Real Estate Equity Loan Without Appraisal: Does It Exist?

There may be home equity loans without an appraisal. In many cases, the lender requires a full appraisal of the home before approving your application for a home equity loan. However, many lenders may accept an alternative to a full appraisal to determine the value of your home.

What is a home equity loan?

A home equity loan – also known as a second mortgage – is a loan for a specific amount of money that uses your home as collateral. You repay the home equity loan in equal monthly installments over a specified period. You should keep in mind that if you default significantly on these installments, the lender can seize your home and become its owner.

Do you need an appraisal to get a home equity loan?

Not always do you need to get a full appraisal to obtain a home equity loan. However, most lenders require some form of appraisal when obtaining a home equity loan. In many cases, you must obtain a full appraisal.

“Whether you need a full appraisal or not depends on the requirements of the specific financial institution,” according to Tom Baker, head of the lending department at Hanscom Federal Credit Union in Massachusetts.

The appraisal estimates the market value of your home. This estimate helps the lender determine whether your home provides sufficient collateral to support the home equity loan.

What is a full appraisal?

Lenders often require a full appraisal for a home equity loan.

During a full appraisal, a professional appraiser visits the home to assess its condition, size, amenities, and location. This usually involves inspecting both the interior and exterior. The appraiser compares these findings with publicly available data, such as information about the home and neighboring houses, and the local housing market, to estimate the value of the home being used as collateral.

How to get the most out of your appraisal?

If you need a full appraisal, Christian Mills, a home loan specialist at Rivers Mortgage in Denver, offers three tips to maximize the value you can get from your home:

1. Ensure your property looks its best: for example, consider sprucing up the garden, shrubs, trees, and other plants around your home before the appraisal.
2. Do your homework: research online to compare similar homes in your neighborhood so you can get an idea of your home’s value.
3. Point out home improvements: if you have made significant improvements to your home, let the appraiser and lender know “so you have a strong chance of your appraisal coming in at the desired value,” according to Mills.

Alternatives to a full appraisal

Not every home equity lender requires a full appraisal. For example, a lender may allow an alternative to a full appraisal if the loan amount is less than a certain amount (like $250,000). Or if the home equity loan is from the same lender that holds your mortgage, you may be able to bypass the full appraisal, according to Mills.

Here are three alternatives to a full appraisal:

1. Automated appraisal model: This is a computer tool that analyzes data about property tax assessments and home sales activity and helps determine the market value of the home. An automated appraisal model can be an alternative or a partial substitute for a personal appraisal.
2. Exterior-only appraisal or drive-by appraisal: This type of appraisal is a hybrid between a full appraisal and an automated appraisal model. The appraiser takes pictures of the exterior of the home and the neighborhood as part of this appraisal. The results from the drive-by inspection are compared with data, such as figures regarding recent home sales in the neighborhood, to determine the estimated value of the home.
3. Desktop appraisal: Using the power of technology, data, and analytics, the appraiser generates an estimated market value for the home without visiting the property. This type of appraisal may include images of the interior and exterior, reviews from external sources, and property data.

Options

Another Financing Option Without Appraisal

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

1. Home Equity Line of Credit (HELOC): Lenders may not require a full appraisal for a HELOC, but they typically rely on another method such as an automated valuation model to determine the home’s value.
2. Cash-Out Refinance: In most cases, lenders require an appraisal for a cash-out refinance, although a full appraisal may not be necessary. For example, a lender may rely on a drive-by appraisal.
3. Personal Loan: Baker said a personal loan, which does not require appraisals, is an alternative to a home equity loan. However, he emphasizes that interest rates and terms for personal loans may not be as favorable as those available for home equity loans or HELOCs.

Conclusion

You may encounter a lender that requires a full appraisal for a home equity loan. But keep in mind that some lenders may be satisfied with an appraisal that does not include an inside-and-out review of your home. For this reason and others, it’s important to shop around for a lender rather than committing to the first one you find.

No matter the lender, make sure that the appraisal – whether full or not – accurately estimates your home’s value, allowing you to borrow the maximum amount possible with a home equity loan. “When you get an accurate value of your home based on current information, it protects you from borrowing more than its worth and exposes you and your family to financial nightmares,” according to Baker.

Frequently Asked Questions (FAQs)

Where can I get a home equity loan without appraisal?

Many lenders, including credit unions, offer home equity loans that do not require a full appraisal. Make sure to check with multiple lenders who offer home equity loans and inquire about their appraisal requirements.

How much can I get with a home equity loan?

Generally, you are eligible to borrow up to 85% of the equity in your home. So, if you have accumulated $100,000 in home equity, the maximum loan you could obtain would be $85,000. However, it is possible to find a lender willing to allow you to borrow up to 100% of your home’s equity.

Source: https://www.thebalancemoney.com/no-appraisal-home-equity-loan-does-it-exist-5223449