What is a no-appraisal home equity loan?

In today’s high interest rate environment, many people are struggling to find affordable financing options. If you need to borrow money, racking up fees on your credit card or taking out a personal loan can get expensive. This is why some homeowners prefer to tap into their equity with a home equity loan or home equity line of credit (HELOC) instead. These types of loans tend to provide financing at lower rates. interest rate such as credit cards and personal loans.

Home equity loans can be particularly useful if you want to borrow a large amount at once and have fixed payments, as with some debt consolidation situations. Typically, you must obtain an appraisal to borrow against your home equitybut it is not always necessary.

For example, a no-appraisal home equity loan can use an automated appraisal system (AVM) to instantly assess the value of your home. Let’s take a look at what no-appraisal home equity loans involve.

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What is a no-appraisal home equity loan?

An appraisal provides a current valuation of an asset, like your home, by analyzing factors such as the condition of the home and comparable sales in the area. But with a home equity loan without an appraisalthis process is not required as a condition of obtaining the loan.

“Some home equity loan programs either perform an AVM using available sales data or use tax value as a benchmark. So, if one of these systems or benchmarks provides sufficient value to enable the loan on home value, a formal appraisal is not necessary,” says Mason Whitehead, branch manager at Churchill Mortgage.

The exact value can vary depending on the circumstances, but many home equity loan lenders want your combined mortgage and home equity debt to be no more than 80% of the value of your home.

Compare the best home equity loan options you may qualify for here.

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

One of the main advantages of no-appraisal home equity loans is that they are faster than traditional loans. home equity loan applications.

“Skipping the valuation step can be particularly advantageous, especially in situations where rapid access to liquidity is important,” says Alexander Suslov, head of capital markets at A&D Mortgage.

How much time you can save depends on where you live.

“This is typically the item we wait the longest for, especially for homes outside of a major metropolitan area,” Whitehead says. “So if you can avoid the requirement for an assessment, it can save you anywhere from a week to several weeks of waiting.”

Plus, you can avoid appraisal fees.

“This saves the consumer money on closing costs,” says Carma Peters, president and CEO of Michigan Legacy Credit Union.

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

While the efficiency of no-appraisal loans may be appealing, there are potential downsides to consider, such as the possibility of not getting an accurate appraisal.

“For the borrower, there is no exact value of their house if they want to know it,” Peters says. Meanwhile, lenders take the risk of not seeing the exact condition of a house from the inside, she adds.

In some cases, this may increase interest rates, which could offset the benefits of lower interest rates. closing costsdepending on the specifics.

“Home equity loans without an appraisal typically have higher interest rates than their traditional counterparts. Working without an appraisal causes lenders to view it as a ‘risk’ not knowing the current value of the property when offering loans. loan conditions,” says Suslov.

Even if the rates are the same, you might not be happy without an appraisal if the valuation isn’t high enough to borrow as much as you’d like.

“Some programs that use an online AVM system and don’t do an appraisal may not value your home at an amount that you think is reasonable, and you want an appraisal to show that your home is worth more,” Whitehead says.

How to get a low interest, no appraisal home equity loan?

Although no-appraisal home equity loans sometimes have higher interest rates than traditional loans, that doesn’t mean you always have to pay more. To begin, you can find out if you actually need an appraisal by using widely available estimates of house values online.

While these aren’t always accurate, you can always compare this to your mortgage balance and your desired home equity loan balance to see if you fall under the typical combined loan-to-value ratio of 80%.

“Research your home’s value on a site like Zillow to get a rough idea, and ask your lender if an appraisal is necessary or required,” says Peters.

Be sure to compare prices home equity loan lenders too.

“Home equity loan rates can vary greatly depending on the type of institution, whether it’s a bank, credit union, mortgage banker, etc. So you just need to consider your options,” says Whitehead.

Additionally, don’t just consider the overall interest rate in order to find lower total costs.

“Make sure you shop around not only for rates but also for fees,” says Peters. “Especially if you add fees to the loan, you pay interest on the fees over the life of the loan, which means the total interest paid could be more at a higher rate without added closing costs.”

The essential

A no-appraisal home equity loan can save time and lower closing costs by not requiring a formal appraisal, but it sometimes carries higher interest rates and lower loan limits. Be sure to compare your options to see how total costs compare between different types of home equity loans.