You want to tap into the equity of your home, but you don’t want to pay for an appraisal. The good news is, you might be in luck. There are certain situations where you don’t need an official valuation of your home.
We discuss these situations and more below.
How Can You Avoid the Appraisal?
The lender has to verify that you have equity in your home. The only way to do that is with some type of appraisal. Luckily, it doesn’t always mean a new report that you must pay for. Here’s how you can get away without paying for a new one.
Use the Same Lender
If you recently took out your first mortgage, consider using the same lender. This lender already knows your financial profile. They also know the true value of your home. The appraiser that did the report on your home is one of their approved appraisers. They will happily use this report for valuation as long as it’s within 6 months of the original mortgage.
If you missed that opportunity, but it’s still within one year, you might be able to get away with an “update.” While this service isn’t free, it’s less than the full cost you originally paid. The appraiser will have to drive by the property and make sure it is still in good condition. He will also have to pull new comparable sales. This is what takes time and what you’ll end up paying for.
Ask for a Drive-By Appraisal
If you use a new lender, you still might not need a brand new appraisal. Again, if not too much time has passed since your original mortgage, a lender might consider a drive-by. This is when the appraiser only looks at the exterior of the property. He still has to find comparable sales and make sure your home is in good condition. But, he doesn’t have to come inside.
Because this saves the appraiser money, you usually pay less for this service. In fact, some lenders even cover the cost for borrowers because it’s so minimal.
Ask for an Automatic Valuation
Some lenders use today’s technology to find out the value of your home. If you’ve ever searched the value of your home on a site like Zillow, you know what we’re talking about. Lenders often have their own software that they use, though.
The software program will give the lender a range for the value of your home. They will show comparable sales in the area. They will also show how likely it is that your value is near the comparable sales. As long as the valuation is as close as possible to the true value, the lender might accept it. In this case, no one has to pay for any services.
Reasons You Might Want an Appraisal
Even though there are ways to get away without paying for an appraisal, you might want one. That might sound strange. Why would you want to pay for a service if you don’t have to? Here are the most common reasons:
- You made improvements to your home and think it’s worth more. If you need that higher value to make your HELOC work, it’s worth paying for the appraisal.
- You now the comparable sales in your area sold for much more than you bought your home for recently. The higher comparable sales will help push up the value of your home.
- You are close on the loan-to-value ratio on your loan. If you are on the verge of not obtaining an approval for your HELOC, a new valuation might help you get the approval you need.
The appraisal shows the true value of your home. If you need a rather large HELOC and are pushing for more equity in the home, you’ll need the new report. Of course, the higher value can only come back if it’s truly the case.
Qualifying for the HELOC
The appraisal is just a small part of the qualifying factors necessary for HELOC approval. You’ll also have to prove that you can afford the loan. Just like you had to do with your 1st mortgage, you’ll have to show the lender that you deserve the loan.
Most lenders require:
- Last 2 paystubs covering the last month of employment
- Last 2 years’ W-2s showing your income over the last 2 years
- Last 2 years’ tax returns if you are self-employed or work on commission
- Proof of any assets if you need them for qualifying purposes
- Proper credit score based on the lender’s requirements
In general, lenders allow as much as an 85% LTV for a HELOC. But, there are some lenders that will go higher. In this case, though, they usually require a full appraisal. If a lender is going to lend you as much as 95% of the value of your home, it just makes sense that they’ll need to verify your home’s value.
You have the option to shop around for appraisers when you get a HELOC. The key factor, however, is that the appraiser is on the lender’s approved list. If he isn’t, you may not be able to use him. Some lenders may allow the use of the appraiser, but then they’ll require one of their own to review the report. This could cost you more money in the long run.
Whether or not your lender requires an appraisal, consider if it’s in your best interest. If nothing else, it gives you proof of the current value of your home. This way you’ll know the true value of one of the largest investments in your life.