Refinancing your mortgage can be a smart way to lower your borrowing costs, reduce your monthly payments, or access equity in your home. But before lenders give the green light, they often want a home appraisal to confirm the lending value of your home.

If you’re wondering whether a home appraisal is required or even worthwhile to do voluntarily, you’re not alone. The answer depends on your financial goals, the lender’s policies, and the change in your home’s value since you initially took out the mortgage. We’ll examine what borrowers and mortgage lenders need to know to decide when an appraisal is required.

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Key Takeaways

• Lenders typically require a home appraisal to determine the current market value of your property before refinancing.
• A higher appraised value can lower your loan-to-value (LTV) ratio and increase your borrowing capacity.
• Lenders cannot use an appraisal that was completed for another application or lender.

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Why a Home Appraisal Matters for Refinancing and Buying

A home appraisal is a certified expert’s objective assessment of a property’s fair market value. Whether you’re buying or refinancing, it’s a key part of the mortgage process that protects both you and your lender from borrowing or lending more than the home is worth.

In a purchase, the mortgage lender will base your loan amount on the lesser of the purchase price or the appraised value. In refinancing, the appraisal determines how much equity you’ve built; therefore, how much you can borrow. If the appraised value is lower than expected, it can reduce the amount you can refinance.

That’s why most lenders require a lender-ordered appraisal as part of your mortgage or home refinance application. Even if you independently obtain an appraisal, it won’t replace the formal valuation required by your lender to approve the mortgage terms and conditions.

Here’s when appraisals are required and why they matter:

• Buying a home: Mortgage lenders require an appraisal to confirm that the property’s value supports the purchase price and the requested loan amount.
• Refinancing: An appraisal is necessary to assess the current value, determine the available equity, and ensure the refinanced amount remains within acceptable limits.

Why Do Lenders Require a Home Appraisal Before Refinancing?

Lenders want to ensure the property backing your mortgage is worth the loan amount. A home appraisal provides a current, objective estimate of your home’s market value. The appraised value is used to calculate your loan-to-value (LTV) ratio and determine your eligibility for refinancing.

It helps lenders minimize risk. If your home is worth less than expected, the lender may deny the refinance, offer a reduced loan amount, or assign a higher interest rate. Appraisals also help ensure you’re not borrowing more than your home is worth.

When an Appraisal May Not Be Required

In some situations, lenders may waive the need for an appraisal. Some lenders use automated valuation models (AVMs) in place of physical appraisals, particularly for larger refinances or equity-based products such as HELOCs or mortgages held under a collateral charge.

Instances when the lender may waive the requirement for an in-person appraisal:

• The application has a low LTV (e.g. under 50%).
• Borrowers who have excellent credit and a strong financial profile.
• The lender has completed recent appraisals for comparable homes in the same neighbourhood.
• The lender has completed recent appraisals for comparable units in the same building.
• The lender has financing in place with other unit holders in the same condominium building.
• You’ve completed the application with a value significantly lower than what your home is worth.

Understanding the Home Appraisal Process

A licensed third-party appraiser conducts a physical inspection of the property, examining its interior and exterior conditions, size, layout, finishes, and any outbuildings. They also assess the quality of workmanship, necessary repairs, and recent improvements.

The appraiser compares your property to similar homes recently sold in the area. They’ll factor in market trends, supply and demand conditions, and neighbourhood features. Based on this, they produce a valuation using recognized methods, such as the direct comparison approach or the cost approach, as outlined in the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP).

Standard appraisal fee ranges from $300 to $500, depending on the home’s size, location, and the required turnaround time. Though the lender orders it, the cost is typically passed on to the borrower and should be budgeted into your closing costs.

The borrower typically cannot request a copy of the appraisal report, as it is the property of the appraiser and the lender. However, in some instances, the mortgage lender may let you review the appraisal report in person.

An appraisal typically includes the following:

• A visual inspection of your property, inside and out.
• A Review of recent comparable sales in your neighbourhood.
• The evaluation of condition, layout, size, and features.

What Factors Influence Your Home’s Appraised Value?

Factors that appraisers consider to evaluate your home’s value:

• Location: Neighbourhood appeal, schools, transit, and amenities
• Size and layout: Square footage, number of bedrooms/bathrooms
• Condition: Upkeep, repairs needed, age of structure and systems
• Renovations: Kitchen/bath upgrades, finished basements, energy efficiency
• Market trends: Recent comparable sales, local supply and demand conditions in the area

How to Prepare for an Appraisal Before Refinancing

A successful appraisal isn’t just about what the appraiser sees; it’s also about what they’re told. Being proactive about cleaning, organizing paperwork, and highlighting improvements ensures the appraiser has a complete picture of your home’s value.

