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Is an appraisal required for a HELOC?
A home equity line of credit (HELOC) is a great way to tap into your home’s cash value without refinancing or selling. But before you can cash out equity, lenders need to know how much your home is actually worth. And that requires a new appraisal.
Fortunately, HELOC appraisals are often less involved and less expensive than full appraisals. They’re typically faster, too — which means you can access your funds without a long wait. Here’s how it works.
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HELOC appraisal requirements
Because your home is used as collateral for a HELOC or home equity loan, lenders need to verify its value before they can approve you. An appraisal will show your lender what the property is currently worth and therefore how much equity you have to borrow against. (Remember that home equity is equal to your property value minus your existing mortgage balance.)
Lenders use the newly-appraised value to determine your HELOC loan limit as well as your interest rate and loan terms.
For example, let’s say you’ve applied for a HELOC and you can borrow up to 85% of your home’s value. That’s the total combined loan-to-value (LTV) limit between the HELOC and your existing mortgage.
If your home is worth $300,000 and you have a mortgage balance of $200,000, you could potentially borrow up to $55,000.
- $300,000 (home value) x 85% (max. LTV) = $255,000
- $255,000 – $200,000 (existing mortgage) = $55,000
Keep in mind that not everyone will qualify for the maximum HELOC loan limit. The amount you can borrow is also based on factors like your credit score and debt-to-income ratio.
When you get pre-approved for a HELOC, the lender will estimate your home’s value and help you understand what you’re likely to qualify for.
How is an appraisal done for a HELOC?
The type of appraisal needed for a home equity line of credit will depend on your lender. Generally, there are three types of appraisals:
- Automated Valuation Model (online estimate)
- Hybrid (drive-by) appraisal
- Full (in-person) appraisal
A full, in-person appraisal generally isn’t required for a HELOC.
When a full appraisal is required, the lender will send an actual licensed appraiser out to your home. They will conduct a visual inspection of the property both inside and outside. They will also take measurements of your home to determine its square footage.
A drive-by appraisal, also known as a “hybrid appraisal,” is sometimes used by HELOC lenders. This type of appraisal involves both digital estimates and a visual inspection of the outside of your home. It should be quicker than a traditional, in-person appraisal, but won’t offer the near-instant answer you may get with an AVM.
Automated Valuation Models (AVMs) or “digital appraisals,” can also be used for HELOC applicants. Rather than an appraiser visiting your home, the appraisal is completed with the help of technology. Lenders will use public records, floor plans of the house, and comparable real estate sales to get the information needed.
How long does an appraisal for a HELOC take?
The time it takes for an appraisal depends on whether your lender requires a full appraisal or uses hybrid or automated valuations.
Full appraisals typically take at least a week, but sometimes as long as two to three weeks, to complete. Digital appraisals are usually completed in about one hour.
Lenders that don’t require full appraisals can often get your HELOC from application to closing in as little as 7-10 days. Full appraisals usually add at least a week or two, sometimes three, to the time frame.
How much does a HELOC appraisal cost?
The amount you’ll pay for a HELOC appraisal is based on a few factors.
- Type of appraisal: in-person vs. drive-by or digital
- Size of the home and property
- Location of the property
- Complexity of the property
A typical, full appraisal on a single-family home costs between $350 to $500. Larger properties take longer, so you can typically expect to pay between $550 to $800.
Remote waterfront properties, or unique homes with fewer “comps” (comparable homes in the area), usually cost more than more traditional properties to appraise. Appraisers will often charge more for homes in larger cities, as well.
Digital appraisals are sometimes free of charge. When not free, they generally run between $75 to $200. And drive-by appraisals are typically between $100 and $150.
- Traditional appraisal: $350-$500
- Drive-by/hybrid appraisal: $100-$150
- Digital appraisal: $0-$200
Depending on the lender, sometimes your appraisal costs can be added to your closing costs. Other times, lenders may require payment upfront, prior to the appraisal being completed.
Can you get a HELOC without an appraisal?
Most lenders require at least some sort of appraisal for a HELOC. However, there are instances where a no-appraisal HELOC is an option.
To qualify for a HELOC without an appraisal, you typically need to meet at least one or more of the following requirements:
- You’ve had a previous full appraisal performed within the last 60-180 days
- You have an excellent credit score (750-800 FICO)
- Your total HELOC amount is below $100,000
You might not need a HELOC appraisal if, for example, you closed on your home purchase within the last six months and your most recent appraisal is still fresh.
The same rules may apply if you close your HELOC and then want to reopen it.
How the HELOC appraisal benefits you
Don’t be overly concerned if your lender requires an appraisal for your HELOC. It will likely be less expensive and less involved than a traditional, full appraisal that’s used when buying a home.
Plus, the appraisal can actually work in your favor — despite its cost.
Home values rose at a record pace in 2020 and 2021. As a result, many homeowners across the nation built up tens or even hundreds of thousands of dollars in home equity. But you won’t know just how much equity you’ve gained until you have the home appraised.
So don’t shy away from the appraisal when your lender brings it up. It’s a normal part of the process, and it may reveal that you have even more wealth pent up in your home than you expected.
Your next steps
Ultimately, whether or not you need an appraisal for your HELOC is determined on a case-by-case basis by your lender.
When you’re ready to tap into your home equity, contact a lender directly to discuss your eligibility. They’ll walk you through the process and tell you just how much you can cash out.
