Refinancing a mortgage often allows you to replace your home loan with a new mortgage – which can be beneficial for those who want to make adjustments (like a different kind of loan rate, or a longer or shorter term) to better suit their needs. There are quite a few refinancing options available, with rate and term loans being the most common. However, picking a no appraisal refinancing option can often be a good idea for a number of reasons.
What are no appraisal refinance mortgages?
No appraisal refinancing generally refers to a type of replacement loan where a lender doesn’t need a professional assessment of the property’s value as a condition of replacing the existing mortgage. In most cases, this kind of loan can offer a homeowner more benefits than the one it’s replacing – and this is one of the reasons why it’s often a good idea to learn more about what it could offer you.
In general, these kinds of mortgage options are available a number of federal sources, as it offers communities and demographic groups that could otherwise lose their home to re-stabilize themselves. Banks, mortgage companies, and other private lenders on the other hand, will often require appraisals for a refinance deal.
Because of this, this option tends to offer individuals the chance to take advantage of lower mortgage rates via refinancing without needing to have an appraisal – but there’s a reason why it’s uncommon for private lenders to offer these kinds of loans.
Why choose a no appraisal refinance?
Often, these types of loans are beneficial for homeowners, but riskier for lenders – which is usually why private lenders don’t tend to offer them.
If you’re unlikely to qualify for a replacement loan with an appraisal (which could happen if your home’s value has dropped since you purchased it, and you now owe more on your loan than the property is worth), then it might be a good idea to pick one of these kinds of mortgages.
Additionally, appraisals can often cost quite a bit of cash too, sometimes as much as $400. This is quite a high price – and one that you might not be too keen to pay, especially if you’re hoping to refinance and reduce your payments.
Appraisals aren’t always necessary, either. While it is common to get appraisals before refinancing, it’s unlikely that you’ll have to – but in some cases, it might be a better idea to get one if you can.
The disadvantages of no appraisal refinancing
While these kinds of loan options are often great for those who want to get a replacement loan without getting an appraisal, doing so can often come with its own advantages. As a result, if you want to enjoy the associated benefits, you may not have much of a choice but to get an appraisal. Some of these include:
A higher chance of getting an approval
On average, those that have an appraisal are much more likely to have their application approved, allowing them to replace their mortgage with a new and better one. For those who aren’t eligible for streamline programs, it may even be impossible to get an approval without one.
Lower interest rates
Those who have an appraisal that shows that the loan is a much smaller amount of the property’s overall value will be likely to be offered a lower interest rate, which can generally reduce the costs of monthly payments, too. Without an appraisal, you’re not likely to be able to enjoy this benefit.
Cutting out PMI
While this may not be an option for everyone, some individuals may find that they’ll be able to avoid paying PMI (private mortgage insurance), which can lessen the amount that they have to pay for their monthly repayments. Often, the best way to determine whether or not you can avoid paying PMI is to order an appraisal.