Home loan refinancing is all the rage nowadays.
In 2020, mortgage refinances (aka refis) were so popular that 1 out of every 10 refinances was done on a mortgage loan that had ALREADY been refinanced at least once in the previous 12 months. That’s a lot of refinancing!
Historically low interest rates have made refinancing an attractive money move for a lot of homeowners. But it’s a money move that comes with costs and fees.
One of those fees is the appraisal fee. Appraisal fees are required for most refinance loans – and they ain’t cheap.
Money aside, an appraisal could add weeks to the refinance process. And here’s the kicker: After paying and (patiently) waiting for the appraiser’s assessment, there’s a chance the appraisal could come in low.
A low appraisal could prevent you from getting new loan terms that could save you money on your mortgage. In some cases, it could even prevent your refi from getting approved.
If you’re worried about getting a low appraisal on your home, you should know that there are some refinance options that don’t require an appraisal – and you might qualify for one.
Read on to learn if a no-appraisal refinance is an option for you.
A Refinance Refresher
With a mortgage refinance, you’re essentially trading in your old loan for a new one.
Whether your refinance comes with an appraisal or not, refinancing could get you a brand-spankin’-new loan that features:
- A lower interest rate
- An earlier mortgage payoff
- A fond farewell to private mortgage insurance (PMI)
- The ability to borrow cash through some of the equity in your home with a cash-out refinance
Applying the Appraisal to a Refinance
A home appraisal is a professional assessment of a home’s fair market value (FMV) made by a licensed home appraiser.
Appraisals help ensure that lenders aren’t lending the borrower more money than the home is worth. This protects them AND the borrower, who wouldn’t want to take out a loan for more than their home was worth. Of course, if the appraisal amount ends up higher than the lender’s estimate of the home’s value, the borrower could get more favorable terms on their refinance.
Here’s what’s usually included in a home appraisal:
- An on-site inspection and assessment of the property
- Researching the recent sale prices of similar houses nearby
- A report detailing the findings of the appraisal
How can an appraisal impact your refinance?
To help lenders determine the possible risk involved in lending you the new mortgage loan amount, they employ the loan-to-value (LTV) equation:
LTV = the requested refinance loan amount / the home’s appraised value
The lower your LTV, the lower your interest rate could be.
Your LTV can also impact whether or not you’re able to get a cash-out to refinance, which is when you borrow up to a certain amount of cash at the same time you refinance. (The cash amount is based on the value of your house minus what you still owe on your mortgage.)
Your LTV could make the lender decide to do one of the following:
- Deny your refinance application
- Approve you for a no-appraisal refi WITH PMI, but not a cash-out refi
- Approve you for a no-appraisal refi WITHOUT PMI and decide you’re eligible for a cash-out refi
What Is a No-Appraisal Mortgage Refinance?
There are some instances when a homeowner can refinance their home mortgage loan and skip the lengthy and costly appraisal. All the steps to refinance remain the same for a no-appraisal refinance. You’re just leaving out the appraisal part.
Depending on your mortgage loan type, as well as other requirements specific to your loan, you may be able to qualify for a no-appraisal refinance.
How Do You Qualify for a No-Appraisal Mortgage Refinance?
How do you know if you qualify? For starters, you need to have the right kind of loan.
No-appraisal refinance loans are available on conventional loans or government-backed loans.
More borrowers get no-appraisal refinances with government-backed loans than conventional loans.
Unlike conventional loans, government-backed loans don’t have additional requirements for appraisal waivers. They straight up don’t require them for any borrower from the get-go. 👀
Refinance loan options that don’t include an appraisal are available through the:
- Federal Housing Administration (FHA): The FHA Streamline Refinance program provides refinance loans that lower homeowners’ mortgage interest rates and monthly payments.
- Department of Veterans Affairs (VA): The VA’s interest rate reduction refinance loan (IRRRL) helps veterans refinance to a cheaper loan or a more stable (fixed) monthly mortgage payment.
