No Appraisal Refinances: Do You Qualify and Is One Right for You?

Refinancing your mortgage can be a big money saver. That's especially true right now, while mortgage refinancing rates are near historic lows.

One of the biggest consumer pain points of refinancing is that doing so typically requires a home appraisal. This certainly makes sense. Banks want to know that the value of your home justifies the amount of money they're giving you. Even so, the appraisal process can be stressful.

With that in mind, is it possible to refinance without an appraisal? And how do you get a no appraisal refinance? Here's what homeowners need to know.

Can I refinance without an appraisal?

Yes, in some circumstances. If you have a non-conventional mortgage (FHA, USDA, VA, for example), you probably can refinance without an appraisal. But if you have a conventional mortgage -- or you're planning on doing a cash-out refinance -- you'll need an appraisal. Banks are not in the business of putting money into borrowers' hands without knowing the value of the asset backing the loan.

Even if you don't need to get an appraisal, you might want to. If your home has increased in value since you bought it, an appraisal will show that. This will improve something called your loan-to-value ratio, which is important in getting a good rate on your mortgage. A loan-to-value ratio compares the amount you're borrowing to the worth of your house. If you aren't borrowing much compared to how much your home is worth -- say, you're borrowing $100,000 and your home is worth $300,000 -- you could score a lower refinancing interest rate.

When do you not need an appraisal to refinance?

There are a few specific types of refinancing mortgage loans that have an appraisal waiver for many borrowers:

• VA streamline refinance: If you have a VA loan, you may be able to use a VA streamline refinance loan to lower your interest rate, with no appraisal necessary. In order to skip the appraisal, the home must be your primary residence, and you must already have a VA loan on the property. The existing loan must have been active (closed) for at least 270 days, and your last six payments must have been made on time.
• USDA streamline refinance: If you already have a USDA (rural housing) loan, there's a streamline refinance loan program similar to that offered by the VA. To take advantage, you must already have a USDA mortgage, have six months of on-time payments, and the loan must be at least 12 months old.
• FHA streamline refinance: Last but not least, FHA loans also have a streamlined refinance option. To qualify, there must be an existing FHA loan on the home, and it must be current. With an FHA streamline refinance, the borrower can take out up to $500 in cash.

There are a few other requirements for each of these. They all require borrowers to have a good reason to refinance, such as to reduce the interest expense or change the term of the loan. And while you won't need an appraisal, you'll still need to pay for other closing costs on your refinance.

Finally, it's important to point out that just because you can get one of these loan types without an appraisal, it isn't automatically waived. Depending on your circumstances, an appraisal may still be required by some refinancing lenders.

Will a no appraisal refinance cost me more money in the long run?

Possibly. If the value of your home has increased significantly since obtaining your original mortgage, it could be in your financial best interest to get an appraisal. In this case, an appraisal might get you a lower interest rate. Additionally, if getting an appraisal can reduce or eliminate your private mortgage insurance expense, it can be worth paying for.

Every situation is different. There are some cases where a no appraisal refinancing can be a smart financial move, and others where obtaining an appraisal can be worth the cost and effort. Check with a lender or experienced mortgage professional to see what options might be available (and beneficial) to you.

Still have questions?

Here are some other questions we've answered:

• What Is a Home Equity Loan?
• HELOC vs. Cash-Out Refinance
• Home Appraisals: What to Know, How Much It Costs, and How It Works