What is a no appraisal refinance?
Rating-free refinancing refers to a type of mortgage that replaces an existing home loan. No Appraisal refers to the fact that the lender does not require an independent, professional appraisal of the property’s value as a condition of renewing a new mortgage. This new mortgage typically offers better terms than the original mortgage it replaces.
Valuation refinancing is not available from several federal sources. Most private lenders such as banks and mortgage lenders often require expert opinions when refinancing. Federal sources will offer non-revaluation refinancing options to help stabilize poorer communities and demographics who might otherwise lose their homes in an economic downturn. It’s a public service designed to help homeowners who are struggling to pay their mortgages, rather than being forced to default on their homes.
THE CENTRAL THESIS
- The valuation-free refinancing replaces an existing mortgage on an apartment and does not require a new appraisal of the apartment.
- Homeowners typically opt for rating-free refinancing when they are unlikely to qualify for a new standard loan.
- Unrated refinance is most commonly offered by government agencies, including the Federal Housing Administration, the Veterans Administration, and the Department of Agriculture.
Understanding No-Appraisal Refinancing
Unrated refinancing is good for homeowners, but risky for lenders. Homeowners typically opt for no-assessment refinancing when they are unlikely to qualify for a new loan when the lender conducts an assessment.
You might find yourself in this situation if your home’s value has gone down since you bought it and your mortgage is now underwater: meaning you owe more on your mortgage than the property is worth. This means that if the lender defaults, they cannot sell the property for the balance of the outstanding mortgage, so they suffer a loss. Underwater mortgages usually result from a combination of events, many of which may not be under your control.
Unrated refinancing is available from several government sources:
- The Federal Housing Administration (FHA) is rationalizing refinancing
- The Veterans Administration (VA) is streamlining refinancing (also called rate cut refinancing loans)
- The US Department of Agriculture is streamlining refinancing
- Fannie Mae’s “RefiNow” program and Freddie Mac’s “Refi Possible” program (Those who are not eligible for no-assessment refinance through these programs can recover $500 from their lender for assessment)
All of these programs specifically target at-risk homeowners.
Disadvantages of No-Appraisal Refinancing
Many homeowners are not eligible for no-assessment refinance programs due to income limits or other qualifications, so getting an assessment may be their only chance to refinance. But even if they do qualify, there are several reasons they’re probably better off refinancing with a loan that requires an appraisal.
If you are currently paying for personal mortgage insurance (PMI) because you bought the home with a down payment that is less than 20% of the purchase price, an appraisal that shows the home’s value has increased may allow you to calculate PMI for the home to avoid new loans. The increase in market value plus the amount of principal you have accumulated from your old mortgage payments must increase your equity to 20% or more.
The equity increase can also get you a lower interest rate on the refinanced mortgage than you could get on an unrated federal loan. This is because borrowers with more equity are less likely to leave their homes, so the lender sees you as less risky.
Of course, there is no guarantee that the appraiser’s assessment of your property’s value will be high enough to allow you to refinance or eliminate PMI. If you choose to qualify for refinance, you must be willing to take the risk of paying a fee of hundreds of dollars with no guarantee of getting better credit terms.
Discrimination against mortgage loans is illegal. If you think you have been discriminated against because of your race, religion, gender, marital status, use of public assistance, national origin, disability or age, there are steps you can take. One such step is to file a report with the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development (HUD).
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