*As of July 6, 2020, Quicken Loans is no longer accepting USDA loan applications.
The refinance appraisal requirement can be nerve-wracking, especially if you live in an older home. But did you know that there are a few ways you can refinance your home without an appraisal? It’s true!
We’ll take a closer look at what an appraisal is and why lenders require them. We’ll also introduce you to a few limited scenarios where you might want to refinance without an appraisal.
Overview: What Is An Appraisal?
A home appraisal determines the fair market value of your property. It includes a physical inspection of the home, research into other area properties that are comparable and a final detailed report. Appraisals are important because they assure the lender that you aren’t borrowing more money than what the home is worth. In most situations, your lender will require that you get an appraisal before you refinance your loan. This helps protect the lender's financial interests.
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.
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Apply online with Rocket Mortgage® to see your options.
How Can You Finance Without An Appraisal?
You almost always need an appraisal before you refinance a mortgage. However, your lender may waive the appraisal condition if you have an FHA, VA or USDA 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.
In order to qualify for an FHA Streamline, you must be able to answer yes to each of the following questions:
- Is your existing mortgage an FHA loan?
- Have at least 210 days passed between the date of your previous mortgage closing and your new application?
- Have 6 months passed between the time your first mortgage payment is due and the close of your refinance?
- Have you made at least six payments on your current loan?
- Do you have no more than one late payment in the last year and none in the last 6 months?
In addition to these requirements, you can’t do a cash-out refinance. That’s a commonality among all the options we’ll talk about. You also have to see what FHA would consider a net tangible benefit from refinancing. These include lower payments, lower mortgage rates or moving to a fixed rate from an adjustable-rate mortgage for more stability.
Finally, even in the event that you’re lowering your rate or changing your term, there are restrictions around how much your rate can or must increase or decrease as well as how much your payment can go up. Your Home Loan Expert can get into the details.
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 an appraisal 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 of 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 – no cash-out refinances.
- 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 VA loan and your refinance application.
You must also have a clear reason for refinancing. There are a number of reasons that can help you meet this requirement, from lower interest rates to a lower monthly payment. With some differences, these are similar to the FHA net tangible 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® does not 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 must have made on-time payments (defined as not being late by 30 days or more) on your loan for at least the last 6 consecutive months.
- You must have had your existing USDA loan for at least 12 months before you refinance.
- You must meet the USDA’s current debt-to-income (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 the most favorable option for homeowners, as they require no credit checks, appraisals or minimum DTI ratios. Rocket Mortgage® currently doesn’t offer USDA Streamline-Assist refinance options.
All of the following must be true to qualify for a Streamline-assist refinance:
- You aren’t removing buyers from your note – except in the case of the passing of the borrower.
- 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.
The Bottom Line On No-Appraisal Refinances
An appraisal is a basic assessment of your home’s value. Your appraisal value is derived from a number of factors, ranging from local property values to your home’s overall physical condition.
Most lenders require that you get an appraisal or other form of home valuation before you refinance a mortgage. An appraisal assures the lender that they aren’t loaning you too much money for your property.
You may not need an appraisal to refinance your loan if you have an FHA loan, VA loan or a USDA loan. You may qualify for a Streamline refinance that cuts out the appraisal requirement in many cases.
Each loan type has its own standards when it comes to who qualifies. Keep in mind that you can only refinance your interest rate or term with a Streamline. You cannot get a cash-out refinance without an appraisal.
If you’re considering refinancing, get started online today.
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