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If you're looking to refinance your mortgage, you might run into a catch when your lender orders an appraisal to check the value of your home. Your lender will use the evaluation results to find out if you qualify for the refinance and can withdraw cash.

A low estimate could affect your chances of getting the new home loan, so it is important to know what to look for.

Here's why low home valuations sometimes happen, how to avoid them, and how to respond to them:

Why low ratings are important to refinancers

A home appraisal is a professional appraisal of the market value of your home. Lenders usually order an appraisal while they are drawing the refinance to make sure they are not borrowing more than the home is worth.

And with a cash-out refinancing, the amount of equity in the home affects how much cash the homeowner can borrow.

A low estimate can affect your chances of qualifying for the new loan. Take a look at an example to see why:

Let's say you apply for interest and term refinancing. You owe $ 200,000 on the original home loan, but your appraiser puts the home's value at $ 180,000. Your mortgage lender would be nervous if they took on the $ 20,000 discrepancy.

That's because if you fall behind on your mortgage payments and the home is foreclosed, your lender may not get that $ 20,000 back. This is why you want the appraised value to be equal to or greater than the purchase price of the home.

Also, if the estimate is low, you may not be able to remove Personal Mortgage Insurance (PMI) or the amount you can borrow may be reduced. If the lender does not approve your application, you will have to move to another mortgage lender or withhold refinancing altogether.

Good to know: The cost of an appraisal is usually between $ 300 and $ 500 and is included in the closing costs of your refinancing.

How often do house valuations get low?

If the valuation is low and the seller does not cave in on the selling price, you may not qualify for the refinance. But that doesn't happen often.

According to the latest figures from Fannie Mae, house valuations are only about 8% of the cases below the asking price. And when they are low, the borrower can usually renegotiate the purchase price in their favor.

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Reasons for a low rating

If a home rating turns out to be lower than expected, it could be for one of the following reasons:

Overestimate the value of property upgrades

Real estate upgrades can add value to your home, but you may not get back all of the money you spent on these projects.

For example, you could spend $ 15,000 on installing a deck, but the appraiser could decide that it is only worth a $ 10,000 increase in the value of the property. Or worse, the appraiser may not even know what you did to improve the house.

Tip: You can work around this by making a list of the upgrades you have made along with receipts and photos, if any, and giving them to the reviewer.

The house is cluttered

Disorder must not impair the value of the house – unless it adversely affects the structural condition of a house or interferes with the valuation. Appraisers can also be influenced by first impressions, so a messy home, inside or out, can ultimately lower the value of your home.

Tip: Before the assessment, take enough time to clear up the mess, clean the outside and inside, carry out necessary repairs and generally improve the attractiveness of the curb.

Find Out: When To Get A Refinance Home Rating And When To Skip It

Unusual market conditions

If the property market in your area is developing faster than normal, the appraisals may be lagging market prices. That's because an appraiser is comparing your home to others recently sold in the area, and backward-looking data may not keep up with current prices in a bestseller market.

The opposite could also be the case if your housing market is sluggish. With fewer buyers and more homes in the market, the value of your home could go down.

Tip: Dealing with unusual market conditions may be inevitable, but it helps to find out what's going on in your area before applying for refinancing. Home sales are generally faster and prices are higher in the summer, which could help add to the value of your home.

An inexperienced appraiser

Low home value could also be attributed to a valuer who has a lack of experience. You may be rushing through the job during busy times, using poor comparable sales data, or having no knowledge of your market or the valuation process.

It may also be the first time the appraiser is evaluating the type of home you have, e.g. B. a condominium or a single family home.

Tip: Avoid this by meeting the appraiser at your home. They can share benchmarks, explain problems and provide information about your home.

How to respond to a low rating

If you think the appraiser misunderstood your home value and is unwilling to renegotiate the price, you don't have to accept the results. Here are some options what to do if the rating is low.

1. Check the assessment report for errors

Your first step is to request a copy of the appraisal report if you don't already have one. Many lenders use the seven-page Uniform Residential Appraisal Report.

Read it through and make sure everything is correct, and look out for any information that could lower the estimate. For example, the number of bedrooms and bathrooms, the number of square meters, and any improvements you have made will greatly affect the results.

2. Look at the comparable sales

The valuation report also lists which houses the appraiser used as "comps". These are local sales that will help the appraisers assess the value of your home. So you should be sure that the properties are really comparable.

Here are some key points to keep in mind when looking at comps:

  • Selling Date: See when the comparable home was sold. Because market trends fluctuate, it is best to look for properties that have been sold within the last three to six months, if possible. These reflect the rising prices in your market. If your market is sluggish, check to see if the comps are the most recently sold homes in your area.
  • Comparability: The comparable house must also be similar to yours. That means it should have roughly the same number of bedrooms and bathrooms, and similar square footage. Even better if you can find homes with similar amenities and features, e.g. B. a terrace, a finished garage or a strong curb.
  • Location: Ideally, the comparable house is located within a radius of 800 meters from your house. That's because home prices can change significantly between neighborhoods. Check the location of the Comp in Google Maps.

3. Consult a real estate agent

The real estate agent who helped you buy the home may be ready to advise you so give them a call. Submit your assessment report along with any notes you have made. Your agent can help you decide whether to appeal the report, which has its own procedure.

4. Consider challenging the opinion

Here are the steps to take if you dispute the home valuation:

  • Contact the lender. Call the lender to explain why you want to appeal the appraisal and ask about the procedure for filing the appeal. Follow up with an email so you have everything in writing.
  • Write down the complaint. Your real estate agent can help you generate a report that lists any issues with the valuation, be it simple numerical errors or a major problem.
  • Check the follow-up report. If there are errors in the report – such as the wrong address or square footage – the lender may be able to quickly correct the report and change the value. However, if there are major issues with the appraisal report, you may need to order a new appraisal.
  • Tell your state appraisal office. If you haven't had luck with the lender but the appraisal is still too low, find your government evaluation board and file a complaint.

5. Get a second opinion

Different appraisers may also have different opinions about the value of your home. If you order a new appraisal and your home value is higher again, the new appraisal can support your objection. This may make it possible to qualify for the refinancing loan.

Just make sure the second reviewer is qualified with the Appraisal Institute, the American Society of Appraisers, or another national review organization.

Read On: How To Refinance Your Mortgage In 6 Easy Steps

About the author

Kim Porter

Kim Porter is an expert on credit, mortgage, student loan and debt management. It has been featured in US News & World Report, Reviewed.com, Bankrate, Credit Karma, and others.

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source https://seapointrealtors.com/2021/08/02/low-appraisal-why-it-happens-and-how-to-avoid-it/

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