Simply put, the risk of your home not being valued high enough to refinance. So what’s the big deal?
Let’s walk through a scenario to see this risk play out.
You have owned your home for a few years now. You originally purchased your home with a low down payment government or conventional loan so you have an added monthly payment in the form of mortgage insurance.
Now, you believe that your home has increased in value and you may have enough equity to remove that pesky mortgage insurance.
So, you speak with your “friend”, the mortgage salesperson, who encourages you to pursue this. You get through all the paperwork and documentation, get to the appraisal process, and WHAM! This 3rd party appraiser thinks your home isn’t worth as much as you and the lender. Maybe they aren’t looking at the same properties as you or maybe they are just having bad day. You are out hundred of dollars ($300-800) and you weren’t able to get the refinance you had hoped.
This highlights appraisal risk. Know your equity before you go down this road and potentially lose hundreds.