Basics of a Refinance

Q: "I just went through a three month process trying to refinance my Provincetown home. After all was said and done, the loan was not approved due to lack of accurate comparable homes that sold. Can you please address this issue and provide some advice in regards of what my next step should be."

A: This is a very good question and one that has been appearing repeatedly lately. Firstly, let us outline the basics of a refinance:

1. Once you have a pre-approval from your bank or mortgage professional, you complete the official application process.

2. The appraisal is ordered.

3. You will receive an approval letter from the bank or mortgage professional usually stating an appraisal contingency.

4. The property is appraised.

5. Your loan closes.

This is the most basic break down of the refinance process and of course, each case can be different and come with its own set complications. We are using this simple outline to answer your question.

Where your loan met its demise, based on your question, is on item 4. This is very common today as home sales are still slow. We are in the middle of our third consecutive year of a declining real estate market. This is important to know because banks will only use an appraisal that is six months old. The reason for this is the need for banks to use current comparable sales to justify the amount of the loan. In most cases there have been no sales in certain categories and the banks have nothing to use. Instead of taking the risk, they decline the loan. 

You may want to check with a local bank. Rates may be a bit higher, but local institutions know the market and may be more inclined to be flexible with the appraisal process. The key word is “may.” Your local bank may also be rigid in the qualifying process if there are no accurate and current comparable home sales that match your property type.

If you can, an option may be for you to put more cash on your property and refinance less than what you originally wanted. The lower loan amount may meet the appraisal criteria of the original lendor you were working with. This, however, may be contrary to why you wanted to refinance.

We hope this helps.