Can You Get a HELOC Without an Appraisal?

Securing a home equity line of credit (HELOC) can take anywhere from two to six weeks, depending on the lender and applicant. For many borrowers, the most time-consuming part of the process is the appraisal. Can you bypass the appraisal process and get approved for a HELOC faster? Maybe. The key is to understand the types of home appraisals and the risks and potential benefits of skipping a precise estimate of your home’s value. Get the facts here.

Why Lenders Typically Require a HELOC Appraisal

A home appraisal is a trained expert’s evaluation of what your home is worth, and many lenders will mandate an appraisal among their requirements needed to get a HELOC. Lenders require the appraisal because the amount a homeowner can borrow is based on the owner’s equity (the ownership stake in their home). Equity is equal to the home’s market value, minus whatever the homeowner still owes on any home loan.

An appraisal protects the lender, but it also safeguards the homeowner. An accurate valuation of your home will help prevent overborrowing against the property’s value. After all, if you decide to sell your home, you’ll have to use the proceeds to pay off both your mortgage and your HELOC.

Getting an appraisal could also allow you to borrow the maximum realistic amount with your HELOC, which for some lenders is $750,000. If you’re in need of a large credit line and you have a high-value property, an appraisal can help you qualify.

Types of HELOC Appraisals

Not every HELOC lender will require an in-person appraisal. There are several possible ways to approach the appraisal. Let’s look at each individually:

In-person appraisal This is a very common type of appraisal requested by HELOC lenders. It’s an unbiased evaluation of your home’s value by a trained, certified expert who visits the home. What is the appraiser looking for? He or she will examine your house inside and out, considering not only the features (number of bedrooms and bathrooms, square footage) but also the condition of the property, the characteristics of the neighborhood, and recent sale prices of comparable properties. Getting an in-person appraisal can take a week or two. You’ll first obtain instructions from a prospective lender about the appraisal process, then schedule the appraiser’s visit, and finally wait for the appraiser to file a report.

Drive-by appraisal In a drive-by scenario, the appraiser evaluates only the outside of the home. Any information about the interior will be obtained from real-estate listing photos or other public sources. While this may be faster and easier for the homeowner (you won’t need to be home to let someone in), an exterior-only appraisal may fail to catch updates you have made to the home’s interior since you purchased it.

Hybrid appraisal Hybrid appraisals may be used when a home is in a remote area where a licensed appraiser cannot easily access it, or when appraisers are in short supply. In this scenario, someone will come and take photos of the house, which are then evaluated by the appraiser.

Can You Get a HELOC or Home Equity Loan Without an Appraisal?

Many homeowners wonder if they can get to the HELOC closing process faster (or hasten the approval process for a home equity loan) by skipping the appraisal. While it is possible to get a HELOC or home equity loan without an in-person appraisal, most lenders will in some way estimate the value of your property as part of evaluating your application. So a HELOC without appraisal is pretty unusual.

Alternative Valuation Methods Lenders May Use

Some lenders, including SoFi, will first try to estimate the value of your property with an automated valuation model (AVM). In an AVM, software is used to comb public information, including real estate listings and sale filings, to put a value on a property. (If you’ve ever checked a property value on a real estate sales site, you’ve seen automated valuation technology at work.)

In many cases, the AVM will be adequate to proceed to the next step in the financing process. This is considered a HELOC without appraisal, as no appraiser was actually involved. In certain instances, the lender will still need an in-person appraisal after the AVM does its job.

Pros and Cons of Skipping the Appraisal

Before you decide to seek out a HELOC or home equity loan without appraisal, it’s worth looking closely at the risks and benefits. Here are some advantages of skipping the appraisal:

You save time Setting up an appointment for an in-person appraisal and awaiting the results of the evaluation can take up to a couple weeks. So skipping the appraisal can reduce how long it takes to get a HELOC.

You might save money When you skip the appraisal, you also avoid having to pay for it. That could save you $300 to $600, on average.

