Is it necessary to have an appraisal to get a HELOC?
A Home Equity Line of Credit (HELOC) is a type of revolving credit secured by the equity in your home. Traditional lenders often require an appraisal to determine your home's current value and available equity, with HELOC appraisals typically being quicker and less costly than full property assessments. This valuation helps the lender decide your qualification and establish the maximum credit limit. Some lenders, like Figure, offer modern alternatives like automated valuation models that may bypass traditional appraisal processes, simplifying access to your home's equity.
Key Points:
Most HELOC lenders require an appraisal to determine the current market value of your home, your current equity, your creditworthiness, and your maximum credit limit
HELOC appraisals are often less extensive than those for a traditional mortgage
Having an updated appraisal helps you understand your current property value and decide which HELOC is best for you
Lenders differ in the type of appraisal they require, which can vary from full, desktop, exterior-only, hybrid, and automated
HELOC appraisal basics
A home equity line of credit (HELOC) is a great way to take advantage of the equity in your home without having to sell or refinance. However, lenders need to know how much your home is worth before you can access the funds. This requires an appraisal, which is the process of providing an accurate estimate of your home’s value.
Thankfully, HELOC appraisals tend to be quicker and less expensive than full appraisals since they focus on just the area around your house. The process involves inspecting any necessary repairs and updating records for taxes, zoning, market conditions, and amenities surrounding the property being evaluated. With this information in hand, lenders are able to provide you with an appropriate loan amount based on your current equity.
What is a HELOC?
A HELOC, or Home Equity Line of Credit, is a versatile credit line that is backed by the equity accrued in your home. Equity is the current market value of your home minus any amount you owe on the house in the form of mortgages (primary mortgages and secondary mortgages). Unlike a traditional home equity loan which pays out as a lump sum, one-time payment at the start of the loan, a HELOC is a line of credit. With a line of credit, you withdraw funds as needed and only pay interest on the amount of the credit line you have used.
A HELOC also differs from a home equity loan in that it is divided into two loan periods. The first is the draw period. During this phase, you are able to draw funds from your credit line. Lenders vary in terms, but often you only pay interest during this time and do not need to pay down the principal balance in monthly payments. Typically you are able to choose to pay down the principal during this period, but some lenders charge prepayment penalties if you pay off or close out your loan during the draw period.
Following the draw period the loan enters the repayment period. During this period you can no longer withdraw funds and must make monthly payments on the principal and interest.
What is an appraisal?
An appraisal is the process of estimating the monetary value of a property. This is done by assessing the current condition of the home and comparing it to similar properties in the area to get an idea of its market value. Appraisals are important for a variety of reasons, including determining if you need to get a loan or refinance your existing mortgage. For HELOCs, an appraisal is necessary in order to determine the amount of equity you have in your home. HELOC appraisals tend to be shorter and less expensive than a full appraisals.
Do I need an appraisal for a HELOC?
While traditional lenders typically require a full appraisal, some modern lenders, like Figure, offer a no-appraisal option, allowing qualified homeowners to bypass the time-consuming appraisal process. Instead of a physical inspection, Figure uses automated valuation models (AVMs) to quickly assess your home’s value using public records and recent sales data.
To qualify for a no-appraisal HELOC, you'll generally need a strong credit score, sufficient home equity, and financial stability. This streamlined process saves both time and money, enabling faster access to your home’s equity.
Although no-appraisal HELOCs are becoming more common, it’s important to check with lenders about their specific requirements, as qualifications and available products may vary. Some lenders might still require an alternative form of property valuation. However, by choosing a lender like Figure, you can skip these extra steps and enjoy quicker access to funds, making it easier to tap into your home’s equity when you need it.
How does the HELOC appraisal process work?
When applying for a Home Equity Line of Credit (HELOC), the appraisal of your property is a crucial step in determining how much you can borrow. Here’s a streamlined overview of what you can expect during the appraisal process:
1. Initial Request & Scheduling After you submit your HELOC application, the lender will order an appraisal, typically assigning a licensed appraiser from an approved list. You’ll pay the appraisal fee upfront, which generally ranges from $300 to $600. The appraiser will contact you to schedule a convenient time for the property assessment.
2. Preparing for the Appraisal Before the appraisal visit, ensure your home is accessible and tidy. It’s also helpful to gather any documentation for recent home improvements or repairs. If it’s an in-person appraisal, completing minor repairs or addressing cosmetic issues can positively influence the appraiser's assessment.
3. The Appraisal Visit During the appraisal, which typically takes 30-60 minutes, the appraiser will examine both the interior and exterior of your home. They’ll measure rooms, assess the condition of major systems (HVAC, plumbing), and document any recent renovations or improvements. Photos will be taken, and the appraiser may also assess property features like square footage, lot size, and the condition of key areas such as the roof and flooring.