Before the appraiser arrives, homeowners should:

• Tidy the home inside and out.
• Fix minor issues (leaks, cracks, broken fixtures).
• Compile documents like your property tax assessment and renovation receipts.
• List any upgrades and their costs.
• Be available to answer questions during the walkthrough.

What to Do if Your Appraisal Comes in Low

A low appraisal can impact how much you can borrow, especially if you were counting on tapping into home equity. Fortunately, there are several ways to challenge the results or pivot your refinancing strategy:

• Review the report for accuracy: Ensure that the correct square footage, features, and comparables were used.
• Provide supporting evidence: Share invoices, permits, and better comparisons.
• Order a second appraisal: You’ll need lender approval and will pay out of pocket.
• Adjust your refinance plan: Consider borrowing less, waiting for more favourable market conditions, or consolidating high-interest debt instead of extensive renovations..

What Are Desktop Appraisals and When Are They Used?

Desktop appraisals are remote, digital-based valuations that rely on data such as MLS listings, satellite imagery, tax records, and past sales, rather than an in-person visit. These are used primarily for low-risk transactions such as:

• Low-ratio refinances
• Mortgage renewals
• An insured home purchase through a high-ratio mortgage in a stable region

Lenders or insurers may opt for desktop appraisals when time is a factor, the market is competitive, or the property is easily comparable to others. CMHC, Solidifi, and NAS offer tools to support these assessments under CUSPAP guidelines.

Still, desktop appraisals are not accepted in all scenarios. When the loan involves large equity take-outs, unusual property types, or high-risk conditions, a complete physical appraisal is almost always required.

Refinancing Scenarios That Require an Appraisal

Refinances are when the borrower buys time (increases amortization) or money (increases mortgage amount). If you’re refinancing with a major bank or applying for a home equity line of credit (HELOC), an appraisal is likely part of the process, as a refinance puts the onus of default risk on the lender. 

These types of refinances almost always require an updated appraisal:

• Switching from an insured to an uninsured mortgage with a different lender.
• The home has always had financing with one lender since you purchased it.
• Applying for a cash-out refinance.
• A collateral charge or HELOC will give you access to more equity than you need to consolidate debts.

Home Appraisal vs. Comparative Market Analysis (CMA)

It’s important to distinguish a professional appraisal from a CMA. A home appraisal is conducted by a licensed appraiser for mortgage or legal purposes, such as buying, refinancing, estate settlements, or tax appeals. It adheres to strict lender guidelines, which directly impact loan eligibility and amount.

A real estate agent prepares a comparative market analysis (CMA) to help sellers determine the optimal price for their home. It’s based on recent sales of similar homes in the area, but lenders do not accept it as a substitute for an appraisal.

In short, an appraisal determines how much you can borrow. A CMA helps you estimate how much you can sell for.

Should You Get a Home Appraisal Before Refinancing?

Once your lender approves your mortgage refinance, they will order the appraisal directly as part of the refinancing process. An appraisal approved by the lender provides the most relevant and accurate valuation for determining your eligibility, loan amount, and interest rate. Ordering an independent appraisal outside of this process won’t influence your lender’s decision.

If your lender does require an appraisal, it’s worth preparing carefully, as a strong result can help you:

• Access more home equity: A favourable valuation could allow you to borrow more from your home equity, especially in a cash-out refinance or through a home equity loan.
• Strengthen your refinance application: A recent, lender-approved appraisal reinforces the financial picture you present to your lender.

Frequently Asked Questions (FAQ) About Getting Your Home Appraised When Refinancing

Final Thoughts

Whether required or strategic, a home appraisal can be a powerful tool when refinancing a home. It ensures that your mortgage lender sees the most accurate valuation for your property and that you’re set up to obtain the best possible terms and conditions for your mortgage.

Still unsure whether to get a home appraisal before refinancing? Don’t order one on your own; first, speak with a nesto mortgage expert, and we’ll help you compare your options, understand how your home value affects your refinance plan, and design a mortgage strategy that aligns with your long-term financial goals.

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Why Choose nesto

At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are non-commissioned, salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and advice quality. nesto aims to transform the mortgage industry by providing honest advice and competitive rates using a 100% fully digital, transparent, seamless process.

nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.

Contact our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.

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