When you apply for a mortgage refinance, it is very likely that the mortgage lender will ask you to order a property appraisal in order to assess the property value. This property appraisal will cost you quite some dollars. However, apart from the cost of the property appraisal, there are certain pros and cons associated with it. Let’s take a look at it:
Advantages of property appraisal:
The advantages of property appraisal are as follows:
Avoid PMI: You had to go for a private mortgage insurance or PMI in case you were unable to provide the required down payment while taking out the original loan. While you refinance your mortgage loan, there are chances that you will be required to pay for the PMI too. However, if the property appraisal shows that your property value has increased and that your loan is less than 80% of the home value, then you will be able to avoid the PMI.
Improved chances of loan approval: A property appraisal will make it easier for a homeowner to qualify for a mortgage refinance when he/she does not qualify for a FHA or a VA mortgage. A property appraisal will make it easier for the homeowner to qualify for a normal conventional refinance and take advantage of the lower market rates.
Lower your interest rate: If the lender finds that your loan to value (LTV) ratio is high, then he will charge you a higher interest rate. But if your property appraisal shows that your property value has increased, then you will be able to receive a comparatively lower interest rate thereby lowering your monthly payment.
Disadvantages of property appraisal:
Following are the disadvantages of property appraisal:
Appraisal costs: It has been estimated that a property appraisal will cost you around $400. Those homeowners who are planning for a refinance, this cost may be too high as most homeowners will refinance the loan in order to lower their monthly payments.
Low valuation of property: Keeping in mind the present real estate market situation, the homeowners may discover that their property value is quite lower than what he/she had anticipated. A large drop in home price can also result due to the large number of short sales or foreclosures in your home's neighborhood. Low valuation of the property may affect the refinance options for the homeowner. In order to avoid such surprises, contacting a professional who can offer an idea of what a home is worth will be a good idea. It will be best to do this before starting the refinancing process.