Tired of paying private mortgage insurance (PMI)? When you refinance, your appraised value determines whether or not you’ll continue paying insurance on your loan. The appraised value can determine whether your lender requires mortgage insurance There’s less risk to the lender the lower the LTV ratio. For example, a lender may offer a lower interest rate if you have a 50% LTV compared to a homeowner with an 80% LTV. If you have enough equity in your property, you may be able to upgrade to a mortgage with better terms and a lower interest rate. With a low LTV, you might be able to refinance at a reduced rate That would reduce your cash-out amount by $10,000. In order to qualify, your home would need to appraise for at least $333,333 (75% of $333,333 equals $250,000).īut if your home appraises for less, say $320,000, you would only qualify for a $240,000 loan amount. You owe $100,000 on your current loan, and you want to cash out $150,000 for a new loan amount of $250,000. Let’s say your lender has a cash-out refinance LTV cap of 75%. “With home values increasing over the country, many homeowners are taking advantage of the refinance option to lower their interest rates or pull some cash out for home improvements or their other immediate needs,” comments Desari Jabbar, a top real estate agent in DeKalb County, Georgia with 22 years of experience. That’s because the higher your value above what you owe the lender, the lower your LTV ratio. The higher your appraised value, the more you’ll be able to cash out. In a similar vein, LTV affects the amount you could pull out of your home with a cash-out refinance. Your appraised value impacts how much you can cash out in equity If your lender is willing to lend up to 80% of your home’s value and your home appraises for $500,000, you could qualify for a loan amount of up to $400,000 ($500,000 X 0.8). Then multiply that LTV percentage by your appraised value. To calculate the maximum your lender may be willing to loan you based on your appraised value, ask your loan rep about the maximum LTV for your loan program. If your home appraises for less, you would need to lower your loan amount to qualify. If you refinance a $200,000 loan and your lender requires a maximum LTV of 80%, your home would need to appraise for at least $250,000 ($250,000 X 0.8 = $200,000). The appraised value determines whether your proposed loan amount qualifies under these lender guidelines. Your appraised value affects how much you can borrowĮach mortgage lender and loan program follows a set of underwriting guidelines that includes a maximum LTV. One way to see a drop in your LTV? A bump in your appraised value. The lower the LTV, the lower the risk for the lender. For example, a $280,000 loan secured by a $350,000 house has an LTV of 80%. To calculate a home’s LTV, divide the loan amount by the home’s appraised value. LTV helps quantify the amount of risk a lender takes on a loan, which directly impacts how much the lender is willing to loan for the new mortgage. The appraisal is a critical step in refinancing because the appraised value is a key factor in determining a home’s loan-to-value (LTV) ratio. Source: (Unsplash / Unsplash) The new appraised value impacts your LTV when you refinance Condition of home structure and grounds.Property type (e.g., single-family home, condominium, etc.).“Appraisals need a sandwich, meaning a sale higher and a sale lower than the likely appraised value,” says Ed Kaminsky, a top real estate agent in Los Angeles, California, who has 34 years of experience and almost 1,000 transactions under his belt.ĭuring an appraisal, a licensed appraiser analyzes how the following property characteristics stack up against those of comparable homes: To determine the market value, the appraiser weighs your home against at least three recent comparable sal e s. A licensed appraiser compares your property’s characteristics to recently sold homes in the area (aka comparable homes or “comps”) to evaluate its worth. An appraisal is an assessment of your property to determine its fair market value. Source: (majid Sanaye / Unsplash) Appraisals 101: How appraisers determine your home valueįirst, let’s touch on some appraisal basics. We interviewed three professionals to provide you with a detailed overview of refinancing appraisals. The appraisal process can be nerve-wracking - but don’t fret. When you refinance, your lender requires a fresh appraisal for your home to determine your home’s current value and your equity (the market value of the property that you own, minus the amount you owe on your loan). Before you get started, you need to understand the process, and part of that is getting an appraisal for your home - a licensed appraiser’s assessment on your property’s fair market value. So you’re looking to refinance your home to take advantage of today’s low interest rates.
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