Refinance and Home Value: How Your Appraisal Shapes the Loan

When you refinance, the lender isn't only looking at you. They're also looking at your house. Your refinance home value, as determined by an appraisal in most cases, helps decide which options are open to you, whether you can take cash out, and whether you can get rid of mortgage insurance. Here's how it all connects, in plain English, and what to do if the number comes in lower than you hoped.

Loan-to-value, or LTV, compares what you owe with what the home is worth. You get it by dividing your loan balance by the home's value.

Here's an example with round, made-up numbers. If your home is worth $300,000 and you owe $240,000, your LTV is 80%. The remaining 20% is your equity. If the home is valued at $270,000 and you still owe $240,000, the LTV climbs to about 89%, and your equity shrinks to about 11%.

What is loan-to-value in a refinance?

It compares the amount you owe with your home's value. If you owe $240,000 on a $300,000 home, the LTV is 80 percent. This example uses made-up numbers.

Can I challenge a low appraisal?

You can ask your lender for a reconsideration of value, according to the CFPB. You can point out errors, missing comparable homes or evidence of bias. The lender decides how to handle your request.

When can I remove PMI from my loan?

Per the CFPB, you can ask your servicer to cancel it when your balance is scheduled to reach 80 percent of the original value, and servicers must end it automatically at 78 percent, if you meet the conditions.

Does a refinance change the "original value" for PMI?

Yes. The CFPB says that if you refinanced, original value becomes the appraised value at the time of the refinance.

How much equity do I need for a Texas cash-out refinance?

The state's notice says the new loan plus all other liens can't exceed 80 percent of the home's fair market value, so you need enough equity to stay under that cap.