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Why Accurate Valuation Matters When Refinancing

by Aaron Campbell on Nov 26, 2019

As a home homeowner, you may wish to secure a refinance. You may purpose to lower your overall interest costs or monthly payment. As well, your aim may be to tap the home equity for another project or home improvement.

However, before the lender approves your loan, they will request for a professional appraisal. Thus, the refinancing hinges on the valuation of your property.

Valuation is the appraisal or assessment of the value of your property. It is a common feature during the refinance process. The lender may provide you with a list of third-party partners that can help you in the valuation process.

Reasons for Obtaining an Accurate Valuation during Refinancing

  • Better chances of approval- A valuation with an acceptable loan-to-value ratio will enable you to get approval. Therefore, ensure that you have an accurate valuation and seek a second opinion whenever you doubt the initial assessment.
  • To avoid private mortgage insurance (PMI). Were you required to pay for private mortgage insurance in your existing? A high chance is that you will have to pay after refinancing too.

However, when the current property valuation is higher than the refinancing, then you will not have to pay PMI. To take advantage of this provision, the borrower must submit an accurate valuation from a professional valuer or appraiser.

They will establish the loan-to-value ratio to determine whether you qualify for a PMI waiver.

  • To obtain a lower interest rate. The value of your home will determine the rate of refinancing. Therefore, an accurate valuation of your property will help you secure a lower refinance rate.

For instance, the value of your property may be lower than the anticipated loan. Thus, the loan-to-value ratio will become higher. The lender will, therefore, charge you a higher mortgage rate since you’re a risky borrower.

However, when the value of your home is higher, and the loan is a lower percentage of this value, then the lender will charge you a lower interest rate. It translates to lower monthly payments.

  • To tap home equity- A higher and more accurate valuation of your home may help you make a mortgage move that you were not eligible for before. With an appreciation in your property, you may be able to tap on the value of your home in cash-out-refinance.

The extra funds will allow you to make some improvements to your property, which is a long-term benefit.

Ways to Improve the Value of Your Property

You now know the advantages of having an accurate valuation of your home. However, you may be wondering, what are the factors that the valuer considers when appraising your property?

First, the value that the appraiser gives your asset is pegged on the market price of comparable properties. However, the condition of your home may increase or reduce its value.

Your property should be clean and neat. It should also be uncluttered to make inspection easier. When your home looks dirty and unkempt, the appearance increases its wear and tear more than normal. That condition will affect its value.

Thus, present your house to the appraiser, in the same manner, you do to a potential buyer.

Conclusion

Refinancing is a valuable exercise. It helps the borrower to access another loan with the existing property. A home with a higher value will enable the lender to approve your application.

Therefore, always ensure that you have an accurate valuation of your asset. Having a higher value will help you avoid paying private mortgage insurance. It will help you to negotiate for a lower interest rate since you're not a risky borrower.

More so, you will be able to get home equity for your home improvement or a second project.

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