Appraisal value
Most residential lenders require appraisal reports to be no more than three months old at the time of closing. Many will accept appraisals that are up to one year old; however, the appraiser will have to issue a recertification letter that confirms the applicability of the report’s value estimate.
Often, however, it is in the borrower’s best interest to obtain a new appraisal. The new appraisal could include value appreciation to provide a higher appraisal value. A higher value could lower the LTV ratio, which can affect the mortgage insurance and available equity. For example, Larry and Lisa bought a house for $200,000 three years ago, with a $180,000 (90% LTV) loan. Because of value increases in the area, they have the property reappraised. The appraisal report estimates their current value at $225,000. By this time, their loan balance is now $178,000. With this new appraisal, they can refinance their current loan at an LTV of 79%. This could eliminate their $95/month PMI payments. They could also opt to take out a home equity loan against their increased equity to consolidate debt or make improvements. In the preceding example, the property has appreciated 13% in three years. That is slightly higher than normal, but not unheard of. Appreciation of more than 4% per year often raises a red flag with underwriters.
All appraisals are automatically reviewed by the underwriter. Whenever there is any significant appreciation in value, the underwriters will have a third party review the new appraisal report. The appraisal review can reject the appraisal, accept it or require additional information or comparables to support the valuation.
Note that during the first year after a purchase, the value used in applying LTV limits is the lower of the appraisal value or price. For example, Beverly purchased a house for $100,000. Six months later she wants to refinance it and has appraised the property at $150,000. Unfortunately, that appraisal is essentially meaningless, because all conforming and most non- conforming lenders will use the $100,000 price when applying the LTV.