- U.S. Department of Agriculture (USDA): The two options offered by the USDA, the streamline refinance and streamline assist loans, provide flexible, low-equity refinance loans to homeowners living in eligible USDA rural zones (the streamline assist loan has looser credit and debt eligibility requirements).
Each of these government-backed refinance options requires that the borrower’s current mortgage is backed by the same agency that will process the refi loan. Another important note – none of these programs allow cash-out refinances.
Here’s a quick breakdown of the eligibility requirements for government-backed refinance loans that let you waive the appraisal. Your lender can provide you with any details that are specific to your situation.
|Loan||FHA Streamline Refinance||VA IRRRL||USDA Streamline Refinance||USDA Streamline Assist Refinance|
|Credit Score||No minimum score||No minimum score||No minimum score||No minimum score and no credit check|
|Debt-to-Income (DTI) Ratio||Doesn’t factor in your DTI||Doesn’t factor in your DTI||Must have a 41% DTI or lower||Doesn’t factor in your DTI|
|Income||No maximum or minimum income requirement or limits (you can qualify even if you recently lost your job or your income decreased)||No maximum or minimum income requirement or limits (employment and income need to be stable)||No minimum income, but maximum income can’t be higher than the USDA’s “adjusted annual income” limit for the county in your area||No minimum income and maximum income is the same as the USDA streamline refinance requirement|
|Mortgage Payment History Requirements||At least six payments made on your current loan|
No late mortgage payment in the last 6 months, and only one late payment in the last year
|You’ve made at least six consecutive, on-time payments on your mortgage loan||You’ve made on-time mortgage loan payments for at least 6 consecutive months before applying for the refinance||You’ve made on-time payments for at least the previous 12 months before refinancing|
|Current Loan Requirements||At least 210 days have passed between closing on your current mortgage loan and applying for a refinance||At least 270 days have passed since you closed on your current loan and applied for the refinance||Have had your current loan for at least 12 consecutive months before you apply for the refinance||Cannot be a subsidized direct loan|
|Other Requirements||6 months have passed between your first mortgage payment on the current loan and closing on the refinance||You need to live in the home you’re refinancing||You can remove other borrowers on the original mortgage when you close on this refi (on the streamline assist refi, you can only do that if the other borrower is deceased)||Your refinance must result in a $50 or more decrease in your monthly mortgage payment amount|
Conventional loans through Fannie Mae and Freddie Mac
If you qualify for a conventional loan owned by Fannie Mae or Freddie Mac, you might be able to get around an appraisal.
The following refi programs, designed for low-income homeowners, allow eligible borrowers to get an appraisal waiver, which is essentially a lender’s permission for you to skip the appraisal.
Typically, it’s harder to qualify for a no-appraisal refinance with a Freddie- or Fannie-owned conventional loan than it would be with a government-backed loan. But your chances of getting the appraisal waived for a conventional refi do increase the higher your credit score and income are.
One advantage that a Fannie or Freddie conventional no-appraisal refinance does have over a government-backed one is that you have the option of getting a cash-out refinance. Government-backed loans, like FHA or VA loans, don’t allow this option.
There are a few key conditions that need to be met before Fannie Mae or Freddie Mac will consider your request to waive the appraisal:
|Loan Requirement||Fannie Mae RefiNow™||Freddie Mac Refi Possible℠|
|Credit Score||620 or above||620 or above|
|Debt-to-Income (DTI) Ratio||65% or lower||65% or lower|
|Income||Current income up to 80% of the area’s median income||Current income up to 80% of the area’s median income|
|Mortgage Payment History||No missed payments on current mortgage loan in the past 6 months||No payments over 30 days late in the past 6 monthsNo more than one instance of being 30 days late in the previous 12 monthsNo more than 60 days late in the previous 12 months|
|Current Loan||Current mortgage loan no more than 10 years old and no less than 12 months old at the time of closing on the refinance loan||Current mortgage loan no more than 10 years old and no less than 12 months old at the time of closing on the refinance loan|
|Other Requirements||Your refinance must result in a $50 or more decrease in your monthly mortgage payment amount||Cash out is limited to $250|
How to learn if you’ve been approved for a no-appraisal conventional refinance
Even if you qualify for a RefiNow™ or Refi Possible℠ loan, there’s no guarantee your appraisal waiver request will be approved.
