Thinking About Refinancing? Don't Pay For An Appraisal Unnecessarily
Mortgage rates are at or near all time historic lows. The government is doing what it can to create programs to help homeowners refinance their mortgage to try to minimize the growing number of foreclosures. Everyone is talking about the fact that now is the time, if ever there was one, to take a serious look at refinancing your home mortgage.
The problem, more often than not however, is the fact that home values have dropped so much in the past few years that many people are what is referred to as being ‘under water’ or ‘upside down’ on their mortgage loan. Being under water or upside down simply means that the current value of the home is less than the balance owed on it to the bank. For example, you may have gotten a $200,000 loan for your house several years ago, and at that time the house appraised for $250,000. The problem today is that with the falling housing market, your home will now only appraise at maybe $160,000, but you still owe $190,000 on it. Not a good situation to ask for a loan…
The government is doing what they can to create mortgage refinancing opportunities for many people, allowing an LTV (that stands for Loan To Value) of up to 105%, without the need to pay the extra expense of mortgage insurance. Of course, there are some stipulations, such as the fact that your existing home loan must be held by either Fannie Mae or Freddie Mac. You can find out if yours is held by them by going to the following websites and providing a bit of information. To check if you have a Fannie loan, visit www.loanlookup.fanniemae.com/loanlookup. To check if your loan is with Freddie, visit freddiemac.com/corporate.
If you find that your loan is owned by one or the other, you should definitely contact your lender to see if you qualify for these new programs.
However, the big hurdle for many people is what was mentioned before; the value of your home. Remember, it’s not what YOU feel it’s worth (priceless, right?), but what a licensed appraiser finds by running an objective analysis of comparable recent sales in your area. The problem with this is that a typical appraisal will cost around $350 to $400, and that’s money YOU need to pay up-front, and it is non-refundable. If your home value comes in way too low… you’re out of luck. No refinance, plus your out the cost of the appraisal.
There are a couple of alternatives you might want to consider before giving up on refinancing or on potentially burning through a few hundred bucks…
The first is called Zillow.com. Zillow is a website that pulls in a lot of public data and does its best to give an estimate (they call it a zestimate) on the value of your home. It should give you a decent ball park idea, but personally, I wouldn’t rely on it exclusively. (Truth be told, I made the mistake of doing just that. The zestimate was in line with what I expected, but the ‘real’ appraisal came back over 10% lower than expected. Ouch!)
Your other alternative involves the help of a real estate agent. Hopefully you know a good one, or you know someone who could put you in touch with a good agent. I would definitely recommend working with someone you already have some kind of good, established relationship with, because you’re going to need to ask them a favor.
Real estate agents need to be able to know the value of homes when they’re preparing to list them for sale or to help a client who is looking to buy a home. How do you think they get those values? That’s right, they do some online research and ‘run comps’ (i.e. they look at comparative sales in the area, exactly like an appraiser does, using the same data!)
You’re never going to get the accuracy of a full appraisal until you hire and pay for an official appraisal. However, the information your friend the agent can provide you from their web research should be close enough to prevent you from needlessly spending around $400 like I did. If they see that the values are currently showing 20% less than what you thought they would, well… you’ll need to make a decision as to whether you want to gamble with the full appraisal or not. If it’s pretty close and you know you have enough equity in your home to move forward, then by all means, go for it.
This suggestion is by no means fool-proof. It is simply meant to try to help you avoid some extra expenses that nobody needs these days.
And if you do ask that favor from your friend the real estate agent, please remember to do something nice for them in return (like sending them a lead if anyone you know is looking to buy or sell a home).
You can find additional articles related to Philadelphia refinancing at Philadelphia Refinance Help