No-appraisal home equity loan: What it is and how to qualify

Appraisals have a big job in the mortgage industry. Finding the appraised value of a home helps keep borrowers from taking on more debt than the home value can support. They help keep the housing market on solid ground.

But for second mortgage loans on homes with plenty of equity, the appraisal doesn't always carry as much weight.

In fact, some home equity loans can skip the appraisal altogether, saving time and money. 

What Is a no-appraisal home equity loan?

A no-appraisal home equity loan lets homeowners borrow against their home value without waiting for a formal appraisal.

Rather than scheduling an appraiser to visit and evaluate the home, lenders use digital tools and alternative methods to determine your property's worth.

...in as little as 3 minutes – no credit impact

How this is different from traditional home equity loans

Most home loans, including most home equity loans, require a comprehensive home appraisal. That means a licensed appraiser inspects the property in person. The appraiser takes note of the home's location, size, features, and condition and assigns an official appraised value.

This appraised value then gives lenders an important benchmark for the new loan. For instance, let's say a lender can approve a borrower for up to 80 percent of the home's value. Without knowing the home's value, the lender couldn't do this math and find a maximum loan size.

Even no-appraisal loans need a property value to undergird the loan. So these types of loans rely on algorithms and public data to estimate home value. This streamlined approach typically delivers faster approvals and lower closing costs.

Why some lenders can skip the appraisal

Some lenders will waive appraisals when the loan's risk doesn't depend heavily on the appraised value of the home.

This can't happen with new home purchase loans, especially when the borrower makes a small down payment. 

For example, a borrower who puts 3 percent down on a $300,000 home purchase would be paying $9,000 down and borrowing the remaining $291,000. If the appraisal came back and showed the home was worth only $290,000, the $291,000 home loan would exceed the home's $290,000 value. This loan couldn't move forward.

In contrast, second mortgages, including home equity lines of credit (HELOCs) may have more room between loan size and home value, allowing more flexibility with the appraisal process, especially for borrowers with excellent credit scores and smaller loan sizes.

Common use cases for no-appraisal loans

No-appraisal loans can help borrowers who need fast approval. Homeowners who need to finance emergency repairs or to pay medical bills may look for HELOCs without appraisals since these loans can close faster.

Debt consolidation is another popular reason to look for home equity loans that require no formal appraisal. High-interest credit card debt compounds as time passes, making fast access to lower-rate home equity credit appealing.

Investors with tight deadlines also like the faster approval processes these loans can provide.

...in as little as 3 minutes – no credit impact

The role of appraisals in home equity loans and HELOCs

Verifying the home's market value with an appraisal helps ensure the new loan doesn't exceed that value.

For example, if a homeowner applied for a $250,000 HELOC or home equity loan and the appraisal showed the home was worth only $200,000, the loan couldn't be approved as is. But the lender may offer a $160,000 home equity loan instead.

So why is it OK to skip the appraisal sometimes?

The appraisal may become more of a technicality if the lender knows the home equity loan or HELOC falls well within the home's value: If the owner of a $200,000 home applied for a HELOC with a credit limit of $50,000, for example.

Even if an automated appraisal or desktop approval were to come in 10 or even 20 percent low, the borrower would still have plenty of equity to back the loan. 

How lenders assess market value without an appraiser

Even a no-appraisal home equity loan needs an appraised value. But rather than sending out a licensed appraiser to assess the home and surrounding area, no-appraisal loans can rely on new digital tools.

The role of automated valuation models (AVMs)

Automated valuation models, or AVMs, rely on property statistics and public records to estimate home values. These digital tools have been around for years, but they have grown more reliable in the age of AI.

AVMs examine available data such as comparable sales, tax assessments, and property characteristics to generate valuations.

Many lenders offering a HELOC without appraisal rely on AVMs as a faster, cost-effective alternative to traditional appraisals and inspections.

Modern AVMs can process thousands of data points, including recent sales, neighborhood trends, and building permits, to produce reasonably accurate estimates. AVMs still work best in more densely populated areas areas with consistent sales data and similar property types.

