No-Appraisal Refinance: Should You Do It?

Mortgage lenders often require a home appraisal to be completed for a home loan refinance. However, there are scenarios where homeowners can bypass the appraisal requirement, which can speed up the refinancing process and save them some money. Think carefully before deciding, though, since a no-appraisal refinance isn’t the best choice for every situation.

Do You Need An Appraisal To Refinance?

Not necessarily, as there may be some cases where you can refinance a mortgage without an appraisal. In most circumstances, your lender will request an appraisal before you refinance your loan. This is done to help protect the lender’s financial interests.

A home appraisal is a basic assessment of your home’s fair market value. Several factors impact your appraisal value, ranging from your home’s overall physical condition to the local property values in your area. Most lenders require that you get an appraisal or another form of real estate valuation to ensure that they won’t loan you too much money before you refinance.

For example, imagine that you work with a new lender and you refinance a $300,000 loan. If your appraiser finds that your home is only worth $200,000, your lender takes on the $100,000 discrepancy. If you don’t pay your bills and your home goes into foreclosure, your lender will have a very hard time recouping that $100,000.

How Can You Get A No-Appraisal Refinance?

Your lender may waive the refinance appraisal condition if you have a qualifying home loan. For example, mortgages from the Federal Housing Administration (FHA), Department of Veterans Affairs (VA) or U.S. Department of Agriculture (USDA) may qualify for an appraisal waiver refinance.

The following types of mortgages may allow you to refinance without a home appraisal.

Conventional Loans With An Appraisal Waiver

Unlike other home loans on this list, conventional mortgages have no governmental backing. However, borrowers with very strong credit profiles and applications may be able to have their refinance appraisal waived by a lender.

You’ll need to meet the following eligibility requirements for a no-appraisal refinance on a conventional loan:

• A strong credit score of at least 620 or higher.
• A stable income.
• A good amount of home equity.
• A single-family home or one-unit property.

Keep in mind that lenders, as well as Fannie Mae and Freddie Mac, will all have to agree on your strength as an applicant in order to waive the refinance appraisal. In most cases, you won’t be able to waive the appraisal for a conventional loan.

FHA Streamline Refinance

Among other benefits, like not having as much documentation involved, FHA Streamlines often have no appraisal associated with them because there’s no minimum equity amount. That’s not to say there aren’t circumstances where an appraisal is required, but there are other benefits, like getting your annual mortgage insurance premium (MIP) down to 0.5% of your loan amount.

To qualify for an FHA Streamline refinance, you must meet the following criteria.

• Your existing mortgage is an FHA loan.
• At least 210 days have passed since your previous mortgage closing.
• At least 6 months have passed since your first mortgage payment was due.
• At least six payments were made on the current loan.
• You have no more than one late mortgage payment in the last year, and none in the previous 6 months.

In addition to these requirements, you can’t do a cash-out refinance. You also must see what the FHA would consider a tangible net benefit from refinancing. These include lower monthly payments, lower mortgage rates or moving from an adjustable-rate mortgage to a fixed-rate loan for more stability.

Finally, even if you’re lowering your rate or changing your loan term, there are restrictions around how much your rate can or must increase or decrease. There are also limitations on how much your payment can go up. Your loan officer can get into the details with you on this.

VA Streamline Refinance

You may qualify for a VA Streamline refinance if you have a VA loan. VA Streamline refinances are sometimes called interest rate reduction refinance loans (IRRRLs). While many IRRRLs don’t include any type of appraisal, there are circumstances when one is necessary.

You can also refinance up to 120% of your loan value with an IRRRL, which is a good option if you owe more than your home is worth.

All the following must be true to qualify for an IRRRL:

• You must already have a VA loan that you want to refinance.
• You must already live in the home that you want to refinance.
• You only plan to refinance to change your interest rate and/or term.
• You’ve made at least six consecutive on-time payments on your VA loan.
• It’s been at least 270 days since the closing date for your previous VA loan.

You must also have a clear reason for refinancing. There are a number of reasons that can help you meet this refinancing requirement, from lower interest rates to a lower monthly payment. With some differences, these are like the FHA tangible net benefit rules. Keep in mind that not every lender who offers VA loans also offers IRRRLs.

USDA Streamline Refinance

The USDA also offers Streamline refinance options for homeowners with a USDA loan. Rocket Mortgage® doesn’t currently offer full USDA or USDA Streamline loans.

USDA Streamline refinances allow you to skip the appraisal requirement when you refinance your rate or term. Like VA IRRRLs, USDA Streamlines also have a strict set of criteria you must meet to qualify.

The following must be true to qualify for a USDA streamline refinance:

• You must already have a USDA loan.
• You’ve made on-time payments on your loan for at least the last 6 consecutive months.
• You’ve had your existing USDA loan for at least 12 months before you refinance.
• You meet the USDA’s current debt-to-income ratio (DTI) requirements.
• You must only refinance your rate or term (no cash-out refinances).

USDA Streamline-Assist Refinance

You may also qualify for a USDA Streamline-assist refinance. Streamline-assist refinances are often the most favorable option for homeowners, as they don’t require a high credit score, appraisal or maximum DTI. You could also have reduced closing costs when using this type of refi. Rocket Mortgage currently doesn’t offer USDA Streamline-Assist refinance options.

All the following must be true to qualify for a Streamline-assist refinance:

• You aren’t removing buyers from your mortgage note – except in the case of a borrower’s passing.
• Your refinance will result in a $50 or greater reduction in your monthly mortgage payment.
• You’ve had your current USDA loan for at least a year.
• You’ve made on-time payments for at least the last year.
• As with other USDA loans, you can’t take cash out.

Use An Automated Valuation Model (AVM)

An automated valuation model (AVM) uses a computer algorithm to determine the value of a property. They’re often used by home listing platforms and use information like a property’s size, number of rooms, features and other recorded data to find a home’s valuation. AVMs may also use data recorded by online home listing platforms.

While AVMS can give accurate valuations based on the information available, few lenders will accept AVM results as a substitute for a professional appraisal.

Pros And Cons To A Refinance Without An Appraisal

While skipping the appraisal in a mortgage refinance can have certain benefits for you, it’s not ideal for every scenario. Here are the upsides and downsides to a no-appraisal refinance.

Benefits

• You’ll save money. Home appraisals can cost $300 – $400 in fees for a single-family home. By getting the refinance appraisal waived, you can save yourself money in closing costs.
• You can refinance faster. Skipping the appraisal means skipping a step in the refinance process, bringing you closer to closing day. Refinances can drag out if it takes longer for your lender to schedule an appraiser.
• You can save yourself some stress. Refinancing can be stressful if there’s a chance the appraisal can come in low. You can skip this worry by skipping the appraisal.

Drawbacks

• You could overpay for your mortgage. Without an appraisal, you may not know whether your home’s value has increased. You could end up paying more for your home than what it’s worth.
• You might pass up a lower rate. If an appraisal shows that your home’s value has increased, you could qualify for better interest rates and terms. A no-appraisal refinance won’t give you this option.
• You could miss the chance to cancel your mortgage insurance. An appraisal could tell you and the lender how much your home has increased in value. An appraisal could also tell you whether your home equity has increased enough to cancel your private mortgage insurance (PMI).

The Bottom Line

You may not need an appraisal to refinance your loan if you have an FHA, VA or USDA loan. In many cases, you may qualify for a Streamline refinance that actually cuts out the appraisal requirement. Consider your situation before deciding on a no-appraisal refinance, as there are upsides and downsides to it.

If you’re considering this option, get started online today and see if you qualify for a no-appraisal refinance.