Can You Get a No-Appraisal Home Equity Line of Credit?

When you make mortgage payments or your home value increases, your equity grows. A home equity loan or line of credit is when you pull from this equity, liquidating your worth so you have money for home projects, college tuition, or other life costs. One of the most common requirements to be approved for a home equity loan is an appraisal, which provides an objective estimate of the value of your home. 

However, some homeowners might seek out non-appraisal home equity loans and lines of credit. These can be easier, faster, and more affordable options. While no-appraisal home equity loans exist, they are not as common and come with limitations.

This guide will highlight the benefits and drawbacks of a no-appraisal home equity line of credit or home loan so you can make a more informed choice on the right path to take. Learn why lenders ask for appraisals and what you need to avoid this requirement.

Why Do Lenders Typically Require an Appraisal?

An appraisal is a standard part of applying for a home equity loan or line of credit. Your lender needs to understand the value of your house so it can calculate how much you can borrow against it. This is designed to protect the lender.

If you default on your loan or foreclose on your house, the lender takes control of the property and tries to sell it to recoup its lost funds. If your house is worth less than what you owe, the lender will not get its money back.

You will likely have to get an appraisal for a home equity line of credit even if you already had one when you bought the house. This is because most appraisals are only valid for 90 days, with some being valid for up to six months. Housing markets are volatile, and your appraised value might have changed since you moved into your home. 

Calculating How Much You Can Borrow

Most lenders cap their loan sizes at 80% of your home’s value, minus your mortgage. Knowing this can help you understand your maximum home equity loan amount. Know that you aren’t required to borrow the full amount, but it helps to know your ceiling. Here are a few examples. 

• Home A has an appraised value of $400,000 and no mortgage. The maximum the homeowner can borrow is $320,000. 
• Home B has an appraised value of $400,000 and $100,000 remaining on the mortgage. The maximum the homeowner can borrow is $240,000. 

In both of these cases, it doesn’t matter what the homeowners purchased the properties for, only what the appraised value is. The homes could have increased or decreased in value over the years, but that doesn’t affect lendability.

Understanding the Appraisal Process

If you are seeking a home equity loan, your main task is to schedule and pay for the appraisal. A professional appraiser will visit your home to inspect the property and then compare it to similar homes in the area. The appraiser cares about the condition of the home and factors like square footage and the number of bedrooms. They do not care about aesthetic elements like your interior design. Read more about what appraisers look for to better understand how they complete their reports.   

The appraiser will likely send the report to your lender so they can confirm that your current home’s value aligns with your loan request.

Can You Get a No-Appraisal Home Equity Loan?

It’s possible to take out a home equity loan or line of credit without completing a formal appraisal. This option is less common because fewer homeowners qualify for no-appraisal loans.

Many lenders prefer to err on the side of caution and request appraisals even on relatively safe personal loan applications. This protects the lender if they are asked why they approved the home equity line of credit while also providing a safeguard to the bank or credit union.

Situations Where Appraisals Might Be Waived

You have multiple options if you want to apply for a home equity loan without going through the appraisal process. Here are a few instances where a mortgage lender might approve a HELOC without requiring you to pay for an appraisal. 

• Excellent Credit Scores: A high credit score reflects a lower risk to the lender. Borrowers with stellar credit may be offered no-appraisal loans.
• Lower Loan-to-Value Ratios (LTV): Lenders may waive appraisals if the loan is relatively small compared to the home’s value. For example, if you only need a $50,000 loan on a $500,000 house, then the LTV is only 10%. It would be easier for the bank to recoup that loss if you defaulted on your payments. 
• Automated Valuation Models (AVMs): Some lenders may use AVMs or desktop appraisals instead of full physical inspections. An AVM uses digital resources and existing data on the home to estimate its worth. 

Your lender usually decides whether a loan qualifies for an appraisal waiver or AVM. Each bank or credit union has its own guidelines for which loans need to get a full appraisal. 

Digital and Hybrid Appraisals

An AVM is a form of digital appraisal, and your lender might recommend this option or similar to approve your home equity loan. They also might suggest a hybrid appraisal, known as drive-by appraisal, as an easier and more affordable alternative. These options are used for lower-risk loans where the lender still wants to schedule an appraisal. 

These options are also less invasive than a traditional appraisal. You won’t have to disrupt your workday to invite a stranger into your home. The appraiser focuses on similar homes in your area rather than inspecting your home.

Advantages of a No-Appraisal Home Equity Loan

There are several reasons why you might want to skip the appraisal for your home equity loan. While this process usually isn’t too long, it’s another hurdle that prevents you from getting the money you need. Here are a few benefits of choosing this option. 

• It saves time. Without waiting for an appraisal, the loan approval process can be faster, potentially closing the loan in a shorter time frame.
• It saves money. Skipping an appraisal saves the borrower money, making the loan more affordable. Home appraisals cost around $350 but can be more expensive in high-cost-of-living regions. Appraisal fees can also be more expensive for bigger homes. Skipping the appraisal can lead to significant savings. 
• It is more convenient. There is no need to schedule and prepare for a property inspection, which can be time-consuming. Many homeowners also make repairs ahead of the appraisal, which can also take more time and money than you expect. You may push back your loan application to make certain repairs to help your appraisal. 

