Money IQ: Why Do I Need a New Appraisal?

Money IQ
By Karl Hjelvik

Why Do I Need a New Appraisal? 

It’s easy to feel like refinancing is a hassle and the benefit of a lower interest rate and monthly payment might be negated by the closing costs incurred.

Admittedly, refinancing doesn’t always make sense but with historically low mortgage rates it’s certainly worth a look.

This week’s Money IQ examines one of the closing costs you are likely to incur in refinancing – the $500 or more for a new appraisal.

So you have finally decided to take the refinance plunge and see how much you can save.

You knew there would be closing costs but, why does your lender need a new appraisal when you’re only borrowing 60 percent of what you paid for your home; you’ve been paying down the loan over the last 15 years; and in addition you’ve completely remodeled the kitchen to the tune $25,000?

Of course your house is worth more than the loan so why pay $500 to find this out?

In the example, most likely your home’s market value is ample enough to obtain the refinanced loan but lenders will require a new appraisal for a number of reasons.

No lender wants you to incur expenses that aren’t necessary but more than likely they are required to have a written market value assessment on any loan they make to ensure sound risk management to their regulators and insurers.

In addition, there are a myriad of things that can affect the value of your home. How does your home compare with those around it that have sold in the last 6–12 months?

Does your lender sell their loans to other investors? Did the improvements you made really improve the value and, if so, how much? Are there changes in traffic patterns, air flight or overhead power lines that could affect your home’s value?

Lenders are required to share the appraisal you paid for with you. A good appraisal will identify separate values for land and improvements which can be useful in setting the proper insurance coverage for your home.

If you’re selling your home an appraisal is always a good idea. You wouldn’t want to leave tens of thousands on the table or have it over priced and wonder why it is taking so long to sell.

A good realtor can help you in this area too, but a written explanation can help you to easily explain your selling price to a potential buyer.

One word of caution, don’t go out and get your own appraisal and expect your lender to use it. Generally, appraisals must be ordered by a lender if they are to be used for their lending risk management to demonstrate the independence of the opinion obtained.

Most appraisals have a very short lifespan, generally 120 days because market conditions are constantly changing and it can’t be ordered or produced before the loan application date.

The new appraisal your lender is requesting is probably going to be a requirement you can’t avoid. The key is to get a copy of it from your lender and use it to its fullest in saving you money elsewhere.

Most lenders and appraisers will be more than happy to help you understand the details of the appraisal but you should check out the details to make sure the market value it states is based on the right facts about the home being appraised.

Editor’s note: Karl Hjelvik is the Vice President Internal Auditor at Los Alamos National Bank. He has been with LANB since 1996.

  • Look for Money IQ every Wednesday in the Los Alamos Daily Post.
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