No-Appraisal Refinancing

No appraisal refinancing refers to a type of mortgage loan that replaces an existing loan on a residence. "No Appraisal" refers to the fact that a lender does not require an independent, professional appraisal of a home's value as a condition for issuing a new mortgage on that home. This new mortgage often offers more favorable terms than the original mortgage it replaced.

No refinancing appraisals are available from some federal sources. Most private lenders, such as banks and mortgage companies, typically require due diligence when it comes to refinancing. Federal sources will offer refinancing options without a reassessment as a way to stabilize poorer communities and demographic groups who may lose their homes in the recession. This is a public service effort to provide homeowners who are struggling to pay their mortgage instead of being forced to default on their home.

KEY POINTS TO REMEMBER

* An appraisal-free refinancing replaces an existing mortgage on a home and does not require a new assessment of the home's value.

* Homeowners often choose to refinance no-assessment when they cannot afford to qualify for a new standard loan.

* No-assessment refinances are typically available from government agencies, including the Federal Housing Administration, the Veterans Affairs Administration, and the Department of Agriculture.

Understand No-Appraisal Refinancing

Refinancing without an appraisal is good for the homeowner, but risky for the lender. Homeowners often choose to refinance without an appraisal when they cannot afford to qualify for a new loan if the lender does an appraisal.

You might find yourself in this situation if your home's value has dropped since you bought it and your mortgage is currently underwater: that is, you owe your mortgage more than it's worth. produce. This means that if you default, the lender won't be able to sell the property on the outstanding mortgage balance, so they will suffer a loss. Underwater mortgages are often the result of a combination of events, many of which may not be in your control. No-Appraisal refinancing is available from several government sources:

~ Federal Housing Administration (FHA) streamlines refinancing.

~ The Veterans Administration (VA) Streamlines Refinances (also known as "Reduced Rate Refinance Loans").

~ US Department of Agriculture streamlines refinancing.

~ Fannie Mae's "RefiNow" Program and Freddie Mac's "Refi Possible" program (Those not eligible for a refinance without evaluating through these programs may be reimbursed $500 by the lender la for the assessment).

All of these programs specifically target at-risk homeowners.

Disadvantages of No Appraisal Refinancing

Many homeowners do not qualify for refinance programs without an appraisal due to income limits or other criteria, so attempting an appraisal may be their only chance to refinance. However, even if they do qualify, there are a number of reasons why they might be better off refinancing with a loan that requires an appraisal.

If you're currently paying for private mortgage insurance (PMI) - because you bought the home with a down payment of less than 20% of the purchase price - an appraisal showing the home's value has increased may allow you avoid PMI on new loan. An increase in market value, plus the principal you've accumulated through your old mortgage payments, will increase your home's equity by 20% or more. Increased equity can also get you a lower interest rate on a refinanced mortgage than you can get with a non-prime federal loan. This is because borrowers with more equity are less likely to run away, so lenders will consider you a lower-risk person.

Of course, there's no guarantee that an appraiser's opinion of your home's value will be high enough to allow you to refinance or eliminate PMI. If you choose to seek a refinance that requires an appraisal, you must be prepared to risk paying hundreds of dollars in fees with no guarantees of getting better loan terms.