As of late June, Freddie Mac began phasing out the appraisal step from its lenders’ approval process for certain refinancings. However, the agency expects to remove the requirement for mortgages on some home purchases as well in the near future.

Fannie Mae, for its part, has quietly offered no-appraisal refinancings for several months. It, too, is expected to eliminate the requirement for some home purchases. Instead of having lenders send an appraiser out to look at each property, Fannie Mae confirmed it plans to rely on its database of more than 23 million appraisal reports, along with proprietary analytics, to value many of the homes it is refinancing.

Good News, Right?

The move to appraisal-free mortgages, at least in some transactions, addresses a major friction point in the settlement process. It eliminates the need for an appointment to see the property and the wait for the report. For Loan Officers, it will remove the liability of being held responsible for the accuracy of these valuations.

Homebuyers will see an immediate savings of a few hundred dollars at closing, if an appraisal is not needed. However, it also means they no longer have an objective third party physically viewing the property and confirming that they are getting what they thought they were paying for. Instead, your buy-side clients may need to count even more heavily on the inspection phase of the purchase for reassurance that no adjustments to the purchase contract are needed.

For clients who are selling, it's unclear whether the elimination of appraisals will help close the gap between what a homeowner thinks their property is worth and its appraised value. In fact, the gap could widen further in cases where a homeowner has addressed some of the issues that tempered its value at its last appraisal. In older neighborhoods, for instance, this could be an issue. While each home may offer the same square footage, there can be drastic differences regarding maintenance and improvements when you step inside. These could include custom closets, efficient lighting, and climate control, as well as updates to bathrooms, kitchens, basements, and backyards. These enhancements could throw off the algorithms. It’s unclear whether clients will be able to appeal decisions.

When There Is a Difference

What will not change is the nature of your role when there is a pricing mismatch that delays the mortgage approval. When that happens, you may still need to explain possible options and work toward a renegotiation. While the shift to appraisal-free mortgages may disrupt the industry, it’s likely your role as a mediator may intensify.

Among the benefits members our armed forces receive for their service is access to the VA loan program, which helps finance homeownership. These loans tend to be more attractive—in terms of rates, credit requirements, down payments, and refinancing—than those available to nonmilitary homebuyers.

Lifelong Benefits

Many who used this program to purchase their homes may not realize that they typically can continue accessing it throughout their lives as they buy and sell homes. The VA also offers its borrowers options for managing mortgages through a streamlined refinancing process.

The VA’s Interest Rate Reduction Refinancing Loan (IRRRL), which is also referred to as a “Streamline” or “VA to VA” loan, enables borrowers with a VA loan to refinance into a new, lower rate VA loan.

The interest rate on the new VA loan needs to be lower than the one on the current mortgage in order to qualify for this option. The exception is when an adjustable-rate mortgage is refinanced into a fixed-rate loan.

Hassle-free Refinance

Here are some other benefits to refinancing your current VA loan using an IRRRL.

• The loan typically bypasses the credit underwriting process.
• A new appraisal is rarely required.
• No new money is necessary since associated costs can be included in loan.
• Additional funds may be borrowed (up to $6,000) for energy-efficiency improvements to the property.
• A new certificate of eligibility is not required, the one you used previously may be reused.
• The occupancy requirement is more flexible.
• Some lenders allow you to reduce your term from 30 years to 15 years. 

With interest rates still near historical lows, an IRRRL could help lower your monthly payment further, freeing up funds for other uses for you and your family. The streamlined process for refinancing a VA loan makes it an option you’ve certainly earned the right to explore.

Congratulations and welcome to your after-college years! As the saying goes, your future is ahead of you. To make the most of this world of opportunity, and to get closer to achieving the dream of homeownership, it helps to have  control over your spending and to start saving early.

Like most things in life, it is easier to accomplish this if you start small, develop sound money habits early, and then practice them often. For instance, here are some time-tested strategies for getting your financial life up and running in the direction of meeting both your near-term goals—saving for a down payment on your first home—and longer-term needs like retirement.

• Spend less than you make. It’s easier said than done, though banking products and apps now make this more routine—even fun—by providing instant feedback and real-time balances each time you spend or deposit money. Many can be set up to help you meet financial goals, including saving for a down payment.

• Never pay more than you have to. Comparison shop, sign up for rewards programs, and use discount codes online and coupons in stores. Spending less means having more to add to your savings.

• Be on time. It’s been said 80 percent of success is showing up. That applies to being present in your life so you are aware when opportunity arises, but it’s also true when it comes to paying bills. Paying on time saves you more than the cost of late fees—it helps boost your credit score. That number helps determine how much you pay in interest on your future car loans, mortgages, and insurance rates. It can even influence your job prospects.

• Manage your student loans.When you have loans, it’s a sign that you invested in your future. You can get the best return on that investment by making sure you choose the most appropriate repayment option for your current situation. Then, revisit that choice as your circumstances change to ensure you’re in the best loan for meeting more of your other financial goals.

• Take free money. Some companies offer to match 401(k) contributions, so contribute at least up to the maximum amount your employer matches, even while you save for other nearer term goals like your down payment. That few hundred to few thousand dollars a year will add up to a nice retirement cushion by the time you are ready to access it.

Establishing good money habits early will provide you with more options later. This is especially true when you are ready to step into homeownership. With your budget under control, money put away for a down payment, and a good credit score, you’ll be financially prepared to make your move on your terms.