No-Appraisal HELOCs | Appraisal Process 2024

Is an appraisal required for a HELOC?

A home equity line of credit (HELOC) is a great way to tap into your home’s cash value without refinancing or selling. But before you can cash out equity, lenders need to know how much your home is actually worth. And that requires a new appraisal.

Fortunately, HELOC appraisals are often less involved and less expensive than full appraisals. They’re typically faster, too — which means you can access your funds without a long wait. Here’s how it works.

In this article (Skip to...)

• Appraisal requirements
• No-appraisal HELOCs
• Types of HELOC appraisals
• How long does it take?
• Appraisal costs
• Appraisals process
• HELOC appraisal benefits
• No-appraisal financing
• FAQ

What is a HELOC Appraisal?

A HELOC appraisal determines the current market value of your home. It’s vital because the amount you can borrow largely depends on the equity you’ve accumulated over time.

Home equity is essentially the difference between the current value of your home and the outstanding amount on your mortgage.

The HELOC appraisal process evaluates your home’s condition, contrasts it with similar recently-sold properties, and considers any unique features or upgrades your home may have.

How does a HELOC appraisal work?

Because your home is used as collateral for a HELOC or home equity loan, lenders need to verify its value before they can approve you. An appraisal will show your lender what the property is currently worth and therefore how much equity you have to borrow against. (Remember that home equity is equal to your property value minus your existing mortgage balance.)

Lenders use the newly-appraised value to determine your HELOC loan limit as well as your interest rate and loan terms.

For example, let’s say you’ve applied for a HELOC and you can borrow up to 85% of your home’s value. That’s the total combined loan-to-value (LTV) limit between the HELOC and your existing mortgage.

If your home is worth $300,000 and you have a mortgage balance of $200,000, you could potentially borrow up to $55,000.

• $300,000 (home value) x 85% (max. LTV) = $255,000
• $255,000 – $200,000 (existing mortgage) = $55,000

Keep in mind that not everyone will qualify for the maximum HELOC loan limit. The amount you can borrow is also based on factors like your credit score and debt-to-income ratio.

When you get pre-approved for a HELOC, the lender will estimate your home’s value and help you understand what you’re likely to qualify for.

Can you get a HELOC without an appraisal?

Most lenders require at least some sort of appraisal for a HELOC. However, there are instances where a no-appraisal HELOC is an option.

To qualify for a HELOC without an appraisal, you typically need to meet at least one or more of the following requirements:

• You’ve had a previous full appraisal performed within the last 60-180 days
• You have an excellent credit score (750-800 FICO)
• Your total HELOC amount is below $100,000

You might not need a HELOC appraisal if, for example, you closed on your home purchase within the last six months and your most recent appraisal is still fresh.

The same rules may apply if you close your HELOC and then want to reopen it.

Types of HELOC appraisals

Lenders and banks often employ a variety of appraisal methods based on their risk assessment criteria, the regulatory environment, and the specific needs of their clientele. As a result, homeowners might encounter differing appraisal experiences depending on the lender or bank they choose.

Full appraisal

This is what most people picture when they think of home appraisals. The appraiser takes a comprehensive look at the property, both inside and out. The homeowner typically accompanies the appraiser as they assess the house’s features and state. After the physical assessment, the appraiser researches similar properties sold in recent months, comparing like with like. For instance, if your home is a three-bedroom ranch, it will be compared to other three-bedroom ranches. Moreover, the appraiser ensures that vital systems such as electrical, plumbing, and HVAC are functioning correctly, ultimately aiding in the home’s overall evaluation.

Drive-by appraisal

As the name suggests, this method involves the appraiser inspecting only the home’s exterior. The remaining data comes from public records and various available resources, including online home listings. While it’s a more convenient and possibly more affordable option, it has its shortcomings. For instance, if you’ve recently revamped your interior, a drive-by appraisal will miss that, potentially leading to a less precise valuation.

Desktop appraisal

In this method, no physical visit to the property is made. The appraisal is generated based on data from public records, online home listing sites, and other proprietary databases. It offers high convenience; however, its accuracy heavily relies on how updated and comprehensive the underlying data is.

Hybrid appraisal

This approach combines physical inspection with desk research. A representative will visit the home to gather basic data, snap photos, and report on its condition. This information is then sent to an appraiser who crafts the report remotely. Such an approach is especially beneficial in areas where qualified appraisers are few and far between, often resulting in cost savings due to increased efficiency.

