If you aim to refinance your mortgage loan, chances are your home will need to be professionally appraised – since lenders often require it. Lenders rely on appraisals to assess whether a property’s value is sufficient to back a new loan and to determine the appropriate loan amount and borrowing limit.
It’s normal to have questions about this process:
- What do appraisers look for in a refinance?
- What hurts a home appraisal for refinancers?
- How much does a refinance appraisal cost?
- How long does a refinance take after appraisal?
Read on for answers, including how to get a high appraisal for your refinance.
The least you need to know:
- Most refinance loans require an appraisal, and your home’s appraised value impacts your refinance terms.
- A higher value can help you secure lower interest rates, eliminate PMI, or access more cash in a cash-out refinance.
- If your home value is lower than expected, you may need to adjust your loan terms, bring additional funds to closing, or reconsider refinancing altogether.
What Is a Refinance Appraisal?
A refinance appraisal is a professional valuation of your property’s current market value, conducted by a licensed professional appraiser, which is typically needed when you’re looking to refinance your mortgage.
“This appraisal is crucial because it assures the lender that the property’s value supports the loan amount, which is a safeguard for both the lender and the homeowner,” explains Robert Mann, CEO of Triangle Appraisal Group in Raleigh, North Carolina.
Robert Sheperd, owner of Peak & Home Partners in Rockville, Maryland, notes that your lender will order an appraisal to assess whether the current market value of your home justifies the borrowed amount.
“The appraiser will perform a thorough inspection of the property, comparing its features to similar comparable homes in the area that have recently sold. This appraisal helps lenders determine the loan amount and interest rate and whether mortgage insurance is required,” Shepherd says.
A refinance appraisal is very similar in purpose and process to the original appraisal conducted when you first bought your home.
What’s the Difference Between a Refinance Appraisal and a Purchase Appraisal?
The primary difference between a refinance appraisal and a home purchase appraisal lies in the purpose.
A home purchase appraisal is designed to confirm that the property’s value meets or exceeds the purchase price, protecting both the buyer and the lender. A refinance appraisal, on the other hand, focuses solely on determining the home’s current value to ensure it supports the new loan terms. The process itself is largely the same.
Also, unlike the original appraisal done on your house, a refinance appraisal allows you to be present, if you choose, while the professional appraiser visits your property. This provides the benefit of pointing out any renovations, upgrades, or repairs you’ve made.
Why Do You Need an Appraisal When Refinancing?
A professional appraisal is typically necessary when refinancing to safeguard the lender and provide a more accurate assessment of the home’s value.
“This is crucial to protect the lender from lending more than the home is worth. The appraisal is required by the lender, but it’s beneficial for homeowners,” Shepherd continues.
Here’s how a refinance appraisal benefits borrowers:
- It determines loan eligibility. “It helps homeowners qualify for better loan terms and/or lower interest rates,” adds Shepherd.
- It assesses equity. “It provides a clear picture of how much of the home you own outright – home equity – which can be used for cash-out refinancing,” he continues.
- It prevents overborrowing. “The appraisal ensures that you do not take on more debt than the property can support, reducing the risk of foreclosure.”
Let’s take a look at those benefits in further detail:
Determines Loan Eligibility
The appraised value of your home directly impacts your loan options. Lenders use this value to calculate your loan-to-value ratio (LTV), which determines whether you qualify for a refinance and what terms you may receive.
- If your home appraises higher than expected, your LTV decreases (which is a good thing), which could qualify you for lower interest rates and better loan terms.
- A low appraisal, on the other hand, can increase your LTV, making it harder to refinance or requiring you to pay private mortgage insurance (PMI) if your equity remains or falls below 20%.
Assesses Equity
Your home’s appraisal determines how much equity you have—the portion of your home you own outright. You build equity through your down payment, monthly principal payments, and home value appreciation. Think of appreciation as “free equity” in a sense. This is crucial for several reasons:
- More equity can eliminate PMI – If your new appraisal shows you’ve reached 20% equity or more, you may be able to refinance into a loan without PMI, saving you money on monthly payments.
- Higher equity can unlock cash-out refinancing – A strong appraisal can allow homeowners to access more funds with a cash-out refinance if they want to consolidate debt or make home improvements.
- A lower-than-expected appraisal can be a setback – If your home value has declined, you may have less equity than you thought, which could limit your ability to refinance or increase your interest rate. In some cases, a low appraisal could even result in a lender denying your application.
Related: How much equity do you need to refinance your mortgage?
Prevents Overborrowing
A refinance appraisal ensures that you don’t take on more debt than your home can support, especially in the case of a cash-out refinance.
