How Your Property Value Affects Refinancing Your Home
Refinancing is a process that lets you replace your current mortgage loan with a new one, and homeowners can choose from two primary types of refinances. First, they can refinance for the same amount, and second, they can refinance for a higher amount to get cash out of their equity. In both cases, the property value might affect the process. Here is a guide to help you understand this correlation.
How to determine property value
Before you learn the correlation between property value and refinancing, you might wonder how lenders determine property values before refinancing. They do this by ordering appraisals. An appraiser is a professional that assesses property values. They must visit the home to determine its value, but that's not all. They must also review the area and recent home sales to compare the prices of homes sold to the house in question. The result is an accurate assessment of the home's value, and they'll give this to the lender.
How lenders base loan amounts
So when someone wants to refinance their loan, they talk to a lender. Then, the lender orders the appraisal. Once they receive the appraisal, they'll review it and give the borrower some options for refinancing. Generally, lenders are only willing to issue a percentage of the home's value for the loan. However, lenders use different percentages. It depends on the lender, but this will affect you. It's more likely to affect you if you want to get cash out of the refinance loan, as the lender will limit how much you can borrow.
Reasons to refinance
Refinancing is a great idea for several reasons, and you might want to consider your reasoning before pursuing this option. For example, do you need cash for a project or debt-consolidation desire? These are common and good reasons to refinance. Other homeowners might not want cash out. Instead, they might want to achieve a lower interest rate, lower monthly payment, or shorter duration. You can determine your reasoning and purpose and then pursue refinancing.
Contact a mortgage lender
Would you like to find out if refinancing is right for your situation? You can learn more about it by talking to a mortgage lender. A lender can help you determine the steps you must take to assess your property value and proceed with refinancing your loan.
For more information about refinances, contact a financial institution in your area.