The home appraisal is very important when refinancing a mortgage. By setting the official estimate of what your home is worth, it can have a big impact on whether your refinancing is approved and how much it will cost you. So how can you make sure you get the highest appraisal possible?
A seemingly small difference in appraised value can make a significant difference when refinancing. Your appraisal will determine your loan-to-value ratio, that is, the value of your home compared to the size of the loan. A more favorable loan-to-value ratio can mean a lower interest rate, avoiding the cost of mortgage insurance or even whether your refinance is approved in the first place.
Laws established since the financial crisis require that appraisers be hired and work independently of both lenders and homeowners, to prevent them from being unduly influenced by either. However, there are still some things you can do that will boost your appraised value, sometimes significantly. Here are six of them.
1) Do your research
The law requires that the appraiser be independent of both the lender and owner. That doesn't mean you can't have any influence on the process. Before the appraisal is done, do your own research into recent sales of homes comparable to your own in your community. Prepare a file of these, showing sale price, square footage, year built, amenities and other crucial factors and provide it to the appraiser as evidence your home should be priced comparably to them.
Be also on the lookout for seemingly comparable homes that sold for less than what you believe your home is worth. This may be because they were foreclosures or short sales, or perhaps they have structural or other significant problems that may not be apparent in a cursory review.
One of the problems with the new appraisal rules is that they sometimes result in your appraisal being done by someone from out of town who may not be familiar with your local housing market. So by doing your own research, documenting your findings and providing them to the appraiser, you're simply providing additional local information to him or her -- which is still allowable.
2) Stress the good stuff
You can be there when the appraisal is conducted -- in fact, you should be. While it's going on, take the opportunity to point out some of the better features of your house that might escape notice. Does it have unusually large closets? Special woodwork or high-grade siding? Are there spectacular views available?
You should also take this opportunity to point out any improvements you've made since buying the home, since the appraiser will likely take your original purchase price into consideration when making an assessment. Did you refinish the basement? Upgrade the furnace or major appliances? Upgrade the kitchen or any bathrooms? This can all increase the relative value of your home over what you originally paid for it, compared to other properties in your community.
3) Tidy up!
Presenting your house for an appraisal is a lot like presenting it for sale -- you want it to look as good as possible. Although appraisers are supposed to look beyond superficial things and focus on the fundamental, underlying value of the property, they're still susceptible to visual impressions, same as any human. So pick up the clutter, mow the lawn, clean the windows and do everything you can to make your home look its absolute best.
If your rooms are crowded with furniture, it helps to haul out a few excess pieces to make the rooms look more spacious. Worn-out items, particularly tattered rugs or upholstered chairs, should be temporarily removed as well. Certain items can also make a home look cheap -- outdated products such as a tube-type TV, for example, or an oversized space heater that screams that the room gets cold. Rent a storage unit for a month or even see if you can store them at a friend or relative's place for a few days.
4) Fix it up
This is a more extensive version of #3 -- putting your home in the best possible light. If your home has any nagging maintenance issues, this would be a good time to take care of them. Maybe you've been meaning to do something about that damp basement. Does the driveway need a fresh coat of sealer? Are there dents or holes in the walls or broken fixture anywhere? And fresh paint can work wonders for any home, both inside and out.
A few carefully considered upgrades can often enhance the value of your home. Perhaps it's time to replace that worn-out old rug or carpet? A new sink and faucet can make a dramatic impact on a kitchen, as can a new countertop. If you have wood floors, a light refinishing (short of renting a power sander) can work wonders. Some new plantings along the side of the house or overseeding bare spots in the lawn can go a long way toward boosting curb appeal.
In doing upgrades, particularly when trying to boost the appraisal for refinancing, you want to keep a tight leash on costs -- there's no sense in undertaking a $50,000 kitchen overhaul that will only add $30,000 to your home value. Still, there can be some dramatic impacts from small expenditures -- one New Jersey family saw a $24,000 gain in their appraised value after making only $1,600 in improvements on their $200,000 home.
5) Ask for a second opinion
If you get an appraisal that you think is below what your home is truly worth, you're not stuck with it. You can ask for a new appraisal by a different appraiser. Again, you can't select the person to do the job -- they have to be assigned independently, under the new laws since 2008 -- but if you truly believe the first appraisal was off the mark, it might be worthwhile to have someone else take a shot at it, particularly if the first appraised value is causing you problems with your refinance.
A new appraisal will cost several hundred dollars, just as the first one will, but might be worthwhile if it can help you trim your mortgage costs by refinancing.
6) Get help
Finally, you might consider getting professional help with a consultant specializing in presenting homes for sale or appraisal. These people know how to look at your home with a trained eye and can advise you on how to get the maximum boost in value for the minimum cost. They're particularly good at showing you the little things that can be done to present your home at its most appealing, as well as identifying critical issues that could be holding your home value down.
They say that home value is all about "location, location, location." You may not be able to do much about that when it comes to an appraisal of your home, but there are still things you can do to make sure it appraises for the best value possible with a bit of effort.
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