July 27th, 2018 8:15 PM by Jackie A. Graves
A no-appraisal mortgage is a type of home-loan refinancing for
which the lender does not require an appraisal, meaning an independent opinion
of the property’s current fair-market value is not necessary.
No-appraisal mortgages takes into account borrowers’ respective
credit histories and how much each owes on their existing mortgages. It does
not consider the going price for similar homes in the area.
No-appraisal mortgages in the U.S. generally consist of
refinancing loans that help lower-income or financially struggling homeowners.
For example, the Federal Housing Administration - FHA, which caters
specifically to low-to-moderate income borrowers, offers a streamlined
refinancing with no appraisal, provided borrowers have an existing FHA loan.
The Home Affordable Refinance Program (HARP) also offers
no-appraisal mortgages. This loan program offers loans to borrowers with
conventional mortgages owned by Fannie Mae or Freddie Mac who are struggling to
afford their monthly payments. Of note, the HARP program is scheduled to end on
December 31, 2018.
Similarly, the USDA, which caters to rural homeowners with low or
very low incomes, offers streamlined, no-appraisal mortgages. These loans
sometimes come with interest rates of about 1%, plus a premium for mortgage
insurance, although they have strict income limits.
Lastly, the Veteran’s Administration, or VA, provides streamlined,
no-appraisal refinancing loans, called VA Interest Rate Reduction Refinance
Loans (IRRRL), for qualifying U.S. military service members. Similar to the
FHA’s rule, IRRRLs are offered to those refinancing an existing VA loan.
All of these no-appraisal mortgages generally are for homeowners
who would not qualify for a conventional refinancing loan from a bank or direct
lender. In many cases, these borrowers are underwater, meaning they owe more
than their homes are worth, because the respective properties declined in value
since the date of purchase.
Many no-appraisal mortgages help homeowners in trouble by lowering
their monthly payments and keeping them in their homes. In some cases, income
and employment status is not a criteria, which allows homeowners who have lost
their jobs or had their pay reduced to refinance. This especially helps
homeowners with significant equity in their homes who need to tap some of that
value during a period of financial hardship.
Appraisals also cost hundreds of dollars, and this fee is passed
on to borrowers, often as part of the total amount borrowed in a refinancing.
As a matter of policy, however, offering no-appraisal loans to
individuals who might not otherwise qualify is a matter of debate. Low lending
standards arguably contributed to a run-up in housing prices prior to the Great
Recession, and also to the subsequent crash. Ironically, part of the government
solution to the Great Recession, involved the creation of HARP, which again
provided loans to individuals who couldn’t afford them otherwise.
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