When you’re refinancing your home, the temptation often is to get your own appraisal to get a jump on the process. Don’t do it.

Appraisal Fraud

For years the industry has been riddled by collusion between appraisers, lenders, and sometimes borrowers. When I first got in the business it was common for a loan officer to call around until they found an appraiser that would give them a home value that would enable them to make the loan. If one appraiser wouldn’t give a high enough value the loan officer on the loan would just call another and another until he found an appraiser willing to play ball. Too often lenders would lose a loan because the appraisal came in too low so lenders and loan officers took matters into their own hands and made sure they would always get the value they needed.

Upside down from the Start

Because of the above practice, many borrowers were getting loans that were far higher than the home’s true market value. It wasn’t uncommon for people to be underwater by 40-50 thousand when their loan funded. Combine that with Stated (liar loans) Loan programs, and people were getting into homes that they could not even afford the payments on. Many got away with it when home values were going through the roof for so many years. It was easy to refinance your way out of the problem by taking out equity or just selling the home for a profit and starting over. When the real estate bubble burst both those options were taken away from distressed borrowers and many found themselves faced with foreclosure.

Ordering an Appraisal

Don’t jump the gun by getting an appraisal done on your own accord. Lenders today have their own set of standards and will not accept an appraisal that they haven’t ordered from one of their own approved appraisers. Neither the borrower nor the Loan Officer can order an appraisal. Usually a loan processor is the one to make the call and order the appraisal, that way no one is putting on any pressure to get a certain home value.

Finding the Value

The best thing you can do to make sure you have enough equity to refinance your home is to try to find the value on your own. The easiest thing is to call the guy who appraised your home the last time. His name, or his company’s name and number will be on the appraisal report. Call and ask to speak to the appraiser. Introduce yourself and remind him he appraised your home and what value he gave it. If you have made any improvements since the last appraisal let him know. Tell him you want to refinance and ask if he could give you a ballpark estimate. Most appraisers will do that for you because they want your business when you get ready to refinance. Armed with the figures he gives you you’ll know if you have enough equity to refinance and you won’t have to worry about the value being too low to do the loan.

Full Disclosure

When you are in the process of refinancing your home be sure to talk to your lender about any issues your home may have before an appraiser is sent out. Sometimes a person’s house will have an issue that can be solved between the borrower and loan officer, but if an appraiser sees it and documents it that could stop the loan in its tracks. Think about this example. You see a hairline crack on the wall near the ceiling in your living room. Your loan officer will probably tell you to run a paint brush over it and be done with it. If an appraiser sees it he will see it completely different; it’s his job to do so. In his mind he is seeing a roof with a hole in it and water is streaming through causing your wall to get soaked and the sheetrock to crack. His suggestion, replace the roof and wall before you refinance, when all it was, was a crack in the paint with no underlying causes. Believe me, it happens all the time.

The Last Word on Remolding and Home Repairs

If you are going to do some home repairs or remodeling, make sure you have enough money to finish it. I can’t tell you how many times a borrower has called me to refinance so they can finish a project that ground to a halt due to lack of funds. Many borrowers don’t see a half- finished job as a problem. They assume you can just refinance, get cash out, and finish the job. Very few lenders will lend on a home that is not finished so don’t start anything on the home unless you can finish it. It all boils down to communicating with your lender. Tell him everything about the home even if it seems insignificant. It’s often the one thing you skip over that sinks the ship.

Stacey Edwards writes for Environmental Data Resources, an environmental issues company that provides Radius Maps, Historical Aerials, and Sanborn Maps.

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