Because of income limits or other qualifications many homeowners do not qualify for no-appraisal refinance programs, so taking a chance on an appraisal could be their only option for refinancing.
Even if these borrowers qualify, there are many reasons why it is better for them to refinance with a loan that requires an appraisal.
When a borrower buys their house with not as much of or less 20% down payment they would require to pay private mortgage insurance (PMI) in such a case an appraisal that shows the home’s value has increased could help them avoid PMI on their new loan.
The increase in market value, along with the amount of principal they have accrued by their old mortgage payments, will increase their equity in the home to 20% or more.
When the equity rises, the interest rate drops on the refinanced mortgage in contrast to what they could get with a federal no-appraisal loan.
As the borrowers with higher home equity are less likely to walk away from their homes, they are considered to be a lower risk by the lenders.
Though it is not necessary that the appraiser’s opinion of the borrower’s home value will be high enough to allow them to refinance or eliminate PMI.
If they opt for refinancing that requires an appraisal, the borrower must be ready to risk paying several hundred dollars fees along with no assurance of getting better loan terms.