Skipping the appraisal process can help you secure home equity loans without paying for the inspection and any necessary repairs beforehand. It can also help you start the loan application and underwriting process sooner, which means you get your money faster.

Risks and Drawbacks of a No-Appraisal Home Equity Loan

While there are multiple advantages to skipping the appraisal process, there are drawbacks to consider. If you are opting for a traditional home equity loan, you might not even have the option of skipping the appraisal. Y

our lender may require it for approval. Even if you qualify for home equity loans without an appraisal, there may be some unwanted limitations. Here are a few risks you take.  

Lenders May Offer Smaller Loan Amounts

Lenders use home equity loans to determine the exact value of your property. If they are unable to do that, they might offer smaller amounts to borrowers to protect themselves. Instead of receiving the full 80% loan for your equity (if that is how much you need), you could receive a much smaller sum. 

This isn’t necessarily a problem if you need a smaller loan. Some homeowners only need a portion of their equity to cover short-term costs. As long as you are okay with a small loan amount, you can move forward with trying to skip the appraisal process.

You May Pay Higher Interest Rates

Lenders have multiple ways to mitigate risk. Along with approving smaller loans, they might also charge higher interest rates on loans that aren’t backed by appraisal data. This is one of the biggest drawbacks of taking out a home equity loan without an appraisal. Even small changes in your interest rate can have a big impact on your monthly payment and the total interest you owe. 

Use an online loan calculator to see how fluctuating interest rates can affect you. You might be surprised how expensive a half-percent change is. It could be worth getting a traditional appraisal to save money in the long run. 

There is a Potential Overestimation of Value

Homeowners tend to overestimate their home values. It’s easier to focus on the good parts of a home that you live in compared to the drawbacks and issues that lower its value. This creates challenges when applying for home equity loans. You may overestimate your home’s value and either take out too large or a loan or receive unfavorable payment terms. 

Oftentimes, it is safer to get a formal appraisal than to rely on your own home estimates or the value estimates of lenders. Everyone can know exactly what the property was worth when the loan was issued.

How to Qualify for a No-Appraisal Home Equity Loan

If you are still interested in applying for home equity loans that don’t require appraisals, you can take steps to make your application more appealing. This can potentially help you get favorable interest rates while still streamlining the loan process.

Even if you still have to complete a home loan or HELOC appraisal, these actions will benefit you in other ways.

Build Your Credit

Borrowers with higher credit scores are more likely to be considered for a no-appraisal option. If you have flexibility in when you apply for personal loans, work on improving your credit. This will help you regardless of whether you get a home loan or seek funding elsewhere. A few ways to improve your credit include: 

• Pay off existing debt or work on debt consolidation to make your monthly payments easier. 
• Build your credit history by making regular monthly payments, even if you can only afford the minimum amounts. 
• Never miss a mortgage payment or miss paying other bills.  
• Request higher credit limits on your current cards. This lowers your credit utilization. 
• Dispute any credit errors that could negatively impact your scores. 

Some of these tactics will work faster than others, but you should allocate at least six months to increase your credit. A year is even better for significant credit increases, especially if you need to prove that you can pay your bills on time.

Lower the LTV Ratio

Look at the current market value of your home and consider borrowing a smaller amount against it. Not only will this increase your chances of qualifying for traditional home equity loans without appraisals, but smaller loans often come with lower closing costs and smaller interest payments. It may be better financially to take out a smaller loan now so you can save money in other ways. 

Evaluate what you want to use the money for and see if there are any ways to reduce your costs. This could mean throwing a smaller wedding or spreading out your college coursework over time, but the savings could be worth it.

Prove Stable Income and Employment

Demonstrate to your lender that your employment is stable and there is minimal risk of you losing your income in the long run. Like having a good credit score, this demonstrates to lenders that you have a low-risk loan. Even if you still have to get an appraisal, your employment stability could lead to lower interest rates and closing costs.

Work With Your Existing Lender

Contact the company that handles your existing mortgage if you want to increase your chances of skipping the appraisal. This bank or credit union is already familiar with your payment history and qualifications. They might be more willing to work with you on the loan.

Be Open to a Hybrid Appraisal

Your lender wants to help you, but they still need to complete their due diligence before approving a loan. If they offer you a desktop appraisal that uses automated valuation models, consider accepting that option instead. This isn’t a complete waiver, but could still be more affordable and easier than a full appraisal. 

See if Skipping the Appraisal Can Help You Get a Personal Loan

An appraisal is a standard part of applying for a home equity loan. While securing one of these loans without an appraisal is possible, it is also rare. You are more likely to skip the appraisal fees if you are borrowing a small sum or securing a loan through the lender of your existing mortgage. Talk to your lender to see if you could skip the traditional appraisal entirely or go through a desktop appraisal instead. They may be willing to approve an alternative option. 

If you have any questions about the appraisal process and what it means to secure home equity loans, contact a local real estate agent through FastExpert. Professional agents should be willing to help you understand your home equity options and take steps to get the most from your property values. Explore FastExpert today and see how it can help you.