Very Low Appraisal on Home Refinance

[TooFrugal]

We are refinancing our home to get a lower interest rate. I had a home equity line of credit (HELOC) with a credit union prior to refinancing.

The refinancing bank did a rapid appraisal for under $100. The problem is that the value came out fine for the refinance but too low to keep the current HELOC limits.

I checked the comparable home sales on Trulio and other homes the same size as ours in our neighborhood have all sold for around $80 to $100K more than our rapid appraisal valuation. I know it wasn't a detailed appraisal but still it doesn't take a rocket scientist to look up comparable home sale prices on the Internet. Even homes with 1,000 square feet less than ours within a few blocks from our house have sold for $30K or more than the rapid appraisal value on our home.

The current appraisal on our home has no basis in reality of what similar homes within a mile of so radius of our house and the same local schools have actually sold for over the last three months. The credit union people said they also did their own rapid appraisal and it came close to the refinance banks appraisal, yet no homes in our neighborhood has ever sold for that low of a price so far this year.

At this point our choices are just to pay off the HELOC and get another one after the refinance closes, pay $500 for a full appraisal and hope it comes out better (which it may not), or, to add insult to injury, pay the credit union that has our HELOC $200 to have our HELOC credit limit lowered and go ahead with the refinancing as planned.


We got a great deal on the refinancing and locked at the very bottom of rates this year, so I'm thinking I'll just swallow my pride and pay the $200 to have my HELOC credit limit lowered so as to not complicate or slow down the refinance.

I was just curious if anyone else has had a similar problem lately and/or any words of wisdom on how to proceed.

 

[honobob]

I would ask for the comps used for both appraisals. They could also be making a time adjustment that reflects a downward trend in values and therefore your new value would come in at a lower value than recent sales.

 

[crazy connie]

Also, might this be a hammer to get your property taxes reduced?

 

[Animorph]

Yep, same thing happened to me. Way lower appraisal than I ever dreamed, had to pay $100 to lower my HELOC limit by about 30% (not to mention taking that money out of equity investments to pay down the HELOC). But I picked up a great mortgage rate and more than covered the 30% with cash out from the new mortgage. Not perfect, but if you can get that locked-in rate I'd snap it up now.

It took me about 60+ days to close, so don't count on that lock. You probably face less mortgage traffic now. I think I hit the peak the last two months. You may need to walk away from the deal. Make sure it's still acceptable before you lower the HELOC. I was told the HELOC subordination could add 30 days to the process, but the actual time spent waiting for the HELOC lender to modify and approve the change was just 3-4 days. I had already paid it down to clear 80% loan to value, and that was acceptable to both lenders.

Hope you can get the good rate. I don't see that coming again in my lifetime.

 

[TooFrugal]

Thanks for the suggestions. I contacted the mortgage rep and asked for a copy of the appraisal so I can see how they got the number they did and what comps they used for their appraisal.

I also called my accountant for advice and she told me that many of her clients were having similar issues with low appraisals and related problems. Some of her clients have even bigger problems including having HELOCs closed with 10 days notice to pay off the balance or HELOCs being converted to fixed loans with no advance notice. My accountant also said that her realtor clients were not having trouble so much in selling houses these days, but their main problem was getting financing for potential buyers.

So I guess I should consider myself lucky the main refianance went through okay at a good rate and not worry too much about the HELOC limit or paying the $200 to have my credit limit lowered.

 

[Rustic23]

I use to work for the appraisal department for one of CA.'s major banks. For residential loans, i.e. refinance we had three levels of appraisals.

1. Electronic - These were provided by a company that used algorithms based on mass sales data from MLS and such to evaluate property.
2. Drive by - If the Electronic appraisal did not make value, we would send an appraiser by the property to check how it compared to the rest of the homes in the neighborhood.
3. Full appraisal - If the drive by did not work we would order a full appraisal.

This was 10 years ago, but the price was $100 for an electronic, then 150 then 350. If your bank did an electronic appraisal it may not have any com parables. I don't know what the current level, but it was $250,000. If the loan, i.e. new money, was less than $250,000 then you could use something less than a full appraisal. In fact you could use Appraisal District value. Many banks will still stick you for the full appraisal fee, even if they use the lesser appraisal type.

 

[TooFrugal]

In fact you could use Appraisal District value. Many banks will still stick you for the full appraisal fee, even if they use the lesser appraisal type.

I think they called it a "rapid appraisal" for under $100. They did not walk through our house, but I don't exactly know exactly what they did do to get the current figure.

I do have the option of having a full appraisal done, but that would cost $495 and the comps would still be the same. So I don't want to shell out $495 more only to have the new appraisal com out the same (or maybe even less!). Plus a full appraisal would delay the close date for the loan and risk having the lock expire.

There was an article in the Wall Street Journal this year about lenders pushing appraisers for low appraisal amounts these days, so the problem is simply built into the the system these days.

 

[Rustic23]

I can't speak for all banks, but we never pressed for a low or high appraisal. I can also not speak for how other banks are set up, but the appraisal department was separate from the loan department of the bank. We were more a part of the underwriting department and as such were more of a watch dog. Now, that did not stop loan officers for calling and complaining about appraised values. However, I never had anyone call and say the value was too high. Banks actually do want to lend money. They may be more cautious, but, IMHO, if they can show the regulators they have a 'fair market value' they will be happy, and it matters little if it is high or low.

 

[TooFrugal]

I would ask for the comps used for both appraisals.

I got the comps for the bank's appraisal today. They ranged from $100K to $225 more than what they appraised out house at, and some of the comps were smaller homes. There wasn't any explanation on the appraisal for why our house was priced so much lower. The mortgage rep just said they are very conservative in the rapid appraisals compared to the walk through type.

I ended up just paying the $200 to have the HELOC limit lowered just to move the refinance along before the lock expires.

Thanks for all the comments and suggestions.

 

[Nords]

We got a great deal on the refinancing and locked at the very bottom of rates this year, so I'm thinking I'll just swallow my pride and pay the $200 to have my HELOC credit limit lowered so as to not complicate or slow down the refinance.
I was just curious if anyone else has had a similar problem lately and/or any words of wisdom on how to proceed.

Perhaps the $200 is the credit union's fee to agree to resubordinate their HELOC to your new mortgage.

When we refinanced our primary mortgage, the refi bank requested that our Navy Federal Credit Union HELOC be re-recorded as subordinate to the mortgage. NFCU took that as an opportunity to nail us with a $250 fee.

We took it as an opportunity to move our HELOC business from NFCU to Pentagon Federal Credit Union.

I think the reason you were being hit with a lower HELOC limit has more to do with newer (more stringent) lending criteria and not so much to do with appraisals. Of course an appraisal can still hurt you if it comes in lower.

 

[TooFrugal]

Perhaps the $200 is the credit union's fee to agree to resubordinate their HELOC to your new mortgage.

They had a $75 fee for the subordination. The $200 was the fee to lower our credit limit. The credit union said it we didn't agree to the lower limit they may just cancel the HELOC altogether and turn the outstanding balance into a fixed loan. My accountant said many of her client's have had this happen.

Anyway we accepted the lower HELOC limit, paid the $200 + $75 fees, but got the refi loan at our locked rate before it expired so overall I can't complain. Our mortgage consultant told me that rates have gone up a full percent since we locked so overall it worked out okay for us.