Your lender can run your info through Fannie Mae or Freddie Mac software to get you a quick answer.
When Does a No-Appraisal Refinance Make Sense?
If you’ve already weighed the pros and cons of refinancing, the next question should be, will getting an appraisal help or hurt?
In general, it makes the most sense to skip the appraisal when you think it would cost you more than it’s worth. If your appraisal comes back much lower than expected, it could feel like you’ve wasted time and money.
Not having to wait for an appraisal will shave time off the standard refinance process. This can be anywhere from a few days to a week (under normal conditions) to a few weeks or more in a hot 🔥 market where appraisers are in high demand.
And then there’s the issue of money. You’d save hundreds of dollars in fees by waiving an appraisal. How much you’ll save depends on the area you live in and the size of your home.
The most common reasons for going with a no-appraisal refinance are:
- Anticipating that the lender will undervalue the home compared to a professional appraisal
- Believing that you wouldn’t qualify for a refinance if an appraisal is done (for example, when a home’s value has gone down since its purchase)
- Concerns that a low appraisal will result in less favorable loan terms
In the end, no one wants a low appraisal, but if it happens, just know that there are ways to refinance with a lower interest rate.
When Does Getting an Appraisal Make Sense?
Skipping the refinance appraisal could be a good idea for some homeowners, but there are cases where homeowners will benefit from getting an appraisal done. For example, an appraisal could boost the value of your refi loan and help you get a better loan term. This is especially true in a flaming-hot real estate market where home values could be much higher than initially expected.
The most common reasons for getting an appraisal are:
- Expecting the home’s appraised value to be significantly higher than the lender’s estimate, lowering your new interest rate further
- Estimating that the home’s appraised value will be high enough to cancel your PMI
- Contemplating a cash-out refinance
If you’re unsure whether an appraisal would make sense for your situation, you can do a few things to help you decide:
- Talk to your mortgage lender about a refinance: Ask a loan officer how long it may take to get an appraisal and what the lender estimates the current value of your home to be.
- Estimate your appraisal value (the best you can): Go on several real estate listing sites that provide an estimate of your home’s value. Make an average of the estimates and subtract the total from your estimated costs of repairing any problems you think an appraiser would spot.
Is Skipping an Appraisal a Risk … Worth Taking?
When lenders require an appraisal for a home loan or refinance application, it’s to protect both the lender and the buyer from getting into a sticky financial situation in the future.
If you feel certain that you’ll get a low appraisal that could derail your refinance application or cause you to owe mortgage insurance on the new loan, a no-appraisal refinance might make the most sense for you.
Freddie Mac. “Refinance Trends in 2020.” Retrieved September 2021 from http://www.freddiemac.com/research/insight/20210305_refinance_trends.page
Fannie Mae. “RefiNow Expanding the refinance market to those who need it most.” Retrieved September 2021 from https://singlefamily.fanniemae.com/media/25956/display
Freddie Mac. “Refi Possible Mortgage.” Retrieved September 2021 from https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/refi-possible-factsheet.pdf
U.S. Department of Housing and Urban Development. “Streamline Your FHA Mortgage.” Retrieved September 2021 from https://www.hud.gov/program_offices/housing/sfh/ins/streamline
Federal Deposit Insurance Corporation. “Interest Rate Reduction Refinance Loan.” Retrieved September 2021 from https://www.fdic.gov/consumers/community/mortgagelending/guide/part-1-docs/interest-rate-reduction-refinance-loan.pdf
U.S. Department of Agriculture. “Refinancing.” Retrieved September 2021 from https://www.rd.usda.gov/files/RD-SFH-RefinanceNotes.pdf
U.S. Department of Agriculture. “Streamline Assist Refinance Loans.” Retrieved September 2021 from https://www.rd.usda.gov/files/RD-RHS-SFHStreamlinedAssistRefinanceLoans.pdf