Low score: why it happens and how to avoid it



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If you are looking to refinance your mortgage, you may run into a hurdle when your lender orders an appraisal to verify the value of your home. Your lender will use the results of the assessment to find out if you are eligible for refinancing and if you can cash out.

A low score can lower your chances of getting a new home loan, so it’s important to know what to look for.

This is why low home grades sometimes happen, how to avoid them, and how to respond to them:

Why low grades are important for refinancing institutions

BUT home appraisal professional opinion on the market value of your home. Lenders usually order a refinancing underwriting appraisal to make sure they are not lending more than the home is worth.

And for cashing refinancingThe amount of home equity in a home affects how much money a homeowner can borrow.

A low appraised value can lower your chances of getting a new loan. Take a look at one example to understand why:

Let’s say you are applying for refinancing at a rate and term. You owe $ 200,000 on your initial home loan, but your appraiser lists the home value at $ 180,000. Your mortgage lender will be nervous about the $ 20,000 mismatch.

This is because if you delay your mortgage payments and the house goes into foreclosure, your lender may not return that $ 20,000. This is why you want the appraised value to match or exceed the purchase price of the home.

If the rating is low, you will also not be able to delete private mortgage insurance (PMI), or the amount of money you can borrow, may be reduced. If the lender does not approve of your application, you will have to contact another mortgage lender or postpone refinancing altogether.

Good to know: The cost of certification usually ranges from $ 300 to $ 500 and it will be included in your refinancing of closing costs

How often does a home get undervalued?

If the estimate turns out to be understated and the seller does not change the selling price, you may not qualify for refinancing… But this does not happen often.

According to the latest data from Fannie Maehome valuation is lower than the asking price in only 8% of cases. And when they do get low, the borrower can usually change the purchase price in his favor.

If you are considering mortgage refinancing, be sure to shop for a great price. Credible makes it easy – you can compare all of our partner lenders and see prequalified rates in just three minutes.

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Reasons for underestimation

If the home score is lower than expected, it may be due to:

Revaluation of the cost of real estate modernization

Upgrading the class of real estate can increase the value of your homebut you may not be able to recoup all the money spent on these projects.

For example, you might spend $ 15,000 to install a deck, but the appraiser may decide that it is only worth the $ 10,000 increase in the property’s value. Or worse, the appraiser may not even know what you did to improve your home.

Clue: You can work around this by creating a list of the updates you made, along with receipts and photos, if you have any, and handing it over to the appraiser.

The house is cluttered

Clutter should not affect the value of the home – unless it starts to affect the structural condition of the home or gets in the way during the appraisal. Appraisers can also be influenced by first impressions, so clutter inside or outside can ultimately reduce the value of your home.

Clue: Before evaluating, give yourself ample time to clear up the clutter, clean the outside and inside, make any necessary repairs, and generally improve the appearance of the curb.

To figure out: When to get a home appraised for refinancing, and when to not

Unusual market conditions

If the real estate market in your area is developing faster than usual, estimates may lag behind market prices. This is because the appraiser compares your home to others that have recently been sold in the area, and historical data may not keep up with current prices in the hot seller market.

The converse may also be true if your housing market is sluggish. With fewer buyers and more homes on the market, the value of your home can drop.

Clue: Dealing with unusual market conditions may be inevitable, but it will help you learn what is happening in your area before applying for refinancing. Home sales tend to go faster in the summer and prices are higher, which can help drive up the value of your home.

Inexperienced appraiser

The low cost of a home can also be attributed to a valuer who has no experience. They may rush to work on busy times, use imperfect comparable sales data, or not know your market or valuation process.

It can also be the first appraiser to evaluate the type of home you own, such as a condominium or single family home.

Clue: Avoid this by meeting with an appraiser at your home. You can share comparisons, explain problems, and provide information about your home.

How to respond to a low grade

If you feel that the appraiser has misjudged the value of your home and is unwilling to revise the price, you do not need to accept the results. Here are some options for what you can do if your score is low.

1. Examine the attestation report for errors.

Your first step is to request a copy of the assessment report if you do not already have one. Many lenders use a seven-page Unified report on the assessment of the housing stock

Read it to make sure everything is correct, and look for information that may reduce the estimated cost. For example, the number of bedrooms and bathrooms, the square footage, and any improvements you make will greatly affect the results.

2. Check out comparable sales.

The appraisal report also indicates which houses the appraiser used as “additional” houses. These are recent local sales that help appraisers estimate the value of your own home, so you need to be sure the properties are truly comparable.

Here are some key points to keep in mind when reviewing your compositions:

  • Date of sale: See when a similar house was sold. As market trends change, it is best to look at homes sold in the past three to six months, if possible. This will reflect the growth in rates in your market. If your market is sluggish, make sure these are the most recently sold homes near you.
  • Comparability: A house like this should also be like yours. This means it should have roughly the same number of bedrooms and bathrooms and a similar square footage. It’s even better if you can find homes with similar amenities and features, such as a terrace, a finished garage, or a strong curb.
  • Location: Ideally, a comparable home should be within a half-mile radius of your home. This is because house prices can vary significantly depending on the area. Check Google Maps to check the location of your computer.

3. Check with a real estate agent.

IN real estate agent Whoever helped you buy your home may be willing to give you advice, so give them a call. Submit your assessment report along with any notes you made. Your agent can help you decide if you should appeal a report that requires a separate process.

4. Consider the possibility of appealing the results of the assessment.

Here are the steps you can take to appeal your home assessment:

  • Contact the lender. Call the lender to explain why you want to appeal the assessment and ask about their appeal process. Then send an email so you have everything in writing.
  • Write a complaint. Your real estate agent can help you create a report that lists any valuation problems, be they simple numerical errors or a more serious problem.
  • Check the follow-up report. If the report contains errors such as incorrect address or square footage, the lender can quickly correct the report and change the cost. But if there are more serious problems with the assessment report, you may need to order a new assessment.
  • Notify your state attestation commission. If you are unlucky with a lender but still feel that the appraised value is too low, then find your state certification commission and file a complaint.

5. Get a second opinion

Different appraisers may have different opinions about the value of your home. If you order a new appraisal and the value of your home rises again, a new report may support your appeal. This can allow you to qualify for a refinancing loan.

Just make sure the second evaluator is qualified by the Valuation Institute, the American Society of Appraisers, or another national appraisal organization.

Read on: How to Refinance Your Mortgage in 6 Easy Steps

about the author

Kim Porter

Kim Porter is an expert in loans, mortgages, student loans and debt management. She has been featured in US News & World Report, Reviewed.com, Bankrate, Credit Karma and others.

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