The largest benefit of the streamline refinance is that you don’t need an appraisal. So why would someone consider paying for one? Doesn’t that defeat the purpose? Truthfully, there are certain situations where it makes sense to get a new appraised value.
Understanding these situations can help you make the right decision.
Don’t Pay Closing Costs
Who wouldn’t want to avoid paying closing costs? In this case, you still pay them, just not out of pocket. If the appraised value of your home is high enough, you can wrap the costs into your loan. This does increase your principal balance and monthly payment, though.
If you don’t have the cash handy or just don’t want to part with it, it might make sense then. Wrapping the costs in lowers the cash you need at closing. Be careful, though. It also lowers the monthly savings. Depending on the streamline program you use, you may need to meet a specific savings requirement.
For example, both the FHA and VA streamline loans require at least a 5% savings on your principal and interest payment. There are exceptions to the rule, though. It depends on the exact situation. If you refinance from a fixed rate to another fixed rate, you’ll need the monthly P&I savings or at least a lower interest rate. If you refinance from an ARM to a fixed rate, though, your payment may not decrease. There is still a benefit, though, because the loan is less risky.
Get a Lower Interest Rate
Lenders base your interest rate on your loan-to-value ratio. In the case of the streamline loan, lenders use your original appraised value. If you have not paid your principal balance down much, the LTV will be high. This could leave you with a higher interest rate.
When you pay for a new appraisal, though, you may benefit from the higher value of the home. Even if you haven’t had the loan long, the higher value can bring your LTV down. In turn, you could receive a lower interest rate. Lenders determine your interest rate on the riskiness of your loan. The lower the LTV, the less risk the loan poses to the lender.
Get Approval From Your Lender
Some lenders require an appraisal for a streamline loan. It’s not common, but it does happen. Lenders have different reasons for doing so. Some lenders require it when they are aware of drastically decreased values in your area. Others require it when your loan file just seems risky. Some lenders yet just require it across the board.
You can shop around and look at different lenders requirements. But, if you come across a lender you really want to use, they may require an appraisal. It’s then up to you how you want to proceed.
While paying for an appraisal might not seem like a good idea when you can use the streamline program, it may help. It depends on the circumstances of your loan. If you are a risky borrower, it may work to your benefit to show the value of your home. Of course, this only works if you know the value of your home increased. You can find out a good estimate of your home’s value from your local real estate agent or even your lender.
If the higher value will work to your benefit, consider paying for the report. An appraiser can help you get a higher loan amount to cover your closing costs; lower your interest rate; and even get approved for the loan. The appraisal usually costs around $400. If you can swing it in your budget, it may work to your benefit!