When valuing your home, don’t simply rely on a few houses that recently sold in the neighborhood. Just because Fred sold his place across the street for $450,000 (or because Trulia/Zillow estimated your value to be $435,000) doesn’t mean your home is worth the same.
Fred’s house is not a good sales comparable if he has:
- a pool (and you don’t)
- 4 bedrooms/3 baths (versus your 3 bedrooms/2.5 baths)
- a 2-car garage (to your carport)
- a newly renovated kitchen (versus your limited renovations)
Without doing your homework, you may be unable to sell your home for the price you want – or your loan entitlement could be much less on a cash-out refinance or reverse mortgage.
The lender will require an appraisal prior to closing – unless an appraisal inspection waiver is granted (such as when you may have substantial equity in your house).
In a conventional or government purchase mortgage, you can get pre-approved by a lender before getting an appraisal (so you shouldn’t spend $485 on an appraisal until you see the loan closing conditions). Whereas in a reverse mortgage, you generally cannot get pre-approved without the appraisal (so make sure your home value estimate is accurate before paying for the appraisal – otherwise you may be disappointed when your approved loan amount is far less than you had expected).
Analogous to lawyers being trained not to ask a question without knowing the answer, you, as a borrower, should be confident in your home valuation before paying for an appraisal.
Here’s the Point:
Before you refinance, don’t waste your money on an appraisal until you have done your own homework on value.