Is There Such a Thing as a No-Appraisal Home Equity Loan?

Is There Such a Thing as a No-Appraisal Home Equity Loan?

It’s possible that you won’t require an appraisal for your smaller loans.

No-appraisal home-equity loans do exist. However, before granting your request for a home equity loan, the lender will almost always need to do a comprehensive appraisal of your property. But many financial institutions are willing to use something other than a full appraisal to figure out how much a house is worth.

Both the borrower and the lender have something to gain by getting an appraisal, regardless of the format it takes. The process of getting an appraisal can ensure that you are able to maximize the amount of money that is available to borrow, and it can provide the lender with a piece of mind about utilizing your house as collateral for a home equity loan. Both of these benefits are possible thanks to the appraisal.

Key Takeaways

For a home equity loan, the majority of lenders require an extensive appraisal. However, some may be willing to accept alternatives such as a desktop evaluation or a drive-by appraisal.

Some lenders won’t require a thorough appraisal of the property if certain conditions are met, like if the loan value is below a certain threshold or if the appraisal was done not too long ago.

A home equity line of credit (HELOC), also known as a cash-out refinance loan, and a home equity conversion mortgage (HECM), are both examples of possible alternatives to a comprehensive assessment.

What Is a Home Equity Loan and How Does It Work?

A loan for a predetermined amount of money that uses your property as security is called a home equity loan. This type of loan is sometimes referred to as a second mortgage. You pay off a home equity loan the same way you pay off your primary mortgage, which is by making consistent monthly payments over the course of the loan’s term. Remember that if you go too far behind on these payments, the lender may decide to foreclose on your property and seize ownership of it. This is something you should try to avoid at all costs.

When you apply for a home equity loan, the lender will usually limit the amount you can borrow to no more than 85 percent of the equity in your home. After deducting the amount you still owe on your mortgage from the value of your property, you will have an estimate of how much equity you currently possess. The amount of money you can borrow also depends on other factors, such as your income and your credit history. 

Borrowers get home equity loans for a wide range of reasons, like paying for home repairs or sending their kids to college.

Is an Appraisal Necessary When Applying for a Home Equity Loan?

When applying for a home equity loan, it isn’t always necessary to receive a comprehensive evaluation of your property. When you apply for a home equity loan, however, the majority of lenders will ask you to get your property appraised. In many instances, you are required to receive a comprehensive evaluation.

Tom Becker, the chief lending officer at Hanscom Federal Credit Union in Massachusetts, says, “Whether or not you need a full appraisal depends on the specific needs of the financial institution.”

Your home’s current value on the market is determined by an appraisal. This estimate gives a lender the information they need to decide if your home’s equity is enough to support a home equity loan. Depending on the lender, an appraisal of a home is usually good for anywhere from 60 to 180 days.

However, in order to qualify for a home equity loan, you might not need to get a comprehensive appraisal of your property. For instance, if the loan amount is less than $100,000, for instance, a lender may choose to forego the requirement that the borrower obtains an appraisal. In addition, a comprehensive assessment may not be necessary if a recent appraisal adequately represents the value that is placed on a home at the present time. Or, if you meet the other requirements for the loan, such as having a good credit score, the lender might not require a full appraisal for a home equity loan, no matter how much money you want to borrow.

What exactly is a comprehensive evaluation?

Often, a lender does require a comprehensive evaluation for a home equity loan.

A qualified real estate appraiser will visit a home in order to conduct a comprehensive evaluation, which involves evaluating the property’s size, condition, number of features, and location. In most cases, this entails looking at both the interior and exterior of the building. When estimating the value of the home that is being used as collateral, the appraiser will combine these results with data that is readily available to the public. This data may include information on a home, homes in the immediate area, and the local housing market.

Tips to Help You Get the Most Out of Your Evaluation

If you have to get a full appraisal, Christian Mills, a home loan consultant at Reverse Mortgage in Denver, has three tips for getting the most money out of your property:

Make sure your property is presented in the best possible light; for example, prior to the evaluation, consider sprucing up the lawn, shrubs, trees, and any other plants that surround your home.

