When you apply to refinance your house one of the risks you inevitably agree to is your application is subject to a loan to value. Here is how to handle a situation where you value is beneath initial estimates…
One of the things you must have with you when refinancing is a loan to value and determine an appraisal. There is one exception to the rule on a conventional mortgage. It is possible on a case-by-case basis that only the lender might get what’s called a PIW or an appraisal waiver that allows them to do your refinance without needing an appraisal based on automated underwriting results. This would require a credit check and providing supporting income documentation.
If you are desiring to refinance your house and your house does not appraise for what you think it is worth, most mortgage companies will just say that’s the value and leave it at that forcing you to come up with additional options. Here’s what a good lender will do for you. They will go and find and/or request from their appraisal company some additional comparable to do a rebuttal of the opinion of value. Not always, but there are some instances where you might be able to get your value changed based on additional supporting documentation such as work that you did to the property or other comparable that were not originally used in the first appraisal report.
Even a change by as little as $5-7k in some cases can mean the difference between bringing in several thousand dollars to close escrow or being able to finance those monies in the loan amount.
Other alternatives may include:
•subordinating a second mortgage
•changing loan programs
•going from having PMI to having a reduced PMI or no monthly PMI via a prepaid annual mortgage insurance premium
•increasing cash to close
•raising a credit score
•getting a co-signor
•paying off another debt
Lastly, paying down your principal balance to represent the needed loan to value that you need is an alternative. This is specific money being directed into your principal balance resulting in a lower loan amount which also would result in lower cost loan as you’re financing less money over the total term of 360 months for example.
If you’re unable to complete any kind of a net tangible benefit refinance, cancel the loan. There is a silver lining. The silver lining is that at least with the appraised value you know the value that you have and more importantly how much more value you’ll need in your property measured over the course of time to complete the refinance in the future. Let’s say you need your needs to appraise for $600,000 and the value that you have is $580,000 you know that $20,000 more of equity is what you will need. Based on home sales data in your market that could be an attainable number in six to eight months based on market forces.
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.