If you are considering refinancing your mortgage, you should get your home appraised before agreeing to anything.
An appraiser will come to your home to determine its worth. Their valuation will then be sent to your lender. How much you will need to pay to have your home appraised will depend on regional real estate rules and guidelines that can vary from province to province, however, it generally costs a few hundred dollars.
An appraiser will evaluate the recent sales of homes similar to yours in your geographical area. By determining how much they sold for, they will have a better idea of how much your home would sell for if you were prepared to sell it today.
The condition of your home is also a factor. They will assess its age, cleanliness, safety issues, upgrades, renovations, and more.
Why do lenders need a home appraisal for refinancing?
A home appraisal focuses on determining the value of your property. The lender will use the appraisal to ensure that your home is valuable enough to guarantee the refinanced mortgage.
The lender needs to know they can make money on the loan they issue. If your home has remained the same value or has appreciated in value, then your chances of getting approved for refinancing are high. However, if its value is lower than the value of the mortgage you want, then you likely won’t get approved for refinancing.
This is particularly true for a cash-out refinance. Here the lender must know the exact value of the home and how much home equity you own to determine how much money to pay you during refinancing.
A home appraisal can also help determine whether or not you need to pay private mortgage insurance, as well as whether you will qualify for lower interest rates when you refinance.
During the appraisal, the surveyor will walk through your property and note its location, finish, and condition. A refinance appraisal should be seen as a light inspection. They will also assess the homes in your area that have recently sold. The prices they sold will help your appraiser determine how much your home would likely sell for today.
The appraiser will then prepare a report, including a detailed description, photos, and details on the fair market value of your property. Both the buyer and lender will usually receive copies of their report.
What factors do refinance appraisers consider?
They will assess the basic condition of the home. Is it dirty? Are there cracks and holes in the walls? What about rust and corrosion? How operational is your HVAC system? Is there mould or asbestos?
They will look at any permanent upgrades and renovations that have been made. If your home has had a makeover, it will bode well during the appraisal.
They will also compare your home to comparable homes in your neighbourhood to see how yours holds up. Total room count will also be considered. Generally speaking, more rooms will add value to your home, as families tend to prefer these homes.
Exterior amenities may also be considered. Anything that will improve the occupants’ quality of life, such as an outdoor kitchen, gazebo, pool, spa, or solarium, may add value to your home.
How to Prepare for a Home Appraisal
Repainting is quick and expensive and can imbue new life into an old home. Any clutter should be removed before the appraiser arrives to make your home appear cleaner and more spacious.
Worn-out flooring can also make a bad impression, so you should repair or replace your worn flooring and carpeting, if applicable. Bathroom and kitchen fixtures should also be upgraded if you can afford to do so.
Any renovations or upgrades you can make to enhance the functionality and aesthetics of your home will pay dividends in the long run. The end goal is to create the best curb appeal possible.
You want your home to stand out amongst a glut of derivatives. Adding a garden, trimming your hedges, a koi pond or bodhi tree, repainting your home’s facade, or even adding a white picket fence can help make your home appear more welcoming.
If you are thinking of a refinance mortgage solution, you need to strongly consider taking the necessary steps to increase the value of your home before it is appraised.
Going All In
If you want your refinance efforts to be successful, you must go above and beyond the call of duty to help prepare your home for its appraisal. The appraisal will provide your lender with an updated report on the depreciation or appreciation of your property.
The information provided will dictate how much equity you may be able to obtain or take advantage of should you wish to in the future. More equity may allow you to meet certain financial goals, such as buying a rental property or starting a business.
