A home appraisal is not always required for a refinance. For example, the FHA or VA Streamline Refinance does not require a new appraisal; they use the value from the appraisal when you purchased the home. If you are underwater or your value has decreased this could be beneficial for you. Believe it or not, there are some instances that it would benefit you to opt for the appraisal though.
More Financing Options with a Home Appraisal
If you are in an FHA loan and want to refinance, you might think that your only option is another FHA loan. If you get the appraisal completed and find that the value is higher than you thought, it could open up more financing options for you. If your loan-to-value ratio is low enough, you might be able to apply for a conventional loan as opposed to an FHA loan. This could allow you to save more money every month because you will not have to pay the FHA fees. Of course, if your LTV is over 80 percent, you will still have to pay PMI, but the premiums might be lower than what you would pay on an FHA loan. You might also qualify for a first and second loan, otherwise known as piggy back loans, which might be more financially beneficial for you. After you get the appraisal it is important to run all of the numbers for each scenario to decide what is right for you.
Eliminate Mortgage Insurance from your Mortgage
When you originally purchased your home, you more than likely put less than 20 percent down if you took an FHA or VA loan. If your loan-to-value ratio was close to 80 percent at the time, it might be worth finding out what it is now. Even if your home value increased a little bit, the change in LTV can be drastic if you have had the loan for a few years and have made timely payments. This could mean that your LTV is lower than 80 percent right now. If that is the case, you might not want to refinance into another FHA loan and pay mortgage insurance premiums when you might be eligible to obtain a conventional loan with no PMI. This will allow you to focus your payments on your principal rather than paying insurance premiums.
Lower the Interest Rate on your Mortgage
If you are refinancing in order to lower your payment, it makes sense to find out just how much you are able to lower it. Many people take advantage of the Streamline refinance options offered by the FHA and VA for ease of refinancing and to get the lower payment thanks to today’s low rates. But what if you could lower that rate even more? If your loan-to-value ratio is lower than it was when you originally purchased the home, you could be entitled to an even lower interest rate. The rate that the lender chooses to charge you is based on a variety of factors including your credit, debt-to-income ratio and loan-to-value ratio. The lower that your LTV is, the less risky your loan is considered, which translates into a lower interest rate.
In the end it will end up costing you a few hundred dollars to obtain an appraisal, but if you think that your value has increased, it could be worth the paying for an appraisal to see how much money you could save on a monthly basis. There are many more options for those homeowners that have a lower LTV, giving you the opportunity to save money every month and pay your mortgage down faster. If you are trying to get out of debt and get your mortgage paid down as fast as possible it makes sense to pay for an appraisal before refinancing to find out which options that you have for refinancing your mortgage.
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