4. Behind-the-Scenes Evaluation After the visit, the appraiser will conduct a comparative market analysis (CMA), analyzing recent sales of similar homes in your area to determine your home’s market value. This process includes evaluating factors like location, property condition, size, and local market trends. These insights help establish your home’s worth in relation to similar properties.
5. The Appraisal Report Once the evaluation is complete, the appraiser prepares a detailed report that includes the property’s description, measurements, photos, and a final appraised value. This report is submitted to your lender, typically within 3-7 business days.
6. Lender Review & Impact on Your HELOC The lender will review the appraisal report to finalize your eligibility for the HELOC. The appraised value of your home will directly influence the amount you can borrow. Most lenders allow you to borrow up to 80-85% of your home’s value, less your existing mortgage balance. This calculation determines your available equity and the maximum amount you can access through your HELOC.
Streamlined Options: No-Appraisal HELOCs While traditional lenders typically require a full appraisal, some modern lenders, like Figure, offer no-appraisal HELOCs. These options use AVMs, which assess your home's value through public records and recent sales data, avoiding the need for a time-consuming, in-person appraisal. To qualify for a no-appraisal HELOC, you'll generally need a strong credit score, sufficient home equity, and financial stability.
This streamlined process can save time and money, allowing quicker access to funds without the need for a physical appraisal. However, it’s important to confirm the specific requirements with your lender, as qualification criteria and available products may vary.
Can I get a HELOC without an appraisal?
In the past, applying for a Home Equity Line of Credit (HELOC) meant going through a traditional in-person appraisal, a time-consuming and sometimes costly process. However, modern lenders like Figure now offer streamlined alternatives that can save you both time and money.
Some lenders use advanced technology and automated valuation models (AVM) to estimate your home's value without the need for a traditional in-person appraisal. These digital assessments draw from public records, recent sales data, and sophisticated algorithms to quickly determine your property’s worth. Lenders like Figure leverage AVMs, allowing you to bypass the conventional appraisal process and potentially access your home’s equity more quickly.
To qualify for a no-appraisal HELOC, you'll typically need to meet certain criteria, such as:
Strong Credit History: A solid credit score is essential for appraisal-free HELOCs.
Ample Home Equity: The more equity you have in your home, the better your chances of qualifying.
Financial Stability: Lenders, like Figure, will assess factors such as your income stability and debt-to-income ratio to ensure you’re financially equipped for the loan.
Property Location: The value of homes in your area may influence the eligibility for this option.
This alternative can be especially beneficial for homeowners who want to quickly access their equity without waiting for a traditional appraisal. While not all lenders offer no-appraisal HELOCs, those who do, such as Figure, typically provide an easier, faster application process.
It’s important to note that even with streamlined options, not all homeowners will qualify. Qualification may still depend on factors like your home’s location, your financial health, and the lender’s specific requirements. Additionally, some lenders may still require a form of property valuation, though it won’t necessarily be a traditional in-person appraisal.
While no-appraisal HELOCs can expedite the process and reduce upfront costs, it’s essential to compare different lenders to ensure you’re getting the best deal. Some alternatives may come with different interest rates or terms compared to traditional HELOC products.
Benefits of a HELOC appraisal
HELOC appraisals are typically much less expensive and involved than a traditional, full appraisal used when purchasing a home. Through this process, lenders can verify a homeowner's HELOC eligibility to determine how much they can borrow from their equity. A HELOC appraisal may actually benefit the homeowner in some cases by providing them with access to the equity that they did not previously have access to.
The appraisal process helps homeowners understand the fair market value of their home and what portion of the estimated worth is available as an equity line of credit. With this information, homeowners can take advantage of low-interest rates if they decide to use their HELOC towards debt consolidation, home renovation projects or any other financial goals. In addition to being beneficial for qualifying for HELOCs, having your property appraised can also help you track market trends and stay ahead of competition when listing your house on the real estate market. Some lenders, like Figure, offer options to skip the traditional appraisal, simplifying the process for qualified borrowers.
Types of HELOC appraisals
Lenders have options on how to get an accurate property valuation. The appraisal value of your home will be used to calculate how much equity you have, and ultimately your HELOC credit limit. Borrowers who are looking to maximize their access to cash should try to get the highest appraisal possible. Depending on your lender, you may do a complete in-person appraisal or choose a less extensive option.
Full appraisal
When you think of home appraisals, you probably think of the full, copletem appraisal. This is the standard option for primary mortgages and is used for many home equity loans and HELOCs. A full appraisal includes a physical examination through the interior and exterior of the house with the homeowner to evaluate its features and condition. After inspecting the home, the appraiser does research on comparable properties that have been sold in recent months to see what similar houses have sold for in order to estimate a fair market value for your property.
The full appraisal helps lenders assess potential risks when lending money. Homeowners also benefit from full appraisals since it gives them an idea of their home’s current market value and whether or not they may qualify for higher loan amounts due to their home’s worth.
