No-Appraisal Refinancing

What Is No-Appraisal Refinancing?

No-appraisal refinancing refers to a type of mortgage that replaces an existing loan on a residence. “No-appraisal” refers to the fact that the lender does not require an independent, professional assessment of a home’s value as a condition of extending a new mortgage on it. This new mortgage usually offers more favorable terms than the original mortgage it replaces.

No appraisal refinancing is available from several federal sources. Most private lenders, such as banks and mortgage companies do often require appraisals when it comes to refinancing. Federal sources will offer refinancing options without a re-appraisal as a way to stabilize poorer communities and demographic groups that might otherwise lose their homes in an economic downturn. It is a public service effort that provides homeowners who are struggling with some help to pay their mortgages instead of being forced to default on their homes.

Understanding No-Appraisal Refinancing

No-appraisal refinancing is good for homeowners but risky for lenders. Homeowners typically choose no-appraisal refinancing when they are unlikely to qualify for a new loan if the lender does perform an appraisal.

You could find yourself in this situation if your home’s value has declined since you purchased it, and your mortgage is now underwater: that is, you owe more on your mortgage than the property is worth. This means that if you default on the mortgage, the lender will not be able to sell the property for the balance of the outstanding mortgage, so it will take a loss. Underwater mortgages usually result from a combination of events, many of which may not be under your control.

No-appraisal refinancing is available from several government sources: 

All of these programs specifically target at-risk homeowners.

Disadvantages of No-Appraisal Refinancing

Many homeowners are not eligible for no-appraisal refinance programs due to income limits or other qualifications, so taking a chance on an appraisal may be their only shot at refinancing. However, even if they do qualify, there are several reasons why they would likely be better off refinancing with a loan that does require an appraisal.

If you are currently paying private mortgage insurance (PMI) — because you bought the house with a down payment of less than 20% of the purchase price — an appraisal that shows the home’s value has increased could allow you to avoid PMI on the new loan. The increase in market value, plus the amount of principal you have accrued via your old mortgage payments, must increase your equity in the home to 20% or more.

The equity increase can also win you a lower interest rate on the refinanced mortgage than you could get with a federal no-appraisal loan. This is because borrowers with more equity are less likely to walk away from their homes, so the lender will consider you to be lower risk.

Of course, there is no guarantee that the appraiser’s opinion of your home’s value will be high enough to allow you to refinance or eliminate PMI. If you choose to seek refinancing that requires an appraisal, you must be willing to take the risk of paying a fee of several hundred dollars with no guarantee of achieving better loan terms.

Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, 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 to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).