Can I get a home equity loan without an appraisal?

Home equity loans are invaluable tools if you need to borrow money for a large purchase, like remodeling the exterior of your home or consolidating a lot of debt. They allow you to borrow just the right amount of money you need — no more, no less, which makes it easier to manage repayment, especially considering the relatively low interest rates. 

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Getting a home equity loan (also known as a second mortgage) is a time-consuming and expensive process, however. You’ll typically need to go through the same underwriting process as your first mortgage, complete with a home appraisal. That’s one of the biggest hurdlesbugbears holding many people back from applying for a home equity loan at all. 

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In some cases, however, it’s possible to get a home equity loan without an appraisal. We’ll show you who qualifies, where to find them, and important alternatives to full home appraisals that are becoming increasingly popular. 

Home equity loans and appraisals

The vast majority of lenders will require you to get an appraisal before approving you for a home equity line of credit (HELOC) or a home equity loan. That’s because you're using your home as collateral for the loan; if you default, your lender can foreclose on the home. 

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If they’ve lent you more than they can recover after your home is sold and your primary mortgage balance is paid off, then they may never get those funds back. That’s why they’re extra careful to make sure they don’t lend you too much — hence, the need for a home appraisal. 

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It’s easy to determine the balance of your mortgage, after all — it’s printed right on your last monthly statement. Figuring out how much your home is actually worth is a much tougher task, and the most accurate way to do it is by getting a home appraisal done.

How home equity loan lenders use home appraisals

Lenders use the results of your home appraisal, along with information about your remaining mortgage balance, to calculate how much you can borrow. If you own a $500,000 home, for example — and you owe $200,000 on it — then you have $300,000 in home equity available to borrow against. 

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Most lenders will only let you borrow up to 80% to 90% of your home value, minus the balance of your mortgage. In this case, you could theoretically be eligible for a home equity loan up to $200,000 to $250,000. 

Can you get a home equity loan without an appraisal?

Generally, no — at least not without some other way to assess your home’s value. In order to determine how much money you can borrow, lenders need to know how much your home is actually worth — and that requires an appraisal. This is true for most home equity products, including home equity investments, mortgage refinances, and home equity lines of credit. 

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That said, there are some limited cases where lenders may waive the appraisal requirements. If you’ve had a fresh appraisal done within the last 60 to 180 days, some lenders will accept this in lieu of a brand-new appraisal on a case-by-case basis. This sometimes happens if homeowners have applied for home equity financing elsewhere but didn’t complete the process, for example.

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If you’re a stellar home equity loan applicant, some lenders may be open to other options for determining the market value of your home. For example, they may consider looking at past tax records and checking with your mortgage lender to see how much you have left to pay off on your home.

Here are some factors that can work in your favor when trying to convince a lender to let you apply for a home equity loan without an appraisal:

• Excellent credit score
• Low debt-to-income ratio
• Strong and stable income
• Existing relationship with the lender
• Relatively small requested loan amount
• Paid off (or mostly paid off) mortgage balance
• Long history of homeownership with the property

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It’s also important to note that credit unions are sometimes more open to skipping home appraisals. Connexus Credit Union, for example, doesn’t require a full appraisal for home equity loan applicants. 

Pros and cons of getting a home equity loan without an appraisal

Not having to undergo the appraisal process sounds like a dream, but it has some drawbacks, too. Make sure you consider these points when choosing whether an appraisal-free home equity loan is right for you:

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Pros

• Save money on appraisal fees
• Quicker, easier application process
• No strangers poking around your home

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Cons

• Not offered by many lenders
• Steeper application requirements
• May be limited to smaller loan amounts
• May pay higher rates on home equity loans
• Alternate ways of estimating home value may not be as accurate

Types of home equity loan appraisals

You’re not just limited to a traditional home appraisal in today’s environment. Many lenders are waiving the requirement for a full home appraisal and instead accepting other options, some of which can be excellent substitutes. 

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It may not be quite the same thing as a true home equity loan without an appraisal. Still, iit can skirt many of the common grievances people have with them, such as the high cost and time involved, getting prepared for the appraisal, or having a stranger invade your privacy. 

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Here’s how the different appraisal methods available today compare:

• Full appraisal: The traditional approach where an appraiser comes to your property, looks around your home, and then prepares a report. It typically takes a few weeks and costs $350 to $2,000.
• Drive-by appraisal: Essentially the same thing as a full appraisal, minus the interior inspection. It became more commonplace during the pandemic and relies more on curb appeal than the interior. A drive-by appraisal typically costs between $100 and $150.
• Hybrid or desktop appraisal: An appraiser relies entirely on publicly available information to prepare a report on your home value without leaving their desk. They may also send out a third party to collect more information. It typically costs $75 to $200.
• Automated valuation model (AVM): Many companies have created mathematical formulas to estimate the value of homes based on publicly available information. These form the basis of home estimates you see on popular websites like Redfin and Zillow.

Alternatives to consider

If a full home appraisal isn’t in the cards for you, it’s still possible to get funding through other methods. Here are some common alternatives to home equity loans:

• Credit card: If you only need to borrow a smaller amount or want the ability to borrow over time, consider a credit card. You’ll pay higher interest rates but save money on loan closing costs. Opening a new card with a zero-interest offer can be a good alternative.
• Personal loan: Rates are higher for personal loans, but they’re typically much faster to get and have fewer fees. They’re not tied to your home at all, and some can even offer same-day funding.
• Contractor financing: Some contractors partner with lenders to offer financing deals on projects they’re hired to do, and these may be available without an appraisal. It’s worth asking about, but make sure to verify the fine print and compare it with other options. 
• FHA Title 1 Home Improvement Loan: Designed for homeowners on a fixed income, these government-backed loans don’t require any appraisal and can be used for most home improvements aside from luxury upgrades like pools and outdoor fireplaces.

Final thoughts

Home appraisals can be a hassle, it’s true. Even so, there are some times when it’s worth it. If you’ve done a lot of interior renovations, for example, having those incorporated into your estimated home value can result in more borrowing power that would otherwise be missed. Full home appraisals are also more accurate and ensure you don’t borrow too much, which can cause problems later if you can’t afford your payments and end up defaulting on the loan. 

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If you haven’t done any big upgrades inside your house, though, it’s often easier to choose a lender that accepts a less hands-on home valuation option, such as a drive-by, hybrid, or desktop appraisal. Besides, if you disagree with the results, you can challenge them or even order your own appraisal. Such options are more widely available to homeowners than getting a home equity loan without any appraisal at all. 

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Explore tapping into your home equity with no monthly payments, no income requirements, and no need for perfect credit. Learn more at Point.com/hei. 

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