Refinancing Question (loan, credit, loan, equity)

[treasurekidd]

My wife and I would like to refinance our current mortgage. We have been paying it down with extra montly principle payment for several years. It is our first mortgage, and our principle balance is currently $89K. We are currently at 7.125%, and only want to refinance the balance - no equity loan or cash out. We have only fair credit, but no other debt whatsoever.

Our home however, needs significant repairs - roof, replacment windows, major bathroom repairs due to some water damage, and signficant but cosmetic only kitchen work. Even with this needed work, we believe our home is still worth approx $150K - $175K, even in this down market, and well over $200K with the needed repairs done.

Our goal is to take advantage of current low rates on a new 30 year mortgage to lower our payment and free up lots of cash each month to both pad our savings and make the needed home improvements in order to be in a position to sell when the housing market picks back up. Because of the need for repairs, the idea of an appraisal makes us nervous. My question is this - because of the improvement needs, what potential problems do we face with having the appraisal done for the refinance? What other potential issues might crop up?

Thanks all in advance everyone!