No-Appraisal Home Equity Loan: Does It Exist?

For smaller loans you may not need an appraisal

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No-appraisal home-equity loans do exist. In many cases, though, a lender requires a full home appraisal before approving your application for a home equity loan. However, many lenders will accept an alternative to a full appraisal to establish the value of your home.

An appraisal, regardless of what form it takes, can protect both the borrower and the lender. The appraisal process can ensure you’re able to maximize the amount of money available to borrow, and it can give the lender peace of mind about using your home as collateral for a home equity loan.

Key Takeaways

  • Many lenders require a full appraisal for a home equity loan, but some may allow alternatives like a desktop appraisal or a drive-by appraisal.
  • Some lenders waive full appraisals in certain situations, such as when a loan falls below a set dollar amount or if an appraisal was recently done.
  • A home equity line of credit (HELOC) and a cash-out refinance loan are among the options for potentially avoiding a full appraisal.

What Is a Home Equity Loan?

​​A home equity loan—also known as a second mortgage—is a loan for a fixed amount of money that uses your home as collateral. Just as you do with your regular mortgage, you pay off a home equity loan with equal monthly payments over a set amount of time. Keep in mind that if you fall too far behind on these payments, the lender might foreclose on your home and take ownership of it.

A lender typically restricts the amount you can borrow through a home equity loan to as much as 85% of the equity in your home. The amount of equity is determined by subtracting how much you owe on your mortgage from how much your home is worth. Your income and credit history also factor into how much money you can borrow.

Borrowers take out home equity loans for a wide range of purposes such as paying for a home improvement project or covering a child’s college expenses.

Do You Need an Appraisal To Get a Home Equity Loan?

You don’t always need to obtain a full appraisal to get a home equity loan. However, most lenders require some form of appraisal when you’re taking out a home equity loan. In a lot of cases, you must get a full appraisal.

“Whether or not you need a full appraisal will depend on the financial institution’s specific requirements,” said Tom Becker, chief lending officer at Massachusetts-based Hanscom Federal Credit Union.

An appraisal estimates the market value of your home. This estimate helps a lender decide whether your home provides sufficient collateral to back up a home equity loan.

A home appraisal is usually valid for 60 to 180 days, depending on the lender.

You may not need a full appraisal to qualify for a home equity loan, however. For instance, a lender might waive the appraisal requirement if the loan amount is less than $100,000. Also, a full appraisal might not be called for if a recent appraisal accurately reflects the current value of a home. Or a lender might not insist on a full appraisal for a home equity loan, no matter the dollar amount, as long as you meet other requirements (such as a sufficient credit score).

What Is a Full Appraisal?

Often, a lender does require a full appraisal for a home equity loan.

During a full appraisal, a professional appraiser visits a home to evaluate its condition, size, amenities and location. This normally involves inspecting the interior and exterior. The appraiser couples these findings with publicly available data, such as information about a home, nearby homes, and the local home market, to estimate the value of the home that’s being used as collateral.

How To Get the Most Out of Your Appraisal

If you must get a full appraisal, Christian Mills, a home loan specialist at Reverse Mortgage in Denver, offers these three tips for extracting the most value you can from your home:

  • Make sure your property looks its best: For example, you might consider sprucing up the lawn, bushes, trees, and other plants around your home before the appraisal.
  • Do your homework: Look online to compare similar homes in your neighborhood so you can get a sense of how much your home is worth.
  • Point out home improvements: If you’ve made significant improvements to your home, make your appraiser—and your lender—aware of them “so that you have a strong chance your appraisal comes in at value,” Mills said.

Alternatives to a Full Appraisal

Not every home equity lender will require a full appraisal. For example, a lender may allow an alternative to a full appraisal if the loan amount is below a certain amount (such as $250,000). Or if the home equity loan is from the same lender as your mortgage, you may be able to skip a full appraisal, Mills said.

Here are three alternatives to a full appraisal.

Automated Valuation Model

An automated valuation model (AVM) is a computerized tool that crunches data about such things as property tax assessments and home sales activity to help come up with a market value for a home. An AVM can supplement or replace an in-person appraisal.

Christie Halbeisen, assistant vice president of mortgage sales at Teachers Federal Credit Union in New York, noted that opting for an appraisal rather than an AVM “can be useful to show how much your home’s value has appreciated, especially if you have completed recent upgrades or remodeling projects.”

Exterior-Only or Drive-By Appraisal

This kind of appraisal is a hybrid between a full appraisal and an AVM. An appraiser takes photos of the home’s exterior and the neighborhood as part of this appraisal. Findings from the drive-by inspection are paired with data, such as figures about recent home sales in the neighborhood, to arrive at an estimated home value.

Desktop Appraisal

Relying on the power of technology, data and analytics, an appraiser generates an estimated market value of home without inspecting the property. Elements of this type of appraisal may include interior and exterior photos, third-party inspections and residential real estate data.

Other No-Appraisal Financing Options

If you want to avoid a full appraisal, consider these three options:

  • Home equity line of credit (HELOC): A lender might not require a full appraisal for a HELOC, but it generally relies on some other method, such as an AVM, to determine the value of a home.
  • Cash-out refinance loan: In most situations, a lender requires an appraisal for a cash-out refinancing loan, although a full appraisal might not be needed. A lender might, for instance, rely on a drive-by appraisal.
  • Personal loan: Becker said a personal loan, which doesn’t involve appraisals, is an alternative to a home equity loan. But he stresses that the interest rates and terms for a personal loan might not be as attractive as those for a home equity loan or HELOC.

The Bottom Line

You may come across a lender that requires a full appraisal for a home equity loan. But keep in mind that some lenders might be satisfied with an appraisal that doesn’t, for instance, involve an interior and exterior review of your home. For this and other reasons, it’s important to shop around for a lender instead of sticking with the first one you find.

No matter the lender, make sure the appraisal—full or not—accurately estimates the value of your home, enabling you to borrow the maximum amount possible with a home equity loan. 

“When you have an accurate value of your home based on current information, it protects you from borrowing too much against its value and putting you and your family at risk of a financial nightmare,” Becker said.

Frequently Asked Questions (FAQs)

Where can I get a no-appraisal home equity loan?

Various lenders, including credit unions, offer home equity loans that don’t require full appraisals. Be sure to check out several lenders that offer home equity loans and inquire about their appraisal requirements.

How much can I get with a home equity loan?

Generally, you’re limited to borrowing up to 85% of the equity in your home. So, if you’ve accumulated $100,000 in home equity, your borrowing ability might be capped at $85,000. It’s possible, though, to find a lender willing to let you borrow as much as 100% of your home equity.

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