- For a rate-and-term refinance: Your loan balance stays the same, but the appraisal still matters. Lenders use it to confirm that your home’s value supports your new loan terms. If your appraisal comes in lower than expected, you may face a higher interest rate, need to pay PMI, or even be unable to refinance if the loan-to-value (LTV) ratio is too high.
- For a cash-out refinance: Since you’re borrowing against your home equity, lenders set strict LTV limits based on your appraised value. If your appraisal comes in lower than expected, you may not be able to withdraw as much cash as planned—or may need to cancel the refinance altogether.
Additionally, an appraisal acts as a reality check—even if you believe your home is worth more, lenders rely on objective market data to determine how much they’re willing to lend.
How Do Appraisers Determine Your Home Value When Refinancing?
Professionals assess multiple factors to determine your home’s fair market value during a refinance appraisal. According to Mann, appraisers take a comprehensive approach, considering both the property itself and broader market conditions.
Here are the key factors that influence your home’s appraisal:
- Comparable Sales (Comps). Appraisers conduct a comparative market analysis (CMA) by reviewing recent sales of similar homes in your area. These homes should be comparable in size, age, condition, and features to ensure an accurate valuation.
- Location. Your home’s proximity to desirable amenities like parks, schools, and shopping centers plays a role in its value. Appraisers also consider neighborhood trends, school district quality, and overall market demand in your area.
- Size and Layout. Square footage is a major factor, but so is the layout’s functionality. A home with an open-concept design may be valued higher than one with an outdated or inefficient floor plan.
- Property Features. The appraiser will take note of the number of bedrooms and bathrooms, storage space, and any unique features, such as a finished basement, sunroom, or in-ground pool.
- Overall Condition. A well-maintained home is likely to receive a higher valuation. Appraisers inspect the property’s general upkeep, including flooring, walls, and appliances. Key features like the foundation, roof, electrical systems, and HVAC are particularly important.
- Home Improvements and Upgrades – Renovations that modernize the home—especially in high-value areas like the kitchen and bathrooms—can increase the appraised value. Major upgrades, such as a new roof or energy-efficient windows, may also boost your home’s worth.
- Curb Appeal and Exterior Features. The appraiser evaluates the home’s exterior condition, including landscaping, siding, decks, patios, and garages. A well-maintained yard and attractive curb appeal can positively influence the appraisal.
- Market Conditions. Beyond your property, appraisers consider broader real estate trends—whether home values are rising or falling in your area and how competitive the market is at the time of appraisal.
An appraiser provides an objective estimate of your home’s worth in today’s market, which directly impacts your refinance options.
What Hurts a Home Appraisal?
Red flags can create a bad impression and lower your home’s value in the eyes of the appraiser.
“Things like noticeable disrepair, outdated interiors, or unfavorable market conditions can negatively impact the appraisal,” cautions Mann. He adds that the following design features, which might not appeal to the broader market, can further contribute to a poor appraisal:
- Overly customized designs
- High-maintenance features like large swimming pools
- Outdated systems like single-pane windows
- Extensive wall-to-wall carpeting
- Bold design choices
- Closed floor plans
“Visible damage, such as leaks, cracked walls, or mold that indicate poor maintenance, can also significantly decrease value, as can old appliances, worn-out flooring, or outdated bathrooms,” Shepherd says.
Moreover, high crime rates, poor schools, or proximity to undesirable features in the neighborhood, like highways or factories, may lower the appraised value.
“Also, in areas with few recent sales, it can be challenging to establish a solid value – potentially resulting in a lower appraisal,” says Shepherd.
How to Increase Your Chances of Getting a High Appraisal
Eager to learn how to get a high appraisal for refinance? Follow these tips:
- Complete needed repairs. Resolve any obvious defects, such as broken tiles or leaky faucets, to present the home in good condition.
- Make minor upgrades. Apply a fresh coat of paint to worn walls, tidy up your landscaping, and complete cosmetic improvements. “Updating fixtures and fittings and improving the home’s curb appeal can make a big difference,” advises Mann.
- De-clutter and clean. “A thoroughly clean and organized home can create a more favorable impression, making the space feel larger and more inviting,” continues Shepherd.
- Document your improvements. “Keep records of any upgrades made, such as new countertops or energy-efficient windows, and present this information to the appraiser,” Shepherd recommends.
- Furnish comps. If you know of recent sales of similar properties in the area that indicate a higher value, share these details with the appraiser.
Check out our guide to how to maximize your refinance appraisal to learn more.
Do You Need a Refinance Appraisal?
Again, your lender will likely require a new appraisal for your refinance, but there are some circumstances where you can avoid one.
