All About No Appraisal Refinance: Is It Really Worth It?

 

Introduction to No Appraisal Refinance

When a type of mortgage replaces an existing loan on a residence it is referred to as no appraisal refinance.

When a lender is extending a new mortgage for a borrower’s home with a no appraisal refinance he does not require a separate professional assessment of a home’s value.

Compared to the original mortgage these new mortgages usually offer more favorable terms hence it replaces it.

There are several federal sources that offer no appraisal refinancing. Most private lenders, like banks and mortgage companies, often require appraisals for the process of refinancing.

As a means to stabilize poorer communities and demographic groups who might otherwise lose their homes in an economic decline, the federal sources offer refinancing options without a re-appraisal.

This public service effort provides some help to homeowners who are struggling to pay their mortgages instead of being forced to default on their homes.

Understanding No Appraisal Refinance

Even though a no-appraisal refinancing is good for homeowners it gets risky for lenders. Because the lender performs appraisal homeowners are unlikely to qualify for a new loan hence they choose no appraisal refinancing.

If a homeowner’s home’s value has declined since they purchased it then they could find themself in this situation, and now their mortgage is underwater, where they owe more on their mortgage than the property is worth.

In such a case, if they default on the mortgage, the lender will not be able to sell the property for the balance of the outstanding mortgage, so they will face a loss.

Underwater mortgages are a result of a combination of events, many of them may not be under the homeowner’s control.

Several government sources offer no-appraisal refinancing:

• Streamline refinance, from the Federal Housing Administration (FHA)
• Interest rate reduction refinance loans by the Veterans Administration (VA) streamline refinances
• Streamline refinancing by the U.S. Department of Agriculture
• RefiNow program of Fannie Mae and Refi Possible program by Freddie Mac Those borrowers who do not qualify for a no-appraisal refinance through these programs get reimbursed $500 from their lender for the appraisal

All of these programs are especially helpful for at-risk homeowners.

What are the Challenges with No Appraisal Refinancing?

Because of income limits or other qualifications many homeowners do not qualify for no-appraisal refinance programs, so taking a chance on an appraisal could be their only option for refinancing.

Even if these borrowers qualify, there are many reasons why it is better for them to refinance with a loan that requires an appraisal.

When a borrower buys their house with not as much of or less 20% down payment they would require to pay private mortgage insurance (PMI) in such a case an appraisal that shows the home’s value has increased could help them avoid PMI on their new loan.

The increase in market value, along with the amount of principal they have accrued by their old mortgage payments, will increase their equity in the home to 20% or more.

When the equity rises, the interest rate drops on the refinanced mortgage in contrast to what they could get with a federal no-appraisal loan.

As the borrowers with higher home equity are less likely to walk away from their homes, they are considered to be a lower risk by the lenders.

Though it is not necessary that the appraiser’s opinion of the borrower’s home value will be high enough to allow them to refinance or eliminate PMI.

If they opt for refinancing that requires an appraisal, the borrower must be ready to risk paying several hundred dollars fees along with no assurance of getting better loan terms.

Conclusion

A no-appraisal refinancing puts back an existing mortgage on a home and it means the homeowner does not require a new value assessment for the home.

When homeowners are unlikely to qualify for a new standard loan they choose a no-appraisal refinancing.

A no-appraisal refinancing is often offered by government agencies, like the Federal Housing Administration, Veterans Administration, and the Department of Agriculture.

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