Someone who is considering a home equity loan or cash-out refinance can use AVMs, along with reliable mortgage calculators to estimate their equity.

What is a desktop appraisal?

Desktop appraisals offer a middle ground. A human runs the appraisal but no physical inspection is required. Instead, the appraiser studies public records, MLS listings, photos, and other recent appraisals in the area.

Since they don't require a physical visit to the property, desktop appraisals happen faster and cost less. Since an appraiser who knows the market oversees the process, desktop appraisals can better reflect unique aspects of a property. 

Other ways to value homes without an appraisal

A physical in-person appraisal is still the gold standard for Realtors and lenders. Sometimes, though, AVMs and desktop appraisals are sufficient. Plus, lenders, Realtors, and loan shoppers can verify the accuracy of these modern tools by checking: 

• Comparable sales analyses which provide another layer of accuracy. Lenders examine similar properties sold recently in the area. They look for recent sales of nearby homes with similar square footage, bedroom count, lot size, and condition. Checking comps offers some valuation backup context, especially in established neighborhoods with consistent sales activity.
• Tax assessments which show how local governments value a home for tax purposes. These values often lag behind current market conditions by several months or years. But tax values can still support market valuation by showing trends and showing evidence of home improvements.
• Prior appraisal data which is useful for refinances or existing customers with recent appraisals. If you've had your home appraised within the past year or two, lenders may rely on that information to expedite approval.
• Property condition reports which support other valuation models by providing photos, virtual tours, or data from drive-by assessments.  Your lender's specific valuation strategy will depend on your loan amount, property type, existing mortgage debt on the home, and unique credit profile.

A borrower with shaky credit and heavy debt may have a harder time skipping the formal appraisal since the lender is already accepting some risk. These borrowers may still need a traditional home appraisal process even if they applied for a "no-appraisal" loan. 

Pros and cons of no-appraisal home equity loans

No-appraisal home equity loans can close faster, and they can save upfront closing costs, but there are other pros and cons to know about. 

Pros of no-appraisal home equity loans

– Faster approval times: Some HELOCs without appraisal close in days rather than weeks. This is great for people using the loan to solve time-sensitive problems.

– Lower upfront costs: Appraisal fees typically cost $500 to $1,000 depending on the property's size and unique characteristics. This fee should be much lower with an AVM or desktop appraisal.

– Faster process: Skipping the appraisal saves time since appraisers may need a week or more to arrive at a property.

– Privacy: Who enjoys having strangers walking around their yard and shining flashlights into their basements? No-appraisal loans can skip this minor intrusion.

Cons of no-appraisal home equity loans

– Higher interest rates: Lenders may charge higher rates to offset the increased risk of lending without professional appraisal.

– Conservative loan limits: Lenders may offer lower loan-to-value ratios, which means lower loan sizes, for no-appraisal loans. This could mean borrowers access 10 percent less equity than they'd access with a traditional home equity loan.

– Stricter qualification requirements: To balance the risk of skipping the appraisal, lenders may want to see excellent credit scores and lower debt loads for borrowers.

– Potential undervaluation: Automated systems might miss recent home improvements, unique features, or neighborhood appreciation, leaving you with less borrowing power than a professional appraisal would provide.

– Limited property types: These loans work best for standard single-family homes in established neighborhoods, excluding many unique or rural properties.

When can you skip the appraisal?

Could you qualify for a no-appraisal home equity loan? The answer depends on:

Credit score and income requirements

Lenders typically want to see credit scores of 700 or higher for home equity loans and HELOCs that skip the appraisal. Also, you'll need a steady work history and a debt-to-income (DTI) ratio below 43%. Strong financial profiles like this make appraisal waivers more likely.

Loan-to-value (LTV) ratio considerations

LTV measures how much of your home value is owed to a mortgage lender. If your home is worth $400,000 and you owe $200,000 on your primary mortgage, your current LTV is 50 percent.

