How to refinance your mortgage if your home appraisal is too low

There are ways to overcome a low home appraisal value and refinance mortgage rates at near-historic lows. Explore your mortgage refinancing options. (iStock)

Refinancing a mortgage can help homeowners secure low interest rates and flexible loan terms. However, there are some costs to refinance mortgage payments including closing costs and a home inspection.

In fact, the home appraisal value can be more important than the homeowner’s credit score and debt-to-income ratio. A low appraisal value can make it difficult to get the best mortgage refi terms. But there are remedies to improve your appraisal value and save on mortgage costs.

If you’re thinking of refinancing, consider using Credible. You can ​use Credible's free online tool​ to easily compare multiple lenders and see prequalified rates in as little as three minutes.

Why should I refinance my mortgage?

Refinancing lets homeowners reduce their monthly payments when qualifying for low mortgage refi rates or when ending private mortgage insurance.

Some mortgage borrowers get a “cash-out refinance” and use the extra funds to make home improvements. Another option is to consolidate high-interest outstanding debt at a lower rate.

Banks are currently offering record low refi rates that let borrowers save on mortgage interest. Low rates are helping homebuyers get competitive mortgage terms, too.

15-year refinance mortgage can offer the lowest rates (fixed interest rates are competitive for 30-year terms). Having a low credit utilization rate and clean credit history can help borrowers qualify for a low mortgage refinance rate. Banks may lock rates for up to 60 days to complete the appraisal.

Credible lets you compare today’s best interest rates and mortgage refinance lenders all in one place.

What are today’s mortgage rates?

Today’s mortgage refinance rate is 2.45% for a 15-year fixed mortgage refi. Despite mortgage refi rates fluctuating slightly as of late, they are still hovering near historic lows. If you're considering refinancing to the new rate (assuming you qualify), an online mortgage refinance calculator can help estimate your new monthly payment.

What does an appraiser review as part of a refinance application?

Homeowners pay for the home appraisal which normally costs between $200 and $500. The appraiser performs a basic home inspection looking for these details:

  • Interior home layout (i.e., size of rooms and number of bedrooms and bathrooms)
  • Special home features (i.e. swimming pool or a mother-in-law suite)
  • Type and age of building materials and interior finishings
  • Quality and age of the roof and the home structure
  • Needed repairs
  • Comparable “comp” value of recently sold homes with similar traits

The lender and homeowner receive an appraisal report that includes the home appraisal value and a detailed property summary.

What should I do if my home has a low appraisal value?

A lower-than-expected home appraisal value is disappointing but it doesn’t mean you can’t get a refinance mortgage loan. Consider all of the following:

  1. Dispute the home appraisal
  2. Increase your home’s value
  3. Seek a second opinion
  4. Consider alternative financing
  5. Consider a cash-in refinance

Look over your home appraisal report and look for errors to dispute such as inaccurate dimensions or the incorrect type of countertop or exterior siding. Also, look at the housing comps. Appraisers don’t always find relevant matches. You can submit sold properties similar to yours for a more accurate appraisal value.

Making necessary repairs or upgrading smaller items like doors or painting walls can improve your home value quickly and at a minimal cost. Costly upgrades may not provide a high increase in the appraisal value.

A second home inspection may provide a higher appraisal value. The new appraiser may do a more accurate assessment and choose better comparable properties.

Existing federal-backed mortgages can qualify for “streamlined” refinancing that may not require a home appraisal. Two options are the VA-backed Interest Rate Reduction Refinance Loan and an FHA Streamline Refinance.

Choosing a cash-in refinance to secure a low rate can be tricky. Your upfront closing costs will be higher to avoid private mortgage interest with a loan-to-value ratio above 80%. Credible can help in the process. Visit the financial marketplace today to see what refinance mortgage interest rates you qualify for.

4. Does a mortgage refinance require an appraisal?

Most banks require a home appraisal for home mortgage refinances. Existing federal loans can qualify for a “streamline refinance.” However, the total refinance amount and loan terms may be lower than paying for a home appraisal.

Participating agencies include:

  • Federal Housing Administration (FHA)
  • United States Department of Agriculture (USDA)
  • United States Department of Veterans Affairs (VA)

Mortgage refinance servicers can also discuss a no-appraisal refinance. You can also visit Credible to get in touch with experienced loan officers to answer your mortgage questions.

Final thoughts

There are several ways to counter a low home appraisal value by making improvements and correcting mistakes in the first appraisal. Your home's equity offers some form of financial protection, so it's important that the appraisal process is done fairly and accurately. Refinance appraisals offered by an appraisal management company are key when trying to refinance a mortgage.

Today’s low mortgage interest rates make refinancing your mortgage with Credible now a good option. Have your credit and home in the best shape to prequalify.

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.