But skipping an appraisal isn’t always a good idea. Here are some potential drawbacks:

The lender may undervalue your home. Your HELOC limit or home equity loan amount will be based on your home equity. So if the lender has outdated information, you may not be able to borrow against your equity to the fullest. The total amount you can borrow against a property (your mortgage plus your HELOC limit) typically can’t exceed 85% of the home’s value. So a higher value often means more borrowing potential. If you’ve put a lot of work into your property or you feel the values you’re seeing for your home on real estate sites such as Redfin don’t accurately reflect its value, you might want to consider an in-person appraisal — especially if you want the maximum possible credit line or loan amount.

You might overborrow Bypass the appraisal and you run some risk that the lender will allow you to borrow more than is prudent. In this case, the combined debt of your mortgage and HELOC balance could be more than your home is worth, leaving you owing money if you need to sell.

Your borrowing limit may be affected Without an appraisal, some lenders may lessen their risk by curtailing the amount a homeowner is allowed to borrow. If you need a higher credit line than the lender offers, you may want to request an in-person appraisal or seek multiple estimates from different lenders. (Of course, there is no guarantee requesting an in-person appraisal will work in your favor.)

Recommended: Refinance Your Mortgage

Qualifying for a No-Appraisal HELOC

If you decide to pursue an application for a HELOC with a lender that doesn’t require an in-person appraisal, you may have better luck qualifying if you meet some or all of these criteria:

You have a good credit score A score of 680 or above could help you qualify with a lender that requires only an automated valuation of your home. But a score around 750 could improve your odds even more. “One way to build credit is to display a history of responsible borrowing. For that reason, you may want to place monthly bills and other expenses on your credit card. Just be sure to pay the bill in full each month by the due date,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi.

Your equity is high If you’re looking for a line of credit that is well under the amount of equity you have based on your home’s estimated value, a lender may be willing to skip the formal appraisal.

Your home was appraised or purchased recently A lender might be willing to use a recent appraisal if your home was appraised recently — say, for insurance purposes — or if you purchased the home not long ago with a significant down payment or in a cash deal.

You’ve previously had a HELOC with the lender A lender you have borrowed from before might be able to reopen an old line of credit based on your earlier agreement.

Recommended: Understanding the Cash-Out Refinance Option

The Takeaway

Homeowners who want to borrow with a HELOC or home equity loan can often bypass an in-person appraisal, but it’s unlikely that you can skip the appraisal process entirely. And in some cases, having an appraisal done can help expand the amount you might be able to borrow, if a large credit line or loan amount is important to you. It’s often a good idea to explore what interest rate, credit line amount, and terms you might qualify for with different lenders, whether or not an appraisal is needed.

SoFi now offers flexible HELOC options to turn your home equity into cash. Access up to 85% of your home equity, or $750,000, to finance home improvements or consolidate debt. Competitive interest rates and repayment terms up to 20 years could result in lower monthly payments versus other loans. And the online application process is quick and convenient.

Unlock your home’s value with a home equity line of credit from SoFi.

FAQ

How much does a HELOC appraisal typically cost?

The cost of an in-person home appraisal averages between $300 and $600. Drive-by or hybrid appraisals can be less costly.

What credit score do you need for a no-appraisal HELOC?

A credit score of 680 or better could help you qualify for a HELOC or home equity loan with a lender that uses an automated system to estimate your home value. But a score of 750 or more could improve your chances.

How long does it take to get a HELOC without an appraisal?

The process of getting from the application to closing on a HELOC can take two to six weeks, depending on the lender and process. If the lender uses an automated valuation model, you might enjoy a shorter timeline of two to three weeks.

Is a no-appraisal HELOC riskier for lenders?

A lender takes on more risk when there is no in-person appraisal of the home to determine its true value before approving a HELOC and setting a credit limit. (The same is true for a no-appraisal home equity loan.) But in many cases, the lender can lessen its risk by offering a lower credit line or loan amount, or by ensuring that other factors about the borrower, such as credit score and income, are very strong.

Can you get a home equity loan without appraisal if you have limited equity?

It could be difficult or impossible to get a home equity loan or line of credit without an appraisal if you have limited equity (say 15% to 20%). Lenders will want an accurate assessment of your equity in order to determine whether you meet the baseline percentage of equity necessary to qualify for a loan or line of credit. This could be one of the more challenging situations for a no-appraisal home equity loan.

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Photo credit: iStock/Ivan Pantic

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