What do appraisers look for in a refinance appraisal?

It’s normal for a refinance appraisal to feel slightly nerve-wracking—it can be stressful to have a stranger inspecting all aspects of your home. However, an appraisal is a standard part of securing a new loan for most lenders and homeowners.  

Your lender needs to confirm your home’s market value to calculate your refinance amount, and you want to secure a loan as close as possible to your true home value. 

You may be wondering what appraisers look for in a refinance. Usually, a licensed, independent professional assesses your home's size, condition, and location and compares it to other homes in the neighborhood. 

If your refinance appraisal is lower than expected, you may not receive some or all of your loan, which can affect your financial goals. So, you'll want to prepare for an appraisal ahead of time to give yourself the best chance of securing a favorable assessment. Keep reading for some helpful information that can help you set yourself up for success. 

What is a refinance appraisal?

A refinance appraisal is simply an assessment of your home's value. It tells your lender how much your house is worth so they can determine how much you can borrow. 

This information protects your lender in case you default on your new loan. If your home's value equals or exceeds what you applied for, they have enough collateral to recover what you owe. 

Most lenders won't approve a refinancing application without appraising your home first.

What happens during a refinance appraisal?

You probably had a purchase appraisal when you bought your home. A similar process happens when you refinance. An appraiser will come to your home, assess your property, and estimate its worth based on various factors. 

There's one major difference between a purchase and a refinance appraisal. During the former, the appraiser usually sees a property's purchase contract and sales price, so they already have a good idea of its value. Refinance appraisers don’t have this information. Instead, they make a more speculative evaluation. 

Typically, an appraiser will inspect your home's interior and exterior and take photos of different areas. They may also check your property complies with local building codes. All this can take up to a few hours to complete. After examining your property, your appraiser might research local market trends and compare your home to others recently sold in the area.

What do appraisers look for in a refinance?

An appraiser may take the following factors into account when assessing your home:

• Property condition: Your appraiser wants to know whether your home is in a good state of repair. They may evaluate the condition of different fixtures, systems, and appliances. For example, they might check that your HVAC unit works properly, your outlets are safe, and hot water comes from your faucets.
• Property size and layout: The square footage of your home and the number of rooms can influence your appraisal value. Your appraiser might also review your floor plan to assess your home’s layout. For example, your home could appraise more if you have a modern layout with an open floor plan rather than an outdated one.
• Location: Different neighborhood factors can play a significant role in your appraisal. Highly-rated schools, desirable local amenities like parks and shopping, and easy access to highways might increase your home's appraisal value. 
• Comparable homes in your area: Your appraiser may research similar homes in the neighborhood to determine your property's worth.

How to prepare for a home appraisal for refinancing

You may increase your chances of a higher appraisal value by preparing your home in the following ways:

• Clean up your property: You don’t need to scrub your house from top to bottom, but you may want to give the inside and outside an extra clean to help it look the best it can. 
• Declutter: Too much clutter in your home might make it difficult for your appraiser to fully evaluate its condition. It might be helpful to tidy your rooms and put everything in its correct place before they arrive. 
• Prioritize minor fixes: Making a few repairs before your appraisal shows that you take care of your home. Consider patching up holes in the walls, touching up chipped paint, and fixing leaky faucets. 
• Invest in small home improvements: Adding new handles to cabinets, installing a new kitchen backsplash, and planting fresh flowers in your yard aren’t required, but they are small ways to improve your home before an appraisal with relatively little effort. 
• Tell your appraiser about upgrades: Create a list of major repairs you've made to your property and share it with your appraiser. That way, they can see how much you've invested in your home. You may also want to share your own research on comparable properties in the neighborhood.

What happens after a refinance appraisal?

Your appraiser will summarize their findings in a report and share it with you and your lender. It’s in your best interest to carefully review the document and make sure the information is accurate in terms of your home layout, upgrades, and so forth. You don’t want an appraiser’s mistake to impact your refinance. 

What happens next typically depends on the appraised value of your home.

Your appraisal comes in as expected or higher  

In this situation, the refinancing process usually continues. Your application may go into underwriting, which involves your lender verifying your income, assets, and other financial information. 

If everything runs smoothly, your lender will close your original loan and provide you with your new loan.

Your appraisal comes in lower than expected

If your appraisal value is lower than expected, your lender may lower your loan amount, change its terms, or even decline your application. That's because they might think you'll owe more on your home than it's worth, potentially leading to an underwater mortgage. 

In this scenario, you still have options. You could challenge the decision and provide evidence to your lender that supports a higher appraisal value, such as sales of comparable properties in your neighborhood. Alternatively, you can pay for a second appraisal if your lender allows this. 

If that doesn’t work out, you might need to find a different refinancing lender and restart the process.