DEFINITION of 'No-Appraisal Refinancing '
A type of mortgage for which the lender does not require an independent, professional opinion of the home’s value as a condition of extending a new mortgage with more favorable terms to replace an existing mortgage with less favorable terms. No-appraisal refinancing is available for Federal Housing Administration streamline refinances, Veterans Administration streamline refinances (also called Interest Rate Reduction Refinance Loans), U.S. Department of Agriculture streamline refinances and Home Affordable Refinance Program refinances.
BREAKING DOWN 'No-Appraisal Refinancing '
Homeowners typically choose no-appraisal refinancing when they would not qualify to refinance if the lender did perform an appraisal. Homeowners could find themselves in this situation if their home’s value has declined since they purchased it and they now owe more on their mortgage than the property is worth.
Otherwise, there are several reasons why a homeowner would likely be better off refinancing with a loan that does require an appraisal. If they are currently paying private mortgage insurance (PMI) because they made a down payment of less than 20%, an appraisal that shows the home’s value has increased since the date the existing mortgage was taken out could allow the homeowner to avoid PMI on the new loan. That would happen if the increase in market value plus the amount of principal they have paid down have increased their equity to 20% or more. This increase in equity can also give borrowers a lower interest rate since a lender will consider them lower risk; borrowers with more equity are less likely to walk away from their homes.
Many homeowners are not eligible for one of the four no-appraisal refinance programs; taking a chance on an appraisal may be their only shot at refinancing. All the same, there is no guarantee that the appraiser’s opinion of the home’s value will be high enough to allow the borrower to refinance or to eliminate PMI. Borrowers who risk a refinancing that requires an appraisal must be willing to take the risk of paying a several-hundred-dollar fee with no guarantee of achieving their goal.