How to Refinance If Your Home Appraisal Value Is Too Low

Learn if an FHA loan, other home loan or mortgage insurance can help you refinance when your home has low appraisal value.

Refinancing your home loan can reduce your mortgage payments or get you cash to cover a big expense. Whether you can borrow and how much you can borrow depends in part on the appraisal value of your home. A licensed professional conducts a home appraisal and determines value by looking at a multitude of factors that include structural condition, amenities and location. A low house valuation means you might not be able to take out as much cash as you wanted through refinancing. Here’s what you can do when you need to refinance your mortgage but have a low home appraisal.

What to Do If Your Home Is Appraised at a Low Value

Having a low appraisal value of your home is not an insurmountable problem. You have potential solutions.

1. Stick With Your Current Home Loan

You might find that it is better to keep your mortgage. “Perhaps make additional principal payments if the goal is to pay off the loan faster,” Phillips said, and the existing loan term is more beneficial than what is offered in today’s market.

2. Get a Second Opinion

“It never hurts to check out a different appraiser,” said Rocke Andrews, past president of the National Association of Mortgage Brokers of Washington, D.C.

But before you do, have a real estate agent prepare a CMA so you’ll have a list of comparable properties to share with the appraiser.

3. Boost Your Home’s Value

Consider making renovations to your home to boost its value. For instance, installing a new door at the entrance to your house results in a 91 percent return on your investment, on average — you recoup 91 cents of every dollar you spend.

Be careful to avoid over-improving your house and making upgrades that result in little to no resale value. Otherwise, you’ll dig yourself deeper into a hole.

4. Consider Alternative Financing Programs

Alternative programs can help you refinance despite a low appraisal. The Home Affordable Refinance Program, for example, lets borrowers with little or no equity refinance their loans without having to purchase additional mortgage insurance. Homeowners with mortgages owned by Freddie Mac or Fannie Mae are eligible to participate in the program, but you’ll have to act quickly because the program expires on December 31, 2018.

Homeowners with loans backed by the U.S. Department of Veterans Affairs can find relief through a streamlined Interest Rate Reduction Refinance Loan. This VA program allows eligible borrowers to refinance their mortgage without an appraisal or loan underwriting.

Keep Reading: Steps to Disputing a Low Home Appraisal

Why Refinance Your Home?

A refinance can help you in several ways. First, mortgage rates remain historically low but are starting to creep up. Refinancing sooner rather than later can save you money by locking you in at a lower rate.

Refinancing might also let you drop your mortgage insurance, reduce the term of your loan or remove a co-borrower, according to Esther Phillips, senior vice president of Key Mortgage Services, Inc. of Schaumburg, Illinois.

Also consider refinancing a potential opportunity to take out cash you can set aside for unexpected expenses or use for home improvements.