A home equity loan is a fantastic way to tap into your home’s equity without doing a cash-out refinance. But before you can receive a portion of your equity in cash, the lender must know the home’s value. Typically, that requires a new home appraisal. But there are exceptions.
Everything You Need to Know About Home Equity Loan Appraisal Requirements
These days, it’s possible in some cases to get a home equity loan without an appraisal and other options. Keep reading to find out more about the home equity loan appraisal process and more. For more information and to get qualified for a home-equity loan or HELOC, BD Nationwide lenders and brokers can help today.
Lenders conduct appraisals to obtain an up-to-date monetary valuation of the property and assess the amount of equity you have in your home. Although equity loan and HELOC appraisals are typically shorter and less expensive than full appraisals, they still help the bank or mortgage lender determine your eligibility for a HELOC or second mortgage and establish your maximum credit limit.
What Is a Home Equity Loan Appraisal?
A home equity line of credit appraisal shows the current value of your home. A home equity loan appraisal is important because the amount of equity you can borrow hinges on how much equity is in the home. You can’t know the amount of equity you have without an accurate appraisal. The home equity appraisal reviews your home’s condition, comparing it to similar and recently sold homes. It also considers any upgrades or special features it has and values them appropriately. Loan to value is a key component for lenders to offer home equity loans in 2024.
Can I Get a Home Equity Loan without an Appraisal?
Benefits of a 2nd Mortgage without an Appraisal
The vasty majority of lenders require some type of appraisal to get home equity financing.
But there are limited cases when no appraisal home equity loans are an option. Typical qualifications for a no appraisal home equity loan are:
- You had a full home appraisal in the last two to six months.
- You have a high credit score – at least 750.
- The home-equity loan amount is less than $100,000
Suppose you closed on your home three months ago. You may not need a new appraisal because the last one is so recent.
Qualifying for no appraisal home equity loans can be a valuable asset as a homeowner if you need quick money and do not want to complete a cash out refinance.
What Are Home Equity Loan Appraisal Types?
Lenders use various types of appraisal process requirements to make lending decisions. You may see various types of home equity appraisal options, based on the specific lender:
Full Home Appraisal
These traditional appraisals are what most of us think of when getting a home appraisal. The appraiser comes to the home and takes a detailed look at the home, inside and out. The homeowner usually goes with the person as they look over the home’s condition and features. After the assessment in person, the appraiser researches similar homes that have sold this year. The licensed appraiser will also ensure that important systems, such as the roof, plumbing, and HVAC, are in good operating condition.
Most banks and credit unions will want full appraisal for a traditional home equity loan and they expect the appraiser to examine several key factors. The first is the safety and structural integrity of the property. With these home appraisals, they follow basic guidelines, such as ensuring the roof has a certain remaining lifespan and that there are no exposed floorboards or studs. Any major issues discovered must be addressed before the loan can be finalized.
The second aspect the appraiser assesses is the home’s value. This is done by comparing your property to similar homes, known as comparables. For instance, if you’re seeking a 2nd mortgage or HELOC on a two-bedroom ranch, the appraiser would compare it to recent sales of other two-bedroom ranches with similar square footage in your region.
If you have errors or late payments on your credit report, you likely need to request a HELOC with bad credit and the lender will likely need a full URAR appraisal.
Drive-By Appraisal
With these types of home appraisals, the appraiser only looks at the outside of the home or property. The remaining information that is gathered during the appraisal is from online listings and public records. It is a more affordable and convenient type of appraisal. But there are downsides with a drive-by not always getting the full potential appraised value. For example, if you recently upgraded the family room and kitchen, a drive-by appraisal will not see that. In most cases, the drive-by appraisal will capture the curb appeal, but may not account for interior upgrades. The exterior only appraisal is very common with borrowers who do not have much equity. (high loan to value LTV)
Brokers Opinion Appraisal
A brokers opinion appraisal is an opinion of your home’s value by a real estate agent, broker, or other expert. This is an informed opinion about what the home would sell for today, but it is less accurate than a full appraisal. In some cases, it can’t be used instead of an appraisal. The BPO considers the comparable sales, similar to the automated valuation model.
