A lot rides on a home appraisal when you're trying to refinance a mortgage.
If the appraised value comes in lower than what you owe on the mortgage, you may have to put off refinancing. A lower-than-expected appraisal can also dash hopes of getting rid of private mortgage insurance on a conventional loan, or reduce the amount of cash the lender will let you pocket in a cash-out refinance.
But the appraisal process isn't foolproof, and there are options if you think the appraiser got it wrong. Here's what to do if the appraisal comes in low.
Check the appraisal report for accuracy
Lenders usually require home appraisals for most types of mortgage refinancing. They use the appraised home value to help gauge the risk of making the loan. Since the home is the collateral for the loan, they want to make sure they don't lend more than the property is worth.
The lender is required to send you a free copy of the appraisal report at least three days before the loan closes. The report documents a slew of property details that the appraiser considered in the valuation. Even the best appraisers can make mistakes, so scour the report to make sure all the particulars are correct, such as:
Number of bedrooms and bathrooms.
Amenities, including fireplaces, patios and pools.
Condition of roof, furnace or other major systems listed on the report.
Additional features, such as energy-efficient items.
Also make sure the appraiser didn't miss anything, such as major home improvements that could increase value.
Evaluate the 'comps'
To help determine home value, appraisers consider prices of comparable homes that were recently sold in the area, known as real estate comps.
Check which homes were used. Were they truly comparable? How nearby are the homes, and how recently were they sold?
You may want to ask a friendly real estate agent familiar with your neighborhood for a list of recent comparable sales.
Contact the lender
Promptly document any mistakes or missing information from the report as well as any additional information about comparable sales that you think should be considered. Then submit that written information to your lender and ask for a review of the appraisal to address the issues.
Although you're the one who ultimately pays for the appraisal, the appraiser actually works for the lender. So send any feedback about the appraisal to the lender, not the appraiser.
The information you provide could prompt the appraiser to revise the valuation, but only if the additional details are relevant and significant enough to move the needle. You can also ask for a second appraisal or start over with a different lender. But appraisals typically cost at least a few hundred dollars, and there's no guarantee the next appraisal will come in higher.
More tips for handling low refinance appraisals
Understand that appraisals are different from online home value estimates. The appraisal isn't wrong just because it may be lower than the ballpark figure you saw online. Home appraisals take more details into account than home-search algorithms can, so use online estimates as guidelines only.
Be objective. View your property as an outsider would, warts and all.
Stick to the facts and be specific. If you think the valuation is too low, address the information in the appraisal and provide details to back up your assertions.
Other refinance options
Although lenders usually require an appraisal to refinance, there are exceptions. You may be able to skip the appraisal for these government-backed refinance loans:
You may be able to refinance a conventional mortgage — one that isn't backed by the government — even if you owe more than your home is worth. The Freddie Mac Enhanced Relief Refinance program and the Fannie Mae High Loan-to-Value Refinance are options for homeowners who owe more than 97% of the value of their homes.