When homeowners begin to consider refinancing an existing loan, the topic of property value is soon to come up. Refinancing an existing conventional loan means there are actually two different approvals. One for the borrower and one for the property. The borrower’s income, credit and employment will be evaluated among other things and the property must also meet the lenders set of standards.
First, the property must be in good condition with no deferred maintenance. While the appraiser does not perform a full physical inspection, they do make notes of any noticeable issues with the home. A sagging roof or foundation cracks come to mind. That said, the current property value must also be in line with the rest of the neighborhood. When a full appraisal is needed, the appraiser first does a little homework at the office before visiting the property. A bit of research is performed identifying homes in the area that have recently sold, primarily within the past six to twelve months. The appraisal is important to the lender because the home is essentially the lender’s collateral in this deal.
Most conventional loan programs allow for the loan-to-value ( LTV), with a refinance be as high as 90 percent of the current market value of the property for an owner-occupied home. If the value exceeds this 90 percent, the loan might not make it through the approval process. If for example, the LTV is 92 percent, the borrowers must decide whether or not to move forward. Moving forward would mean paying the current loan balance down to the 90 percent level in order to get it to comply with their standards.
With a purchase transaction, the appraiser has a head-start. The value of the property is the lowest the sellers were willing to accept meeting the highest price the buyers were willing to pay. The appraiser then begins the process with this information. With a refinance, however, there is no such sales price. The appraiser must begin with recent sales in the area.
On a mortgage loan application, there is a space where the owner’s opinion of what the current value should be. This is based upon knowledge of similar homes that have recently sold in the neighborhood. That’s a starting point. But if the value may be a concern, there are some things homeowners can do to boost the value:
How Is Your Curb Appeal?
How does the property look from the street? This “first impression” can play a key role in helping the property appraise. Is the lawn trimmed? Trees cared for? Is the property clean? Maintaining the landscaping and physically cleaning the exterior will help the property shine
How Does the Interior Look?
The floors should be scrubbed and polished. New paint will help. Do the appliances sparkle or do they need a little love? You can give the interior of your home a thorough cleansing, but many choose to hire a professional team to give the inside a fresh, new look.
Were There Any Off-Market Sales in Your Neighborhood?
Finally, let the appraiser know of any recent ‘for sale by owner’ transactions. Such sales won’t be listed in the local multiple listing service. Appraisers count on this sales data to help arrive at a final value. A private sale could help boost the value of your home, so if this is the case, it’s important to point out that property to the appraiser.