Refinancing Appraisal

If you are looking to refinance your home or open a home equity line of credit, you will most likely be required to have an appraisal done on your home. An appraisal is simply a document that assesses the current value of your home. Using the purchase price of your home is not a valid indication of the current value of your home. Depending on how long ago you purchased your home and the changes that have occurred in the economy since the time of purchase, your home may be valued at a price that is significantly different from the price that you paid to purchase your home. In most cases the value of your home will be higher than the price for which you purchased your home as real estate is one investment that most often appreciates in value but there are some instances in which real estate does depreciate in value. For this reason banks will most likely insist on an appraisal before they refinance your home or allow you to open a home equity line of credit.

Appraisals are usually conducted by an outside company to ensure objectivity. There are a number of factors that are taken into consideration when an appraisal is conducted. These factors include the square footage of the home, the lot size, the age and condition of the home, the location of the home, the number of bedrooms and bathrooms in the home, structural improvements to the home, desirable architectural features and perhaps most importantly the sale price of comparable homes in the same area. Most of these factors are largely self explanatory. For example larger homes and lot sizes would appraisal higher than smaller homes and lots in the same area. Location is a factor that can be more difficult to understand. Largely this factor is linked to the sale prices of comparable homes in the same neighborhood. Neighborhoods that are desirable due to factors such as inclusion in a favorable school district or proximity to golf courses can increase the value of a home.

Some lenders are willing to offer loans that are worth the current value of your home plus and additional 25% but these loans, known as 125 loans are not always a good idea. For this reason, many responsible lenders do not offer this type of loan. The concept behind this type of loan is that since real estate is likely to appreciate in value, issuing a loan for more than the value of the home is a low risk. However, this isn't always the case. A homeowner who is forced to move due to unforeseen circumstances shortly after this type of loan is issued may find that when they sell their home, they are unable to repay the debt on their home. This may be due to a combination of only a small amount of the principle being paid off and the value of the property not appreciating by 25% during the time that the loan was issued and the home was sold.