Desktop Appraisal
A desktop appraisal is a quicker, less expensive method of valuing a home, where a professional appraiser evaluates the property’s value using electronic data from sources like home listing websites, public records, and proprietary databases. While the process skips the in-person inspection, it still relies on the appraiser’s judgment to determine a reasonable market value. In contrast, an Automated Valuation Model (AVM) is fully automated and uses algorithms to assess a home’s value, drawing from public records and recent sales data without any human involvement. Both methods skip the traditional appraisal visit, but a desktop appraisal involves a professional’s analysis, while an AVM relies entirely on technology.
Drive-by Appraisal
An exterior-only or drive-by appraisal is when an appraiser assesses a home by checking out only the external features. Using public records and other available information, such as online listing photos and services, they fill in the remaining details of the interior components of the home. Homeowners may prefer to have a full or hybrid appraisal if they have recently done interior renovations or improvements that significantly add to the home's value.
Hybrid Appraisal
A hybrid appraisal combines information in the form of photographs and data collection from an individual other than the appraiser. This information is shared with the appraisal who then analyzes the data in comparison to local comps in the area. Using this method can speed up the appraisal process and costs less than a complete appraisal.
Automated Appraisal (AVM)
An automated valuation model, or AVM, is becoming a more common way to conduct appraisals, especially in the absence of a home sale (that is, for home equity loans and mortgage refinancing where the property does not change hands). An automated valuation model (AVM) is a computer program designed to estimate the market value of a property without the need for human analysis. It works by taking data from publicly available sources such as tax records, sales records, and other databases in order to compare properties with similar features that have recently sold and come up with an estimated value (Think: Zillow's Zestimate). An AVM is supposed to give an unbiased opinion that accounts for factors like location, size, age, and condition, giving a more accurate idea of the property’s market worth than manually assessing it would allow.
Homeowners may prefer to have a full appraisal if they have recently done renovations or improvements that significantly add to the home's value and are not available via public records. While AVMs have been found to be quite reliable, they still do not provide the level of detail that a full appraisal will provide. However, they are the fastest way to get a reliable home valuation at the lowest cost.
Costs of HELOC appraisals
The cost of an appraisal will depend on what type of appraisal your lender requires and your geographic location. Typically, a full, in-person appraisal costs between $200-$600. Desktop, hybrid, and exterior-only appraisals require significantly less time work, and are therefor less expensive than complete appraisals. Automated valuation models are both the quickest and lowest cost for home appraisals.
Modern HELOCs, such as that offered by Figure, find that using an AVM to appraise home value benefits both the lender and borrower. Because a HELOC is a loan and not a primary mortgage, an approximate value is adequate for valuation purposes. Using an AVM speeds up the lending process, allowing Figure to fund loans in as little as 5 days and keeps borrower costs down.
The Bottom Line
A HELOC is an intelligent way to borrow against your home equity to complete personal projects, meet financial goals, and better your life. In order to obtain a HELOC most lenders require some form of appraisal to determine your home value and lending limit.
When it comes to the type of appraisal needed for a HELOC, the answer depends on a few factors. If you’ve done interior renovations or improvements that significantly add value to your home, you may want to go for a full appraisal. However, if time and cost are of the essence, an automated valuation model (AVM) may be the best choice.
Figure leverages Automated Valuation Models to efficiently and accurately assess home values, streamlining the HELOC application process. By utilizing AVMs, Figure provides a quick and reliable property valuation, benefiting both lenders and borrowers by eliminating the time and costs associated with traditional appraisals. This approach simplifies access to home equity without sacrificing accuracy. Ultimately, the best option will depend on your individual financial needs and the specific guidelines of your chosen lender.
Additional FAQs about HELOC appraisals
How long does it take to get a HELOC after an appraisal?
After an appraisal, the HELOC approval process typically takes 2-4 weeks, depending on the lender. Some modern digital lenders, like Figure, may offer expedited timelines for qualified borrowers. Factors such as the complexity of your application, financial documents, and credit check can influence the overall processing time.
Why is an appraisal needed for a HELOC?
An appraisal helps lenders determine your home’s current market value, which is crucial for calculating the available equity and setting your HELOC limit. This process ensures that the loan amount aligns with the true value of your property, protecting both the lender and the borrower by preventing the credit line from exceeding the home’s worth. Figure offers a no-appraisal option by using automated valuation models (AVMs) to quickly assess your home’s value using public records and recent sales data, allowing qualified homeowners to bypass the time-consuming appraisal process.
Are there alternatives for no-appraisal financing?
Some lenders, including Figure, offer no-appraisal HELOC options by utilizing AVMs (Automated Valuation Models) or desktop appraisals. These alternatives use technology, public records, and recent sales data to quickly assess a home’s value, allowing borrowers to bypass traditional in-person appraisals and access funds faster and more conveniently.
