NEW YORK -- Mortgage rates are tantalizingly low. But for some homeowners, the opportunity to refinance could be scuttled by an appraisal.

The process isn't an exact science, and homeowners may be surprised to find their property isn't worth as much as they believed. It's an unfortunate pitfall at a time when rates have never been more attractive.

But in some cases, an appraisal may show that a property's value isn't as much as the homeowner thought. The potential discrepancy is important because borrowers must have a certain level of equity to qualify for a refinancing.

Lenders also usually charge a fee of about $500 for an appraisal, so it's not a process you want to walk into blindly.

Data from the real estate research firm CoreLogic shows that more than 62 percent of households were paying rates higher than 5 percent as recently as July. And homebuyers seeking to lower their monthly payments filed 80 percent of all mortgage applications last week. That's the highest level since the start of the year, according to the Mortgage Bankers Association.

If you're thinking of refinancing, here's what to expect:

Why it's important

As part of the refinancing process, the mortgage lender will order an appraisal to determine how much you still owe in relation to the current value of your home. This percentage is called the loan-to-value ratio.

The maximum loan-to-value ratio will vary from lender to lender. For example, Bank of America says it generally allows loan-to-value ratios of up to 95 percent. But the exact cap on a particular mortgage can be influenced significantly by factors such as the type of property, the amount that's owed and your financial situation.

For example, the limit may be closer to 75 percent if you have a larger loan of $420,000 or more and have taken out a line of home equity in the past, says Mark Goldman, a mortgage broker who lectures at San Diego State University.

In other cases, the limits may be high enough so that even underwater homeowners -- those who owe more than the value of their home -- can qualify for a refinancing.

A federal government program allows some borrowers whose mortgages are held by Fannie Mae and Freddie Mac to refinance into lower-rate loans even if they owe more than the value of their home. But many banks participating in the program are keeping loan-to-value limits at around 105 percent, says Marc Savitt, a mortgage broker in Martinsburg W.Va.

The loan-to-value ratio may be a roadblock for those who bought during the housing boom. These homeowners may find their appraisals put them right on the cusp of qualifying for a refinancing, says Goldman.

That's why it's critical that an appraisal doesn't undervalue your home.

How the process works

So how does an appraiser determine the value of your home? The biggest factor will be public records on recent sales of comparable homes in the area. And if the real estate market in your area has been flat, the appraiser may use foreclosures in determining the value.

Before applying for a mortgage, check recent sale prices in your neighborhood on sites such as and to get a realistic sense of what to expect.

The appraiser, who will be hired through your mortgage lender, will schedule a visit to your home as part of the process. Before the appointment, make a list of any features you think enhance the value of your home and point them out in a walk-through with the appraiser.

For example, you might note that your home has an extra half-bathroom, a bigger yard or more scenic street location than the comparable sales in your area. You also want to note if your home has a recently renovated bathroom or other features that wouldn't be detailed in public records. The appraiser can call the agents involved in the comparable sales to inquire whether those homes had similar features, says Joseph Magdziarz, president of the Appraisal Institute, a membership association of real estate appraisers.

You also want to make sure the appraiser is familiar with the greater region. That's because proximity to a downtown area, key services or public transportation hubs could enhance the value of your home.

Once the appraisal is reported back to the lender or your mortgage broker in about a week or so, be sure to request a copy and review it for accuracy.

If you don't think the appraisal accurately reflects the value of your home, submit any details you believe were overlooked. This might include a recent sale that wasn't included.

Most lenders have appeal procedures, known as "reconsiderations of value." But keep in mind that a successful appeal will depend on your ability to support your case with specific facts; you can't just insist your home is worth more than the appraisal.

Key information

It's also important to understand the recent changes in the appraisal industry.

New regulations that went into effect in 2009 prohibit homeowners and mortgage brokers from hiring their own appraisers. This was designed to prevent conflicts of interest that could lead to inflated appraisals, which were partly blamed for fueling the housing bubble.

As a result, appraisers must now be hired through lenders, which order appraisals through outside firms known as appraisal management companies. The idea is to create a layer of separation so that appraisers aren't influenced to come up with a certain value.

Many in the industry say the rules have resulted in lenders farming out work to appraisers who will work for the cheapest fees, which in turn can result in sloppy or rushed work.

That doesn't mean the appraisal you get won't be fair; Goldman of San Diego State University says appraisal management companies have worked out many of the initial problems in recent months. But it's still a good idea to stay on top of the appraisal process so you can ensure there are no oversights.

If you still think your appraisal was seriously flawed, the Appraisal Institute recommends filing a complaint with the governing state agency. To contact the appropriate appraisal board, visit

Fixed mortgage rates are at historic new lows for a fourth straight week and are likely to fall further.

The average on a 30-year fixed mortgage fell to 4.01% from 4.09% the previous week, Freddie Mac said. That's the lowest since the mortgage buyer began keeping records in 1971. The average on a 15-year fixed mortgage, a popular refinancing option, ticked down to 3.28%. Economists say that's the lowest rate ever.

Mortgages tend to track the yield on the 10-year Treasury note. The 10-year yield rose last week to around 2%. The previous week, it touched 1.74% -- the lowest level since daily recordkeeping began in 1962.

Mortgage rates could fall further based on the Federal Reserve announcement that it would take more action to try to lower long-term rates.

A drop in mortgages could help the economy. If more people could refinance, they would pay less interest and have more spending money.