Automated Valuation Model (AVM)

This modern method uses technology to appraise a home, eliminating human involvement. AVMs compare known features of your home with similar homes sold recently. However, the model’s accuracy can be a concern. For starters, if you’ve made any recent modifications to your home, the model might not immediately account for them. Furthermore, these models rely on assumptions, and the value it presents can be influenced by what it includes or excludes.

The type of HELOC appraisal used can significantly impact the valuation. Homeowners should be aware of each method’s pros and cons, ensuring the chosen method aligns with their needs and the specifics of their property.

How long does a HELOC appraisal take?

The time it takes for an appraisal depends on whether your lender requires a full appraisal or uses hybrid or automated valuations. It could also depend on the appraiser’s availability and how quickly they can evaluate the property.

Full appraisals typically take at least a week, but sometimes as long as two to three weeks, to complete. Digital appraisals are usually completed in about one hour.

Lenders that don’t require full appraisals can often get your HELOC from application to closing in as little as 7-10 days. Full appraisals usually add at least a week or two, sometimes three, to the time frame.

How much does a HELOC appraisal cost?

The amount you’ll pay for a HELOC appraisal is based on a few factors.

• Type of appraisal: in-person vs. drive-by or digital
• Size of the home and property
• Location of the property
• Complexity of the property

A typical, full appraisal on a single-family home costs between $350 to $500. Larger properties take longer, so you can typically expect to pay between $550 to $800.

Remote waterfront properties, or unique homes with fewer “comps” (comparable homes in the area), usually cost more than more traditional properties to appraise. Appraisers will often charge more for homes in larger cities, as well.

Digital appraisals are sometimes free of charge. When not free, they generally run between $75 to $200. And drive-by appraisals are typically between $100 and $150.

• Traditional appraisal: $350-$500
• Drive-by/hybrid appraisal: $100-$150
• Digital appraisal: $0-$200

Depending on the lender, sometimes your appraisal costs can be added to your closing costs. Other times, lenders may require payment upfront, prior to the appraisal being completed.

HELOC appraisal process

Qualifying for a HELOC involves a detailed appraisal process. Although the process may vary according to your lender and their type of appraisal, here’s what you can generally expect.

• Preliminary research: Before even stepping foot on your property, appraisers invest time in understanding the local real estate market. This could involve checking recent sales of comparable properties, known in industry lingo as “comps”
• Physical inspection: The appraiser conducts a hands-on evaluation of your home, assessing both its interior and exterior, noting features, upgrades, and the condition of essential systems
• Comparative analysis: Using the data from the visit and the initial research, the appraiser conducts a comparative analysis, aligning your home’s features against those of similar properties
• Final report compilation: All the information is then collated into a report. This document provides a clear valuation of your home, offering insights beneficial to both homeowners and lenders

By being aware of each step, you can approach the HELOC appraisal process with confidence and clarity.

HELOC appraisal benefits

Don’t be overly concerned if your lender requires an appraisal for your HELOC. It will likely be less expensive and less involved than a traditional, full appraisal that’s used when buying a home.

Plus, the appraisal can actually work in your favor — despite its cost.

Home values rose at a record pace in 2020 and 2021. As a result, many homeowners across the nation built up tens or even hundreds of thousands of dollars in home equity. But you won’t know just how much equity you’ve gained until you have the home appraised.

So don’t shy away from the appraisal when your lender brings it up. It’s a normal part of the process, and it may reveal that you have even more wealth pent up in your home than you expected.

HELOC alternatives for no-appraisal financing

An appraisal is not always required in order to finance a home improvement project. Here is a look at a few financing choices that avoid the appraisal process.

• Personal line of credit: Similar to a HELOC but bank-issued and without collateral. Offers flexibility to draw and repay funds.
• Contractor financing: Direct financing from contractors. Essential to thoroughly review terms to ensure financial alignment.
• FHA Title 1 Home Improvement Loan: Designed for home improvements with loan limits up to $25,000 for single-family homes. No property collateral needed for loans under $7,500.
• Personal loan: Unsecured loan with no collateral needed. Typically has higher interest rates than mortgages, but funds can be accessed quickly without appraisal or title work.
• Credit cards: Suitable for small projects. Quick financing option but with potential for high interest rates. Spending is limited by the card’s credit limit.

Although appraisals are necessary for some financing options, they are not required for many others. Compare each alternative to your needs to make sure you choose a course of action that is both practical and financially sound.

HELOC appraisal FAQ

Do you qualify for a HELOC?

Ultimately, whether or not you need an appraisal for your HELOC is determined on a case-by-case basis by your lender.

When you’re ready to tap into your home equity, contact a lender directly to discuss your eligibility. They’ll walk you through the process and tell you just how much you can cash out.