Refinancing is very much like the process that home buyers go through when they're getting a first mortgage. The refinancing process with a traditional lender starts by submitting financial paperwork. If the paperwork looks good, the lender will request an appraisal.
An appraisal is required by law. The appraiser will assess the value of the home and report it to the lender. If the requested loan amount is high relative to the value of the home, the homeowner may have to pay private mortgage insurance on the refinance. This is one reason it's important to know what the appraiser is looking for during a visit. Homeowners can make repairs to their home beforehand to ensure that the appraisal goes well.
Comparable properties in the area
The first thing that appraisers consider when they're assessing the value of a home is the value of homes in the neighborhood. Although it's impossible to know exactly how much the appraiser will decide your home is worth, looking at other homes in the area can give you a ballpark idea.
Condition of the home
The next thing that the appraiser considers when assessing the value of a home is its size, layout and condition. The appraiser will look inside and outside. The number of bedrooms, total number of rooms, number of bathrooms, square footage of the home and even floor plans will all be considered. Below are some other factors that your appraiser will consider:
Condition of the home's systems
The appraiser will inspect each of the home's systems, including plumbing, HVAC and electrical. When inspecting the HVAC system, the appraiser may seek answers to questions such as:
How old is the HVAC system?
Does it work properly?
Does the HVAC system emit a smell?
Is there corrosion on the exterior of the air conditioner or furnance?
Recent improvements
Has your kitchen recently been remodeled or expanded? Have you added a bathroom? Are your recent improvements of good quality? Did you install durable fixtures? Your appraiser will seek answers to these questions during the appraisal.
Not all of your recent improvements need to be remodels. Upgrades like plumbing replacement roof repair can also drive up the value of your home.
Amenities
Your appraiser will look for amenities that make living in your house more pleasant, such as a sunroom, an outdoor kitchen or living area, a well-constructed deck and other features that improve quality of life.
Unattractive features
The bad gets as much attention as the good during an appraisal -- maybe even more attention. From a strange paint job to an outdated kitchen, unattractive features can make a house hard to sell, driving down its value.
Location
Finally, the appraiser will consider the location of the house: Is the house close to a loud interstate? A busy street? Nearby businesses? Is the house within easy reach of jobs, schools and other services? All of these factors affect the value of the home.
What you can do to make a good impression
If you're planning to refinance soon and you'd like your appraisal to go well, there are things you can do to make a good impression.
Repaint
Repainting is relatively quick and inexpensive, but the results can be dramatic. A newly painted home, whether inside or out, often looks cleaner, better maintained and even better.
Clean and declutter
Although grime and clutter shouldn't affect the value of the home, it certainly can leave your appraiser with a poor impression. Clean your house from top to bottom. During the process, remove clutter. Sell unneeded items at a garage sale, move them to a storage unit, organize them into bins, or give them away.
Clean up landscaping
Exterior landscaping can dramatically impact an appraiser's initial impressions. This is called curb appeal. You can enhance the curb appeal of your house by painting shrubs, watering the lawn, removing weeds, laying down mulch and pruning back overgrown bushes.
What else do you need to know about appraisals?
Appraisals are a relatively straightforward process. However, it always helps to have knowledge of the process before initiating an appraisal of your own.
Cost
Appraisals vary in price, but they generally cost between $300 and $500. This is something you'll need to know going into the process so you can be prepared to pay the expense.
Sometimes you can dispute the appraisal
If the appraiser makes a mistake that adversely affects the appraisal, you may be able to dispute the appraisal. This is usually effective only if the appraiser has made an error on the report. For example, if the appraiser lists the square footage of the home incorrectly, fails to mention an important amenity or incorrectly compares the property to homes in a more desirable school district, you could have grounds to challenge the appraisal.
