If you’re looking to refinance your mortgage, you may wonder if you can do so without getting an appraisal. After all, appraisals can be costly and time-consuming. Well, the good news is that, yes, you can refinance without an appraisal. It makes the entire process much easier and faster, as you don’t have to run around to meet appraisers or worry about the value of your home.
However, there are times when you have to get an appraisal, even when refinancing. This is typically the case if you’re asking for a large loan or if your mortgage lenders require one. So while it’s possible to refinance without an appraisal in Missouri, it’s not always a given.
In the following paragraphs, we will take an in-depth look at home appraisals and why your lender may want you to get one. We’ll also explore a few scenarios where you can opt for no-appraisal refinance for your residential mortgage.
Understanding Home Appraisal
A home appraisal is an unbiased estimate of your home’s value. It’s used to determine how much your home is worth in the current market and is often required by lenders to approve a refinance loan. Appraisals are typically done by licensed appraisers and can cost anywhere from $300 to $600.
During an appraisal, an inspector will look at things like your home’s condition, size, location, and any recent upgrades or renovations that have been made. They will also compare your home to similar properties in the area to come up with an accurate estimate of its value.
Why Do Lenders Require Appraisals?
Appraisals are almost always required during a traditional refinance process. No mortgage lenders or banking institutions want to get into a loan agreement without knowing the property’s value.
So to protect their investment, they need to make sure that the amount they’re lending is less than or equal to the appraised value of the home. After all, if you were to default on your loan, the lender would need to sell your house to recoup their losses.
When Can You Get a No-Appraisal to Refinance?
Your refinance appraisal can be waived by your lender if you have a Federal Housing Administration (FHA) or a Veterans Affairs (VA) or U.S. Department of Agriculture (USDA) loan.
Let’s look at the requirements to qualify for a no-appraisal refinance with these organizations.
FHA Streamline Refinance
No appraisal is often associated with FHA Streamlining because there is no minimum equity amount granted. However, depending on your circumstances, you may sometimes require an appraisal.
With FHA Streamline Refinance, you can get your annual mortgage insurance premium (MIP) lowered up to 0.5% of the outstanding loan balance, leading to considerable savings over the life of the loan. In addition, you may also be able to lower your interest rate and monthly payments.
To qualify for an FHA Streamline Refinance, you must meet the following criteria:
- You must have a current FHA loan that is not delinquent
- You must have a waiting period of 210 days after your last FHA loan closed before applying for a new one
- You must have a 6 months gap between the first mortgage payment and the close of your refinance
- You must have no more than one late payment in the past 12 months and none in the past 6 months
- You must have made at least 6 payments on your current FHA loan
In addition to the above criteria, you cannot do a cash-out refinance with an FHA Streamline. This means that you cannot take cash out of your home equity when refinancing. You must also consider the FHA tangible net benefits, including a lower interest rate, a lower monthly payment, or a shorter loan term.
Finally, even if you are lowering your interest rates or changing your loan term, there are restrictions on how much you can do. The interest rate reduction cannot exceed 1%, and your loan term must be reduced by at least 6 months. It is always better to get clarity from your refinance mortgage company on what is and isn’t possible with an FHA streamline before starting the application process.
VA Streamline Refinance (IRRRL)
The Veterans Administration offers a streamlined refinance product to qualified borrowers with a VA loan. This is often called an Interest Rate Reduction Refinance Loan (IRRRL).
Although generally, VA Refinance does not require an appraisal, depending on the circumstances of the loan, an appraisal may be required to establish value.
When using VA Streamline Refinance, you get the option to refinance your mortgage loan up to 120%, which is a massive benefit if you owe more than your home is currently valued at. Additionally, you are not required to verify your income or employment when applying for a VA streamline, which can speed up the process considerably.
To qualify for a VA Streamline Refinance, you must meet the following criteria:
- You must have a current VA loan
- You must reside in the home you are refinancing
- You must only request a reduction in your interest rate or term
- You cannot take cash out of your home equity when refinancing
- You must have made at least 6 on-time payments on your current VA loan
- You must have a waiting period of 270 days after your last VA loan closed before applying for a new one
Above all, you must have an apparent reason for refinancing your mortgage; from lower interest rates to a shorter loan term, there must be a concrete benefit for you as the borrower.
Also, you need to keep in mind that not all lenders who offer VA loans also provide the VA Streamline Refinance option, so it’s essential to shop around before applying.
USDA Streamline-Assist Refinance
USDA Streamline Refinances, also called the Streamline-Assist program, allow you to refinance your home without an appraisal. However, just like FHA and VA streamline, you must meet strict guidelines to qualify for this refinance.
To be eligible for a USDA Streamline Refinance, you must meet the following criteria:
- You must currently have a USDA loan
- You must not have a single late payment in the last 6 months
- You must have your current loan for at least 12 months before applying for a streamlined refinance
- You must meet the debt-to-income ratio requirements of the new loan
- You must ask for only a lower interest rate or a shorter loan term, no cash-out is allowed
Why Streamline Refinances Programs Do not Require Appraisal
Streamline Refinance are government programs designed to help homeowners with financial hardship by allowing them to refinance without the added cost of an appraisal.
These loans were designed to help borrowers save money through a lower interest rate, an affordable monthly mortgage payment, or a reduced loan term.
Although the government bodies associated with these programs (FHA, VA, and USDA) do not require an appraisal, some lenders might still order one. This can add a high cost to the borrower when they are already facing financial difficulties.
It is always advisable to speak with your mortgage refinance lenders in Missouri beforehand to see if an appraisal will be required and how much it will cost.
Pros and Cons of No-Appraisal Refinance
There are pros and cons to taking out a refinance without an appraisal.
On the plus side, you will save time and money on the upfront costs of the loan. Additionally, if your home has decreased in value since you purchased it, you may still be able to qualify for a refinance.
On the other hand, if your home has increased in value, you may miss out on the opportunity to cash in on that equity. Additionally, without an appraisal, you will not be able to shop around for the best interest rate and terms since mortgage lenders will use the value of your home to determine those factors.
Before taking out a no-appraisal refinance, it is crucial to weigh the pros and cons to see if it is the right decision.
An appraisal is a fundamental part of the mortgage process that appraises your home and gives it value. This value determines the interest rate and maximum loan amount you can qualify for. A no-appraisal refinancing streamlines the mortgage process by forgoing this step, but that doesn’t mean it’s right for everyone. Weigh the pros and cons before deciding if a no appraisal refinance is right for you.
Missouri Mortgage lenders offer homeowners the most competitive interest rates for a no-appraisal refinance. For more information and to start the process, contact us today to see if you qualify for a no-appraisal refinance!