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Refinancing your mortgage? Understand appraisals

Mortgage rates are tantalizingly low. But for some homeowners, the opportunity to refinance could be scuttled by an appraisal.

The process isn’t an exact science and homeowners may be surprised to find their property isn’t worth as much as they believed. It’s an unfortunate pitfall at a time when rates have never been more attractive; the average rate on a 30-year loan was 4.09 percent last week and the rate on the 15-year mortgage hit a record low of 3.29 percent.

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If you’re thinking of refinancing, here’s what to expect:

Why it’s important - As part of the refinancing process, the mortgage lender will order an appraisal to determine how much you still owe in relation to the current value of your home. This percentage is called the loan-to-value ratio.

The maximum loan-to-value ratio will vary from lender to lender. But the exact cap on a particular mortgage can be influenced significantly by factors such as the type of property, the amount that’s owed and your financial situation.

In other cases, the limits may be high enough so that even underwater homeowners - those who owe more than the value of their home - can qualify for a refinancing. A federal government program allows some borrowers whose mortgages are held by Fannie Mae and Freddie Mac to refinance into lower-rate loans even if they owe more than the value of their home.

The loan-to-value ratio may be a roadblock for those who bought during the housing boom. These homeowners may find their appraisals put them right on the cusp of qualifying for a refinancing, said Mark Goldman, a mortgage broker who lectures at San Diego State University. That’s why it’s critical that an appraisal doesn’t undervalue your home.

How the process works - So how does an appraiser determine the value of your home? The biggest factor will be public records on recent sales of comparable homes in the area. And if the real estate market in your area has been flat, the appraiser may use foreclosures in determining the value.

The appraiser, who will be hired through your mortgage lender, will schedule a visit to your home as part of the process. Before the appointment, make a list of any features you think enhance the value of your home and point them out in a walk-through with the appraiser.

Once the appraisal is reported back to the lender or your mortgage broker in about a week or so, be sure to request a copy and review it for accuracy.

If you don’t think the appraisal accurately reflects the value of your home, submit any details you believe were overlooked. This might include a recent sale that wasn’t included.

Most lenders have appeal procedures, known as “reconsiderations of value.’’ But keep in mind that a successful appeal will depend on your ability to support your case with specific facts, you can’t just insist your home is worth more than the appraisal.

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