Why You Should Consider A No-Appraisal Refinance

A refinance replaces your current mortgage with a new home loan. A refinance can allow you to reduce your interest rate, get a lower monthly payment, change from a fixed to a variable interest rate (or vice versa), borrow from the equity in your home or get some other type of net tangible benefit.

As with other home loan options, a lender may require you to have an appraisal if you want to refinance your mortgage. In some cases, you may be able to get a no-appraisal refinance. Let's take a look at what that is, how to get one and how to tell if it makes sense for your particular situation.

Why Do Lenders Often Request Appraisals?

When you sell, purchase or refinance a home, your lender will usually require a home appraisal. This involves having a licensed appraiser determine the fair market value of a home, which helps you and your lender determine how much you’re able to borrow.

Lenders request refinance appraisals during most mortgage refinances because they want to make sure homeowners aren’t borrowing more than the home is worth. Lending more money than the value of the home could lead to financial loss if the borrower ends up defaulting on the loan.

To get an accurate estimate of the home’s value, appraisers look for ways to assign an overall value to the property, which can include examining the condition of the home, any recent improvements and nearby, recently sold homes for comparable values. This helps to get a solid estimate of the home’s value compared to other homes in the area.

Does A Refinance Require An Appraisal?

Many homeowners want to know: Do you need an appraisal to refinance? Fortunately, homeowners may be able to refinance their mortgage without having to go through a formal appraisal process, which can save both time and money. However, your ability to tap into a no-appraisal refinance depends on the type of mortgage you have, the type of refinancing you're considering and the lender you choose.

What Is A No-Appraisal Refinance?

A no-appraisal refinance means you may not have to get a home appraisal, which can help to speed up the mortgage process. You may be able to get a no-appraisal refinance whether you have a government-backed loan or a conventional mortgage.

How To Get A No-Appraisal Refinance

Homeowners can get a no-appraisal refinance only if they meet specific requirements based on their refinancing option.

Conventional Refinance

A conventional loan isn't directly backed by the federal government. Fannie Mae and Freddie Mac are government-backed, privately held mortgage companies created by Congress. In the U.S., these entities purchase most mortgages from financial institutions. Fannie Mae and Freddie Mac set certain guidelines for most conventional loans and often require appraisals as a condition of the loan.

However, borrowers with strong applications may be eligible for an appraisal waiver, which can allow you to skip the in-person appraisal. In this case, lenders use data from an automated underwriting system to determine your home’s value.

To get an appraisal waiver, you'll need:

• A strong credit score
• A one-unit property, such as a single-family home or condominium
• Potential other qualifications specific to your lender

FHA Streamline Refinance

If you currently have an FHA loan (a loan backed by the Federal Housing Administration), an FHA Streamline Refinance allows you to refinance your loan quickly using a simplified process. Appraisals aren’t required in many cases and you may be able to choose between noncredit qualifying and credit-qualifying refinances.

With a noncredit qualifying refinance, you typically don't have to provide as much documentation of your income or assets, and usually don’t need an appraisal.

A credit-qualifying refinance means that your lender will do certain checks, including your credit score and debt-to-income (DTI) ratio, which is the ratio between the debt you carry and the income coming into your household.

In order to qualify for an FHA Streamline Refinance, you'll also have to meet the following requirements:

• A total of 210 days must have passed between your previous mortgage closing and your new application.
• A total of 6 months must have passed between the time your first mortgage payment was due and the closing date of your refinance.
• You must have made at least six payments on your current mortgage loan.
• You may have made no more than one late mortgage payment in the last year, and none in the previous 6 months.
• You must achieve a tangible net benefit, which means that you benefit in some way from a refinance, such as a lower rate or reduced term.
• You may not do a cash-out refinance.

USDA Streamline Refinance

The USDA Streamline Refinance is for individuals who already have a loan backed by the U.S. Department of Agriculture, known as a USDA loan. Appraisals aren’t required for a USDA Streamline Refinance, which can help you lower your interest rate or change the duration of your loan term.