Desktop Appraisal
Automated Valuation Model (AVM)
The automate value model, also known as AVM leverages extensive data available to mortgage investors to estimate your property’s value based on information about your home and the values of similar homes in your area. This AVM method offers an estimated value and it is very popular with HELOCs and 2nd mortgages and offers two key benefits: First, it’s convenient and you do not need to schedule time for someone to visit your home and assess its value. Second, because the process doesn’t require a physical appraisal, it will reduce your overall closing costs.
Hybrid Appraisal
This appraisal involves both computer and online research, as well as a physical inspection. The person will come to your home and collect basic data, take pictures, and assess its condition. The information is sent to the home office appraiser, who writes the report. This hybrid appraisal approach can be a good choice when there are few appraisers working in an area. Some lenders will allow an automated valuation model or the desktop appraisal when the borrower wants to refinance a home equity loan.
What Do Appraisers look at for Home Equity Loan or HELOC?
Most home equity lenders require an appraisal to assess your home’s current market value, your existing equity, your creditworthiness, and the maximum credit limit available to you. These home equity appraisals are typically less comprehensive than those conducted for a traditional mortgage. The lenders need to make sure the property value is there in case the borrower defaults on the monthly payments. Learn more about HELOC appraisal requirements.
Mortgage lenders mitigate risk by restricting the amount you can borrow. Along with your credit score, your home’s value plays a crucial role in determining your loan amount.
Home equity is the difference between your home’s value and the remaining balance on your mortgage. Understanding this figure is essential, as it influences how much you can borrow through a home equity loan or HELOC line of credit.
Timeline for an Appraisal on a HELOC or Home Equity Loan
The time that an appraisal takes depends on the type of appraisal required. It also may depend on if the appraiser is available and how fast they can get the job done. Generally, a full appraisal takes a week, but it may take two or three weeks to get it scheduled and done. Digital appraisals only take a few hours once started.
If the lender doesn’t require a full appraisal, it may be possible to close a home equity loans in seven to 14 days. A full home appraisal can add one or two weeks to the closing timeline.
What Are the Home Equity Loan Appraisal Costs?
A full, in-person appraisal will cost between $300 and $500, usually. Bigger properties require more work, so expect $550 to $800. If the home is unique, such as with a waterfront, there may be fewer comparable properties available, which may raise the price. An appraiser may charge a higher price for an appraisal in a larger city, too.
What Are the Benefits of a Home Equity Loan Appraisal?
Some homeowners may get concerned when the lender schedules an appraisal, but there is nothing to worry about. For a HELOC or 2nd mortgage it probably will not be as expensive or detailed as a full appraisal.
Also, the HELOC appraisal could benefit you, even though it comes with a cost. Home values have soared since the pandemic. So, many homeowners in the US have tens or hundreds of thousands of dollars in equity in their homes. But you don’t know the amount of equity for sure until you do a fresh appraisal. So, don’t worry about the appraisal for home-equity loan financing if the lender asks for one. It actually will do you good.
How the Home Equity Loan Process Works
Your home is collateral for your second lien. So, the lender must verify its value before the loan is approved. A home appraisal will show what the current market value of the property is, thereby showing the equity you can borrow. Lenders use your new appraisal value to determine the loan amount limit. It also will influence your loan terms, such as interest rate.
Keep in mind that your home equity is equal to the value of the home, minus your current mortgage balance. So, if your home is worth $300,000 today and you have a $100,000 mortgage balance, you have $200,000 in equity. Most lenders will allow you to borrow 80% or 85% of your available equity. If you stay below 80% combined loan to value (CLTV) you will likely be offered the lowest interest rates available as long as your credit score is good.
Takeaway on Home Equity Loans and Appraisals
A home-equity loan appraisal is an important part of the process of home equity loans. The appraisal, whether a full appraisal, drive-by appraisal, or broker’s opinion appraisal, provides an accurate picture of your home’s value and equity available. If you are ready to get a HELOC or fixed home-equity loan, our loan professionals can help you get qualified and approved in no time! Please contact us to get started on your loan application today. BD Nationwide will help you shop trusted lenders and interest rates so you find the best home equity loan without appraisal.