You can get an idea of how much your property is worth by going online and researching other properties in the same neighborhood that are comparable to yours.

Point out home improvements: “so that you have a great chance your appraisal comes in at value,” said Mills, “be sure the appraiser and your lender are aware of any significant changes you’ve made to your house.”

Alternatives to a Full Appraisal

There are some home equity lenders who do not mandate a comprehensive appraisal. If the amount of the loan is less than a specified threshold, for instance, $250,000, the lender might agree to accept an alternative to the traditional comprehensive assessment. Or, if the home equity loan is coming from the same lender as your mortgage, you might be able to avoid having a full appraisal done on the property, according to Mills.

Here are three alternatives to conducting a comprehensive review:

Automated Model for the Purpose of Valuation

A computerized tool known as an automated valuation model (AVM) is used to assist in determining the current market worth of a home by compiling and analyzing several pieces of data, such as property tax assessments and recent transactions involving home sales. An AVM can either work in conjunction with or take the place of a traditional in-person appraisal.

Christie Halbeisen, assistant vice president of mortgage sales at Teachers’ Federal Credit Union in New York, pointed out 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” in the home.

Drive-By or Outside-Only Appraisal of the Property

This type of appraisal is a combination of a thorough appraisal and an automated valuation model (AVM). As part of this appraisal, an appraiser will take photographs of the exterior of the home as well as the surrounding area. A rough estimate of the home’s value is made by putting together the results of the drive-by inspection with other information, such as statistics about recent home sales in the area.

Desktop Appraisal

Without physically viewing the property, an appraiser can derive an estimate of the home’s current market value by relying on the power of technology, data, and analytics. Photos of the interior and exterior of the property, as well as statistics on the residential real estate market, may all be included as components of this kind of appraisal.

Alternative Methods of Financing That Don’t Require an Appraisal

If you want to avoid an in-depth evaluation, you can choose one of these three alternatives:

  • A lender may not demand a thorough appraisal for a home equity line of credit (HELOC); nevertheless, it will typically rely on some other approach, such as an AVM, to establish the worth of a home instead.
  • A cash-out refinancing loan: In the majority of cases, a lender will demand an appraisal for a cash-out refinancing loan. However, a full appraisal may not be required. For instance, a lender might rely on a drive-by evaluation to make a decision.
  • Personal loans, according to Becker, are an alternative to home equity loans because they do not require assessments. On the other hand, he stresses that the interest rates and terms of a personal loan might not be as good as those of a home equity loan or HELOC.

The Crux of the Matter

A comprehensive appraisal can be necessary for a home equity loan from some lenders, so be prepared for that possibility. It is important to keep in mind, however, that some lending institutions may be content with an appraisal that does not include a thorough inspection of the interior and exterior of your home. Instead of settling for the first lender you come across, it is in your best interest to do some comparison shopping for several options in the market of financial institutions.

You should make sure that the appraisal, whether it is a full appraisal or not, provides an accurate estimate of the value of your house. This will allow you to borrow the maximum amount that is 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 the value and putting you and your family at risk of a financial nightmare,” Becker said. “When you have an accurate value of your home based on current information, it protects you from being able to borrow too much against the value of your home.”

Questions That Are Frequently Asked (FAQs)

Where can I get a home equity loan that does not require an appraisal?

There are a number of financial institutions, including credit unions, that provide home equity loans that do not require comprehensive appraisals to be completed. Make it a point to investigate a number of financial institutions that provide home equity loans and ask questions about the criteria that they use for appraisals.

How much money can I get with a loan against the equity in my home?

In most cases, the maximum amount of money you can borrow against your home’s equity is limited to 85 percent. Therefore, if you’ve built up $100,000 worth of equity in your home, the most money you could possibly borrow would be $85,000. However, it is possible to find a lending institution that is ready to allow you to borrow up to one hundred percent of the equity in your property. 

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