Can I Refinance My Mortgage Without an Appraisal?

Can I Refinance My Mortgage Without an Appraisal? article image.

Refinancing a mortgage without having an appraisal is possible, and may make the refinance process quicker and easier. There are times, however, when you'll need to get your home appraised to refinance your mortgage—or when you'll want to opt for an appraisal, even if you could get approved for a refinance without one.

How Does No-Appraisal Refinancing Work?

Refinancing your mortgage replaces your current home loan with a new loan. The process of applying and qualifying is similar to what you experienced when you first took out your mortgage, including having to pay many similar closing costs—such as a fee for a new appraisal, which may cost $300 to $700.

A mortgage refinancing can be worth the time and money if you can qualify for a lower interest rate that makes it possible to decrease your monthly payment and save you money over the life of the loan. Or, if you're looking to borrow money, a cash-out refinance lets you take out a new loan that's larger than your current balance and keep the difference in cash.

Your new lender may want your home appraised before it agrees to lend you money. After all, it wouldn't want to issue you a $175,000 mortgage on a house worth only $150,000.

But if you'd rather save the time and money it takes to have your home appraised, you do have options. Some private mortgage lenders offer no-appraisal refinancing if you qualify for a waiver. And you may qualify for no-appraisal refinancing if you have a government-backed loan through the Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA) or Department of Veterans Affairs (VA).

Who Qualifies for an Appraisal Waiver?

An appraisal waiver may be an option if you're refinancing with a conforming conventional mortgage—a mortgage from a private lender that meets the Federal Housing Finance Agency's financing limits and the underwriting standards of Fannie Mae or Freddie Mac, the government-sponsored enterprises that buy and administer most single-family-home mortgages.

Instead of an appraisal, the lender can use automated tools and previous appraisals to determine the value of your home and offer an appraisal waiver if you meet all the requirements. For example, you'll need to have a single-unit home or condominium and be within the allowed loan-to-value (LTV) ratios—a measure of the mortgage amount relative to the home's value.

If you have a government-backed FHA, USDA or VA loan, you may qualify for a no-appraisal refinance using one of the programs' streamlined options. To qualify for no-appraisal FHA or USDA refinancing, you'll need to already have that type of mortgage and be current on your payments. With a VA loan, it can be done with an Interest Rate Reduction Refinance Loan, which replaces an existing VA-backed mortgage with another VA-backed mortgage with new terms.

Are There Drawbacks of Refinancing Without an Appraisal?

In addition to saving you a few hundred dollars, skipping an appraisal can hasten the time it takes to close the deal and prevent a low appraisal from ruining your chance to refinance. However, paying for an appraisal can also be a good idea, even if you have the option for a no-appraisal refinance.

If you believe your home has increased in value, a higher appraisal might help you qualify for refinancing with a better interest rate because your LTV ratio will be lower. The savings from even a small decrease in your new mortgage's interest rate could more than offset the cost of the appraisal. Or, if you're looking for a cash-out refinance, you may qualify for a larger loan based on your home's high value.

You may also benefit from an appraisal if you're paying for private mortgage insurance (PMI). Once you have 20% equity in the home, you may be able to save money by canceling your PMI coverage. If you're already at that point based on your home's current value, getting it appraised before refinancing could help you get rid of the PMI.

When It Makes Sense to Skip the Appraisal

If you don't think your home's value has increased or you aren't looking for a cash-out refinance, you may be better off avoiding an appraisal. Doing so will save you money and time, and help you avoid the headaches that can come with a lower appraisal.

Although they might not reflect the value an in-person appraiser will assign to your home, you can look for estimates on real estate websites. These can help you get a ballpark sense of how much a similar home in your neighborhood is worth, and then you can make adjustments based on required maintenance or repairs that an appraiser may notice during a visit.

How Refinancing Your Home Can Affect Your Credit

Refinancing can impact your credit scores in several ways, as you'll be paying off your old loan and applying for and taking out a new one. Overall, however, the impact may be minimal.

Applying for a refinance loan can lead to a hard inquiry, which may hurt your credit scores a little. Additional applications that cause more hard inquiries could increase that negative impact, but multiple hard inquiries for the same type of loan will only count as one hard inquiry if they occur within a 14- to 45-day period (the timing depends on the credit scoring model). This means you're still able to rate shop to try and get the best rate.

The new loan will also decrease the average age of your accounts, which could hurt your scores a little. Your original mortgage will be paid off and closed, but your payment history on that loan can continue to help (or hurt) your credit, as the account will stay on your credit report for up to 10 years. Continuing to make your payments on time on the new loan can also help your credit.

Make sure a mistake or delay during the refinance process doesn't lead to you accidentally missing a payment on your original mortgage. Otherwise, a late payment could be reported, which could lead to a large score drop.

Check Your Credit Before Rate Shopping

As with applying for a mortgage to purchase a home, your credit can also impact your ability to qualify for refinancing and the rate you'll receive. You can check your credit score for free online with Experian. While mortgage lenders may use different credit scoring models, the free score can help you get a ballpark sense of whether you're in a good position for a mortgage refinance.