Typical home equity lenders won't surpass LTVs of 80 to 90 percent. That means the owner of a $400,000 home could borrow up to $320,000 to $360,000 on the home. For no-appraisal loans, lenders may limit LTV to 70 to 80 percent. 

Borrowers who want to max out their equity should get a traditional appraisal.

Property type and location factors

Single-family homes in established neighborhoods qualify most easily for no-appraisal loans because there's a better chance a nearby home in similar condition has been appraised recently.

Also, if you recently bought the home, the appraisal used at the time of purchase may suffice for some home equity lenders.

But unique properties, homes in rural areas, or homes in unstable markets typically need traditional appraisals. 

When lenders may still require an appraisal

Even borrowers who check a lot of the boxes above may still need an appraisal if the loan:

• Is a high-value transaction: Loans over $250,000 often need new appraisals
• Investment properties: Non-owner-occupied homes face stricter lender scrutiny
• Inconsistent valuations: When automated valuation models show conflicting results, the lender may want a human appraiser to settle the dispute
• Recent changes: Properties with new construction, major renovations, or damage need in-person evaluation Your loan amount, property characteristics, and borrower profile determine which valuation method lenders choose.

Alternatives to no-appraisal home equity loans

If a lender says no to a no-appraisal home equity loan, here are your choices:

Move forward with the appraisal

Yes, loan approval can be quicker and less expensive when you skip the appraisal, but the appraisal also brings advantages like more lender certainty, which can lower borrowing costs in the long run. 

Also, the appraisal may be useful if you decide to refinance later.

Shop different lenders

Different lenders use different approval guidelines, so a borrower who's determined to get a home equity loan with no appraisal can shop around for a second opinion.

Some credit unions may waive appraisals for members with excellent payment history, for instance.

Other forms of borrowing

Personal loans and high limit credit cards aren't attached to home value, so there's no appraisal at all. But borrowers pay for this convenience with much higher interest rates. Still, this might work for a short-term need.

Or, homeowners may want to consider a cash-out refinance which combines existing mortgage debt with money from home equity into one loan.

Since home value secures a cash-out refi, rates tend to be much lower than unsecured loans like personal loans and credit cards.

No-appraisal home equity loan FAQs

Here are some questions many homeowners ask about no-home appraisal loans: 

Who should I contact to get expert help with a home equity loan?

Mortgage brokers and loan officers are usually experts in home financing, including second mortgages that waive the appraisal. 

Is it possible to get a HELOC without a full appraisal?

Yes, you can get a HELOC without appraisal under the right circumstances. In general, HELOC lenders can waive the appraisal when the credit line doesn't depend on the appraisal for approval. A borrower with excellent credit and plenty of home equity can often skip the appraisal. It also helps when the home is located in a densely populated neighborhood and surrounded by similar homes.

What are the typical requirements for a no-appraisal home equity loan?

Lenders usually require a credit score of 700 or higher, a debt-to-income ratio below 43 percent, and at least 20 to 30 percent equity in your home after borrowing. Single-family homes in stable, established neighborhoods are ideal candidates for no-appraisal loans.

How do lenders determine my home's value without an appraisal?

Lenders use various methods to assess home value without a physical appraisal, including automated valuation models (AVMs), tax assessments, desktop appraisals, and analysis of comparable sales in the area. They may also consider recent purchase prices or prior appraisal data.

What are the advantages of a no-appraisal home equity loan?

No-appraisal home equity loans can deliver faster approval times, typically closing in days rather than weeks. They also save borrowers money on appraisal fees, eliminate scheduling hassles, and reduce paperwork.

To appraise or not to appraise? The answer is unique to each borrower

No-appraisal home equity loans offer simpler and faster access to home equity, but not every borrower, and not every home, is a good candidate for this kind of loan.

For some homeowners, a new appraisal can unlock more savings. For others, a fresh appraisal will be required to verify the home's equity. 

The first step to finding your answer to this question: Connect with a fast, transparent lender like Better.

...in as little as 3 minutes – no credit impact