The appraisal may not be required if you qualify for an appraisal waiver from the lender. These waivers may be granted when you have a low loan-to-value ratio, an excellent credit history, or are refinancing with the same lender under specific programs.
Also, certain refinance types may not require an appraisal.
“Some government-backed loans may not require an appraisal if you meet specific criteria. These programs are designed to make the refinancing process quicker and less costly by potentially bypassing the appraisal step, focusing instead on the homeowner’s payment history and benefits from refinancing,” Mann says.
Three government-backed refi loans that don’t obligate you to have an appraisal are:
- FHA Streamline Refinance
- VA Streamline Refinance / Interest Rate Reduction Refinance Loan (IRRRL)
- USDA Streamlined Assist Refinance
Also, instead of a traditional in-person appraisal, your lender could use an alternative appraisal method that employs technology and non-invasive techniques to accelerate the process and reduce costs. These include:
- Desktop appraisal – which relies on online data, such as floor plans and property records, without involving third parties
- Hybrid appraisal – which involves using third-party information like property details or home inspection photos without an in-person visit
- Drive-by appraisals – where the appraiser assesses the property from the outside only, which may be accepted for FHA and VA refinances
Refinance Appraisal Costs Explained
The bad news about a refinance appraisal is that the homeowner must foot the bill. On average, this appraisal will cost between $300 and $600. This fee covers the appraiser’s time and expertise.
“What you pay will depend on the type of property being appraised, such as a single-family home, townhome, or manufactured home, with each type potentially requiring different evaluation efforts,” says Mann. “The fee can be paid upfront or rolled into the refinancing closing costs with your lender.”
Keep in mind that you are on the hook for this charge even if the appraisal turns out too low for loan approval.
What Happens After the Appraisal Comes In?
After the appraiser submits their report to the lender, the lender will review it and adjust the loan offer as necessary.
“The entire refinancing process usually is completed within 30 days from when the appraisal report is received,” notes Mann.
Here’s a step-by-step summary of that timeline:
- Review of the appraisal (1-3 days). The lender reviews the appraisal report to confirm the home’s value supports the proposed loan amount.
- Loan adjustment (1 to 2 days following appraisal review). “Based on the appraisal, the lender will adjust the loan terms as necessary. If the appraisal value is lower than expected, this may involve renegotiating the terms or deciding not to proceed,” Mann continues.
- Underwriting process (7-14 days). Your loan is underwritten, and the lender verifies all financial information while assessing risk.
- Final approval (2-3 days after underwriting completes). “Your loan receives final approval from the lender. All terms are finalized, and the preparation for closing begins,” says Mann.
- Closing (3 to 5 days after final approval). You attend a closing meeting to sign all the loan documents and finalize the refinance.
- Disbursement of funds (1 to 2 days after closing). If applicable, funds from cash-out refinancing are dispersed. The new mortgage terms take effect immediately after closing.
What Happens If the Appraisal Comes in Low?
If your home value comes in lower than expected on the appraisal report, you have a few options.
You can dispute the appraisal and request a second opinion—especially if you believe there were errors or overlooked comps. Another option is to negotiate with your lender for revised loan terms. You might also choose to cover the difference with a larger down payment. In some situations, it may make sense to reconsider the refinance entirely.
Does a High Appraisal Increase Your Property Taxes and Homeowners Insurance?
A higher home appraisal can be great news for refinancing, helping you secure better loan terms, eliminate PMI, or access cash from your equity. However, homeowners often worry about whether a new appraisal will also lead to higher property taxes or insurance premiums.
The short answer? Your refinance appraisal does not directly impact property taxes, but a higher home value could still lead to a tax increase in the future.
- Property Taxes: A private refinance appraisal is not shared with your local tax assessor, so it won’t directly affect your property tax bill. However, if your home’s market value has increased, your county’s next reassessment could reflect that higher value—leading to higher taxes down the line. Some counties reassess properties annually, while others only do so upon sale or at set intervals. On the flip side, if you believe your county has over-assessed your home, you may be able to use a refinance appraisal to challenge your property tax assessment and lower your bill.
- Homeowners Insurance: Insurance companies use home values to estimate replacement costs—how much it would cost to rebuild your home if it were damaged or destroyed. If your refinance appraisal reflects a significantly higher value, your insurer may adjust your coverage limits, which could lead to higher premiums.
Refinance Appraisals: The Bottom Line
A refinance appraisal plays a crucial role in determining your home’s value, which directly impacts your loan eligibility, equity, and potential savings. Whether you’re looking to secure a lower rate, eliminate PMI, or access cash from your home’s value, understanding how appraisals work can help you confidently navigate the refinancing process.If you’re ready to refinance, start your application with Refi.com today.
