Refinance Loans When an Appraisals Required

Any home loan, whether it’s a refinance loan or a new purchase mortgage, has associated expenses. Some borrowers complain about these expenses as they do tend to add up, and those who don’t save up enough or budget properly for their new loans may wind up wishing they had taken more time to save up before applying.

One area where this is especially true is refinancing loans that require a new appraisal. This is most common with refinance loans that include money back to the borrower such as a cash-out refinancing. A home equity line of credit will also require a new appraisal and other types of mortgage-based financing will also need an appraisal done.

Why is this?

Home loan refinancing that involves cash back to the borrower is done on the basis of the home’s value and/or the amount of equity built up in the property. The longer you have paid on your home loan, the less you owe and the more equity is potentially built up. But the value of your property isn’t just contingent on how much you’ve paid on the loan, how well you’ve maintained the property, etc. It’s also dependent on how property values have gone up or down in your area.

When an appraisal is required on your home to refinance it, the property is being measured against comparable homes in your housing market. The market you live in may be on the rise, which can mean good things for those trying to refinance. Those who live in areas that may be in decline due to foreclosures nearby or other problems could find their home isn’t appraising for as much as expected. This factor used to be more common when the country was in the middle of the foreclosure crisis years ago. Since then many markets have gone the other way, improved and gotten much better.

It’s important to save up money for an appraisal and for any corrections that might be needed depending on circumstances. Giving yourself some extra room in your budget for a home loan appraisal fee and preparing for the expenses of a cash-out refinance loan or other type of mortgage loan is a good way to come to the application process as prepared as you can be.

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