you owe on your existing mortgage, then your lender generally will not waive an appraisal. Since you're asking for extra cash, your lender will need to verify that your home is worth enough money to cover that sum.

But otherwise, if you're rate-shopping for a refinance, it pays to ask lenders if they're waiving appraisals or not. Skipping that step could make for a much smoother process all in.