Why the appraised value matters
Your LTV is your loan amount divided by your home's value. Lenders use it to set your rate, your mortgage insurance and how much cash you can take out. When the value comes in low, your LTV goes up, even though your balance hasn't changed.
A hypothetical example
You expected your home to appraise at $400,000, and you owe $310,000. That's an LTV of about 78%. The appraisal comes in at $375,000 instead, which moves your LTV to about 83%.
On a conventional loan, going above 80% LTV usually means paying mortgage insurance. Paying the balance down by $10,000, to $300,000, would bring your LTV back to 80%. This is an example only; your numbers and program rules may differ.
Read the report closely
Ask your loan consultant for a copy of the appraisal and look for mistakes. Common ones include:
- Wrong square footage, or rooms left out
- Missing upgrades, like a new roof, kitchen or HVAC system
- Comparable sales that are far away, much older or a different type of home
- Recent nearby sales that weren't included
Ask for a reconsideration of value
If you find errors or better comparable sales, your lender can send a reconsideration of value request to the appraiser. Include the facts, like recent sales close by and a list of improvements with dates. The appraiser reviews it and may or may not change the value. A second appraisal is sometimes possible, usually when the first has clear problems.
Other ways to keep your refinance on track
- Bring cash to closing to lower your loan amount and your LTV.
- Take less cash out, if you're doing a cash-out refinance.
- Compare programs. If you have an FHA or VA loan, a streamline-type refinance may not rely on a new appraisal in the same way.
- Accept the new terms, if the savings still make sense with mortgage insurance or a slightly different rate.
- Wait and try again later, after you've paid down more or values have risen.
What it means for your rate lock
A lower value doesn't automatically cancel your lock. But if your LTV moves into a different pricing tier, your rate or costs may change. Ask your loan consultant how the new value affects your locked terms and how much time is left on the lock.
