Ever wonder why you need an Appraisal for your Refinance Loan?

It is known that when you purchase a home you will have an appraisal conducted to determine the value.  More specifically an appraiser analyzes the value of your home and property compared to surrounding homes of similar size and style that have sold in the past 6 months.  So why is another appraisal required when you are refinancing your home?

The end result of the appraisal report is a dollar value that is used to determine the maximum amount a lender is willing to loan you.  A refinance pays off your existing home loan and establishes a new loan.  Criteria used to establish a loan for a purchase are much the same for establishing a refinance loan.  Therefore the value of your home and property needs to be confirmed.

Also consider that in the time you have owned your home so far, you have most likely made some changes.  Those changes can add value to your home and property.  Market conditions can also affect your home’s worth.  Are housing prices increasing or decreasing?  An appraisal done for a refinance loan will let you know the amount of equity you now have in the home.  The point is, anytime a loan is established the value of the collateral involved must be determined.

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