As I continue with this next piece in my series on appraisals, we will now take a closer look at other anomalies in the process: Refinances and Home Equity Lines of Credit.
Many times I meet with Wake County sellers who previously had their home refinanced or had taken out an equity line of credit and they will proudly present me with a copy of that appraisal. They do this so that I can see what the opinion of value for their home was back then. In almost every case it’s a higher appraisal versus a realistic sales price for today. How can that be?
Familiar Risk Is the Best Kind
Again, it all boils down to the amount of risk to the lender. When you went to your bank and asked them to refinance your Triangle area property or give you an equity line of credit, they immediately know your pay history. They can look into their records and see that you’ve paid on time so a lower interest rate on the refinance is a very low risk.
Your bank is in the business of loaning money and they will do their best to give you what you want. Helping you actually helps them keep a good paying customer in their book of business. Considering the reality of foreclosures, it behooves lenders to do whatever it takes to retain the loyalty of the better paying customers.
With a refinance or equity line of credit, the bank will allow the appraiser to know the number you both need to hit. They are very likely to let the appraiser be more generous with their adjustments and their opinion of value. They may even allow them to go outside of a geographical area or further back in time to hit the number you need.
Fair Warning to Wake County Home Buyers!
Because of the cost incurred for a refinance, which is typically added to the loan amount or paid out of pocket by the borrower, don’t refinance unless you can get an interest rate at least 1% lower than you have now.
You want to also be sure to look for lenders who offer no-cost refinances. Another helpful hint is to not refinance if you feel you’ll be moving in a year or two. Not unless you’re going with a no-cost loan. However, even those may have a pre-payment penalty if you do not keep the loans for a specific amount of time so read the terms closely.
If paying out of pocket be sure to calculate the cost of the refinance against the savings per month to determine how many payments it will take for you to break even. On average, it’ll take about 3 years. This is another reason to look for no-cost refinancing lenders.
Reduce Your Own Risk
At this point in the series, we’ve learned that both the bank as well as the appraiser will do whatever they need to as a means of reducing risk. One of the best ways that you can do the same and protect yourself is to avoid going through the home buying process alone or with a less experienced agent.
We at Linda Craft & Team have connected thousands of Wake County area buyers with their new homes with as little worry as possible. If you’re in or around the Greater Triangle area and still searching for your new home, contact us and let us partner with you to get you there.
Have a great day!