Refinancing? You're Unlikely to Face Appraisal Issues This Year

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  • To finalize a mortgage refinance, you generally need your home to undergo an appraisal.
  • If your home doesn't appraise for a high enough value, your new loan might fall through.
  • Since home values are still up on a national level, refinancers are less likely to face this issue in 2023.

That's some good news.

Refinancing a mortgage may not make sense for a lot of homeowners this year. But it might make sense for you.

Perhaps when you first signed your mortgage loan, your credit score was in pretty poor shape, so you didn't qualify for a very competitive interest rate on your loan. If your credit score has since improved quite a lot, it may be possible to snag a lower interest rate on a new home loan than what you're currently paying, even with mortgage rates being pretty elevated across the board.

What’s more, you may be interested in doing a cash-out refinance, where you borrow more than your current mortgage balance and get the rest of your loan proceeds in cash to use as you please. That's a route that could make sense even with mortgage rates being higher now than they were a year ago.

Normally, when you do a mortgage refinance, there are certain criteria that need to be met. Your credit score generally has to be in decent shape, and your home has to appraise for a high enough value to cover the loan amount in question.

Sometimes, homeowners can run into appraisal issues when refinancing. This can especially happen when you refinance at a time when home values are down.

Right now, however, we're in the opposite sort of housing market. And so if you're pursuing a mortgage refinance, you're unlikely to run into appraisal issues this year.

Higher home values could help the refinancing process go smoothly

In January, the median U.S. existing home price rose to $359,000, as per the National Association of Realtors. That's a 1.3% increase from one year prior. But it's also important to note that in early 2022, home prices were already up. So while a 1.3% increase might seem modest, it's coming on top of an existing boost in home values.

Higher home prices are clearly not a good thing for buyers. But they can be very helpful for those looking to refinance a mortgage.

When home values are generally up, it becomes easier to meet the appraisal requirements needed to finalize a mortgage refinance. And so even if your home wouldn't command the same sky-high sale price it might've fetched in 2021, when buyer demand was really soaring, chances are, if your mortgage is at least a few years old, your home is worth more now than it was when you first signed that loan. So all told, you're much less likely to have issues with your home appraisal.

Some lenders might even waive your appraisal

While it's common to have a home appraisal done as part of the refinance process, some lenders have waived that requirement over the past few years, due to the general state of the U.S. real estate market. This isn't to say that your home won't need an appraisal to finalize your refinance. But don't be surprised if your lender tells you that an appraisal won't even be necessary in the first place.

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