You may also have some flexibility when it comes to your minimum credit score. In fact, there may be no credit check required for a USDA Streamline Refinance. However, your lender's policy may differ from the USDA, so be sure to check their rules before attempting to refinance.

In addition to already having a USDA loan, you must also:

• Have made on-time payments for at least the last 6 consecutive months
• Have had your existing USDA loan for at least 12 months before you refinance
• Meet the USDA’s current DTI requirements
• Refinance your rate or term only – you may not do a cash-out refinance

VA Streamline Refinance

A VA Streamline Refinance is for individuals who already have a VA loan backed by the Veterans Administration. Helping eligible veterans, active-duty service members and their survivors, VA loans allow more lenient access to home financing and bypass the down payment requirement. In addition to laying out a simpler roadmap to refinancing, a VA Streamline Refinance doesn't require an appraisal.

A VA Streamline Refinance can offer you a lower interest rate, a change in the structure of your loan (from a fixed to a variable interest rate or vice versa), lower monthly payments and a lower funding fee, which you must pay to get a VA loan. The funding fee on a streamline refinance is 0.5% of the loan amount compared to the regular VA funding fee, which is usually anywhere between 1.25% – 3.3% of the loan amount.

To qualify for a VA Streamline Refinance, you must:

• Already live in the home
• Only change your interest rate and/or term – no cash-out refinances allowed
• Have made at least six consecutive on-time payments
• Let at least 270 days pass between the closing date of your VA loan and your refinance application

Pros And Cons Of A No-Appraisal Refinance

Consider these pros and cons of a no-appraisal refinance to determine whether this financial decision is right for you:

Pros:

• Potential lower mortgage payments: If interest rates decrease, you may be able to get a more attractive refinance rate using a no-appraisal refinance. This could save you thousands of dollars over your loan term. Do some calculations to determine how much you can save on your mortgage over time by refinancing.
• Can eliminate private mortgage insurance: With a refinance, you may be able to eliminate private mortgage insurance payments you’re currently making on your mortgage.

Cons:

• Requires a good credit score: Generally, only those with good credit scores can qualify for a no-appraisal refinance. Check your credit score and the requirements first before applying.
• Strict loan policies: Your current mortgage may require you to pay an early repayment penalty if you refinance, which could be costly.

FAQs About No-Appraisal Refinance Loans

Let's take a quick look at some frequently asked questions about no-appraisal refinance loans.

Should I consider a refinance if I’ve locked in a low rate?

Usually, the lower the rate on your mortgage, the less your monthly payment. Even if you have the opportunity to do a no-appraisal refinance, you may find that – with your current low interest rate – there won’t be much of a financial benefit.

What should I do if my lender won’t waive an appraisal?

If your lender won't waive the appraisal, you'll likely have to get the appraisal to move forward. Traditional refinancing with an appraisal could end up being more beneficial if your home value has increased. Speak with your preferred lender about your options if they won't waive your appraisal.

What would be a reason to avoid a no-appraisal refinance?

Even if your refinance doesn’t require an appraisal, you might want to consider getting one anyway. If you believe your home has increased in value, an appraisal may help you get a lower interest rate, and therefore save you money over time. With a higher property value, your loan-to-value (LTV) ratio will decrease, which is your mortgage amount compared to the appraised value of your property. It could also mean you have more equity in the home, which can help you get rid of mortgage insurance or allow you to borrow more money as needed.

The Bottom Line

Lenders typically require appraisals to make sure the home they're financing is fairly valued. However, a no-appraisal refinance can allow you to obtain a new mortgage without an in-person home appraisal. This can speed up the refinancing process and save you money. You may be able to get an appraisal waiver for a conventional loan or get a no-appraisal refinance with an FHA Streamline Refinance, a USDA Streamline Refinance or a VA Streamline Refinance.

You'll likely want to consider a few things prior to choosing a no-appraisal refinance, such as the interest rate, reasons why you want to refinance, your credit score, loan terms and the current value of your home.

Interested in refinancing your mortgage? Apply online with Rocket Mortgage^® today.