Apply with multiple lenders for refi?

[Love Street]

Dear GRS-ers,

I would appreciate your thoughts on my first-time refi situation. I need to maximize chances of a favorable appraisal. Rates we're getting are similar across the board, and the appraisal will determine a) how much cash we bring to the table b) whether we can lock in a traditional mortgage or go with Plan B (below). We're leaning towards applying with at least two lenders (and paying their appraisal fees) and going with whoever gives us the higher appraisal - but I'm interested to hear if there are potential pitfalls with this approach, or if you have other ideas for my situation.

Background:
Bought the house for $865,000 in 2007; has been underwater pretty much since we bought it. Now it could appraise for anywhere from $865k to $1M. (Estimates from Redfin, Remax, Trulia and Realtor give us about a 10-15% equity; Zillow has us underwater by 10%, Chase told us $865k over the phone; tax assessor says $950k after several years of reduced value during the crash), but comps are few and very micro-neighborhood specific.

Primary loan is $650,000, remaining $200,000 is a HELOC. Both were fixed interest only for 10 years, resetting in May to adjustable rates plus principal for 20 years.

Objective:
We plan to stay here indefinitely (we're 48 and 38, no kids).
We'd like to get into a FRM with an 80/20 LTV (20 or 30 year term at 4.375 is the best we're getting w/760+ credit), and we have enough cash to bring to the table for that IF the house appraises at $950,000 or more. If it appraises for much less, we'd go to Plan B.

Plan B:
Plan B-1: Refinance only the primary loan (getting it to conforming loan status on a 30 year term, still at 4.375) and not the adjustable HELOC, and aggressively pay the HELOC until we can refinance it.
Plan B-2: Wait to refinance until summer, when we'll have saved more cash to bring to the table to get the LTV down - but risk a rate hike in the interim.

I'm happy to provide many more details, but I have a tendency to get long-winded so was trying to keep it succinct. I'd be grateful for any insights, thoughts or advice you should share.

[TCstr8]

For starters, I assume the sources you listed as providing you a value were all automated (except for Chase). This is a red flag, as much as technology has made my job easier, it is a double edged sword.

The value of your home is determined by what other, similar properties in your area have sold for. In a perfect world an appraiser will find 3-5 comparable homes that have sold in the last 6 months within 0.25 miles of your home. Then the appraiser will make adjustments for amnenities.

These automated/online services are notoriously unreliable. And I would lump Chase in with that. I'm guessing you spoke to a loan officer. For the most part a loan officer does not have the necessary info available to them to give a value judgment. As far as the county Tax Assessor, they all vary, but more often than not they are way off.

Things vary from state to state, but a standard conventional (fannie Mae/Freddie Mac) fixed rate mortgage will not allow you to do an 80/20. The maximum CLTV (1st mortgage + 2nd mortgage / value) with them is 90%, and that is assuming that your 2nd mortgage was taken out when you purchased the home (if it was taken out after you purchased the home, then it could be considered a cash-out refinance)

Plan A (assuming the HELOC was taken out when purchased)
Refinance everything together, house would have to appraise at $895,000 to put you at 95% (Fannie Mae/Freddie Mac maximum LTV for a rate/term refinance)

Plan B
Refinance just the 1st mortgage, house would have to appraise at $945,000 to put you at 90% CLTV.

Again, there are slightly different rules for different areas, and here in Ohio we don't have any high cost areas, so our conventional loan amounts are always under $417,000. Not sure how that plays into it, but I'd make sure you go over these things with your loan officer to make sure they aren't missing anything.

[DoingHomework]

I was waiting for TC to answer since he is our resident expert on this kind of thing.

In addition to the loan advice he gave you, I'd say your idea to shop the appraisal around is naive. Appraising is essentially a science. There is far less subjectivity in it than you seem to think. The problem is that in a situation like yours there is minimal data which introduces uncertainty into the appraisal process.

There are various ways to do an appraisal and not all have to do with comps. There is an income method which considers the income potential of the property for example. You are likely to find that if the market really is as thin as you say, there might only be 1 or 2 appraisers in your area and they do the appraisals for all the banks. Think about it - if there are 10 homes sold in your area per year, at $1000 or less for an appraisal, that's $10k total revenue available. Few appraisers can stay in business in that area. So if you go to 5 banks and get 5 appraisals, you very well could find the same dude does all of them and comes up with the same numbers every time. The banks might then use the numbers in different ways (min of three methods, max, average, etc.) so you'll see different results and not even know that you wasted your money.

One option for you is to actually talk to an appriaser, have your own done, and get advice from them about current local conditions. That appraisal will not likely be used by the bank but it does give you a great deal of insight and may be useful to challenge the bank's appraisal (which is difficult but not impossible).

[TCstr8]

One option for you is to actually talk to an appriaser, have your own done, and get advice from them about current local conditions. That appraisal will not likely be used by the bank but it does give you a great deal of insight and may be useful to challenge the bank's appraisal (which is difficult but not impossible).

DoingHomework brings up a good point. If you paid for your own appraisal (it wouldn't be used for the mortgage) you would then be able to discuss it with the banks appraiser. Obviously there are laws against coercing an appraiser, but assuming the banks appraiser was cordial, you could mention you had an appraisal done recently, and could then discuss some of the comps, etc. However, theres always the possibility that the banks appraiser could view it as you trying to coerce him and get pissed.