A lot of people choose to refinance their home loans for many reasons. For some, it is a way to consolidate debts. For others, it might be a way to pay for home remodeling projects. If you are refinancing with the hopes of using your extra equity to pay off debt, you should understand how the appraisal of your home might affect this. Your lender will require an appraisal, and it's important to understand the purpose it has and the effects it can also have.
The purpose of an appraisal
An appraisal is something a lender will almost always require before approving a home loan refinance, and the purpose of an appraisal is to find out exactly how much your home is worth right now. To find this out, an appraiser will examine your house and compare it to houses that recently were sold in your area. This will tell the appraiser how much your house would likely sell for if you were to put it up for sale. Your lender wants to know this, simply to find out how much equity you have in your home.
The effects the home appraisal can have
The appraisal of your home can be helpful to your home loan refinance or it can hurt it. As a homeowner trying to refinance, you will hope the appraisal comes back with a high value for your home. A higher value will show that you have more equity in the home, and this will make it easier for you to refinance.
If the appraisal results in a lower value than you expected, it could cut into the equity you thought you had. This may not disqualify you from refinancing, but it could cut into the money you thought you could get from the loan to use for paying off debt you have.
In most situations, banks will refinance up to an amount that is up to 80% of the home's value. For example, if your home appraises for $300,000, you could qualify to refinance for an amount up to $240,000. If you compare this to the amount you owe on the house, you will be able to see if you have any equity you could use.
If you are interested in refinancing your home for any reason, you may want to begin by ordering an appraisal of your home. This will cost around $316, but it will reveal a lot of important details you need for your refinance. You can learn more about this by talking to a lender that specializes in refinances. To learn more, contact a company like Liberty Escrow Inc.