Home equity loans are popular financing options that many homeowners turn to for different purposes. Although home appraisals are usually required to qualify, a full appraisal may not be needed for all loans. It depends on how much you are borrowing, your bank or credit union’s lending criteria, and other factors.
What Is a Home Equity Loan?
A home equity loan is a type of loan that uses the equity you have in your home as collateral. Equity refers to the amount of your home that you own less the remaining balance on your mortgage. Home equity loans can be used for many things including:
- Consolidating debt
- Funding a vacation
- Buying a new home
- Paying medical bills
- Home renovation projects
- Paying for a wedding or other event
Home equity loans have fixed interest rates. The rate is locked in when the loan is created and won’t change. The loan is repaid with fixed monthly payments, and terms of up to 30 years are available depending on the amount borrowed.
Home equity loans also usually have lower interest rates than other borrowing options—like personal loans. This allows you to save money on interest over the life of the loan.
A home equity loan may also be easier to obtain than other loans. This is because it’s backed by the equity in your home. The use of collateral makes a loan less risky to lenders, which may improve your chances of qualifying.
Finally, if you’re using a home equity loan on a home improvement project, the interest payments may be tax-deductible. Because the tax code changes every year, it’s important to consult a tax professional before taking any deductions.
How Do Appraisals in Home Equity Loans Work?
A home appraisal is usually required when applying for a home equity loan to assess the current market value of your home. With this information, your lender can calculate how much equity you have based on the down payment you made when you bought it, the payments you’ve made, and its current market value.
Home appraisals are typically done by licensed appraisers hired by lenders. With a full appraisal, the appraiser will visit your home and conduct an inspection in person. This is done to assess the condition of the home, check for safety issues, and to see if any improvements have been made since it was purchased or built.
Both the exterior and interior of the home will be evaluated.
The appraiser will also research the value of comparable homes in your community. Comparing your home to others helps the appraiser determine its current market value.
Can You Get a Home Equity Loan Without an Appraisal?
Although an appraisal is typically required for a home equity loan, a full appraisal may not be required for all loans. It primarily depends on the amount of the loan, although your credit score may also be an important factor.
Different lenders will have different requirements for when a full appraisal is needed. A lender may not require a full appraisal, for example, if the loan is for $100,000 or less. A full appraisal may also not be needed if a recent appraisal has been done and the information is still current.
What Are the Different Types of Appraisals?
If a full appraisal isn’t required for a home equity loan, the lender may do another type of appraisal to assess your home’s value. These take less time to complete, which may help you close on a loan quicker. The time it takes to get a home equity loan is usually 2-4 weeks.
Automated Valuation Model
This type of appraisal uses special software to evaluate different things about your home to determine its current market value. It considers such things as property tax assessments, recent home sales in your neighborhood, and other data.
Exterior-Only Appraisal
An exterior-only appraisal is similar to the automated valuation model in that data is analyzed to assess your home's current market value. The primary difference is that the appraiser also assesses the home's exterior to evaluate its condition and other factors.
Desktop Appraisal
With a desktop appraisal, no inspection of the home is done. Instead, the current market value is determined by evaluating photos of your home, previous appraisals, and other information.
How Can You Get the Most Out of a Home Appraisal?
The outcome of a home appraisal may affect how much you can borrow. Because of this, it’s important to make sure your home is show-worthy before it is evaluated. There are several things you can do that may help to improve your home’s value.
Make Sure It’s Clean
Making sure your home is clean and tidy will help the appraiser to see it in its best light. A home that is clean and clutter-free may appear more valuable than one that looks lived-in. If you have a lot of clutter you need to temporarily remove, consider renting a mini-storage unit.
Increase the Curb Appeal
Before the appraisal, make sure your yard is mowed, bushes and trees are trimmed, weeds are pulled, and there are no children’s toys lying around. You may also be able to increase the curb appeal by painting trim, power washing walkways, and doing other small projects.
Tell the Appraiser About Any Improvements
If you have completed any home remodeling projects or upgrades to your home, be sure to tell the appraiser about them. They could affect the valuation of your home and an appraiser may not be aware of them unless you point them out.
Qualifying for a Home Equity Loan
If you’re thinking about tapping into the equity in your home, you’ll need to meet certain criteria to qualify for a home equity loan. Although the requirements will vary depending on the lender, important things that will be considered include your credit score, your debts, and how much equity you currently have.
Click on the following link to learn more about the requirements to qualify for a home equity loan.