In the middle of the refinance process, you might need to do an appraisal but what happens if the refinance appraisal comes back higher than expected. In all cases, this is a win and a good sign that your property value is increasing but will help you in the refinance process. To start your refinance journey click here.
Refinance Appraisal Higher Than Expected For A Rate And Term Refinance
If you are going for a standard rate and term refinance to just get a lower interest rate on your mortgage by paying off your existing one and getting a new one with lower payments then getting a higher appraisal doesn’t change much besides giving you more equity in the house. For example, let’s say you have a $100,000 house with a $75,000 mortgage so you have 25% equity in the house. Now with an appraisal that comes in higher than expected at let’s say $125,000 with the same $75,000 mortgage now you have 60% equity in the house.
This is great for you in many ways. One you now own more of your house and closer to owning it in full which is always a win. Second, with more equity in the house lenders and bankers are more open to working with you since you own a large present of the home equity. This helps lower your LTV or loan to value which helps getting approved and better rates and terms.
For a normal rate and term refinance if the refinance appraisal is higher than expected then not many changes. Hopefully, you still qualify with your income and debt. The process should go smoothly and be pretty straight forward. The biggest effect is the change in LTV (loan to value) which can put you in a different pricing bracket to get better pricing on rates.
If your refinance appraisal came in much higher than expected then it might be smart to consider a cash-out refinance to pay off your first mortgage and get some extra cash in your pocket.
Refinance Appraisal Higher Than Expected For A Cash-Out Refinance
On a cash-out, the loan rides on the appraisal as the lenders and banks will only lend to you based on that. Most lenders will do a cash-out for 80% of the appraisal value (some even more). Learn more about refinances here. If the appraisal comes in lower than expected then the amount the lender or bank can offer will not be what you were hoping for. When the appraisal comes in higher than expected then you are almost guaranteed to get the amount you were looking for along with more cash you can take out for your personal needs.
When the refinance appraisal is higher than expected for cash-out refinances then you can start looking at other debts you can pay off with the extra cash you will be getting out. Since a cash-out is all about debt consolidation you should use this opportunity to try to eliminate any and all toxic debts you might have. Mortgage loans, Student loans, credit car loans, car loans and more can be paid off with cash out.
If you do not have any toxic debt then you can use the extra cash in many ways. Personal trips or purchases, home renovations, or even put it in the stock market. We like to suggest paths that generate income and the best in our opinion is home renovations. Adding value to your home makes it a nicer place to live and raises the price for when it’s time to sell. Things like a new roof, new kitchen, new deck, or painting the house can be easy ways to increase your quality of living and raise the value of the house for the next appraisal.