Does a HELOC require an appraisal?
It happens to everyone...there are times when you need some extra money. A home equity line of credit (HELOC) can give homeowners the cash they need to. When it comes to applying for a HELOC, lenders typically require a new appraisal of your home as part of the application process.
Read on to learn more about the HELOC appraisal process and HELOC appraisal requirements.
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What are HELOCs and how do they work?
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Home Equity Line of Credit (HELOC) is provided to a homeowner by a lender. HELOCs generally come with a credit limit, a variable interest rate, and which is secured by the equity in your home.
A HELOC can be used to pay for any type of expense, including home renovations, buying a second home or investment rental property, paying for college tuition, paying large medical bills, and paying off high interest debt.
HELOCs are a type of “secured loan,” meaning that lenders require security or collateral (in this case the borrower’s home) to secure the loan. While HELOCs are an excellent way to get the money you need, keep in mind that because your home is used as collateral, if you default on the loan the lender can foreclose on your home.
Do you need an appraisal for a HELOC? Yes, in most cases a HELOC requires an appraisal.
Why do lenders require an appraisal?
Lenders order a property to get an accurate market value for the home. They do this to ensure you, the borrower, have enough equity to safely borrow against it. Because a HELOC is secured by the equity in your home, if you were to stop paying the loan the lender could foreclose on the property and take ownership of the home. In this way, an appraisal is protection for the lender who can sell a foreclosed property to regain any loss from a borrower’s failure to repay the loan.
How does the HELOC appraisal process work?
The appraisal company may be hired by the lender, or the homeowner, and an individual appraiser will be assigned to your loan file. These are the steps the appraiser will follow for a full appraisal:
Preliminary research. The appraiser will search the property address to get property tax records, land valuation, and estimated values from various real estate websites.
Physical inspection. If a full appraisal is required, the appraiser will make an appointment with you to come to your home and look at and photograph the exterior and interior of the home.
Comparative analysis. With data gathered on your home the appraiser will compare it to similar neighboring homes to get a sense of the general property values.
Final report compilation. After the valuation information is compiled, the appraiser will create a report and send a copy to you and a copy to the lender.
Can I get a HELOC without an appraisal?
Although most lenders will require an appraisal to determine the value of your home, there are some situations in which a no-appraisal HELOC is an option. For example, if you have recently purchased your home, the lender may use the appraisal used for the purchase. While many people ask, “do you need an appraisal for a HELOC?”, the answer is you usually will need an appraisal.
Types of HELOC appraisals
If your lender requires you to get an appraisal, be sure to ask which type of these types of appraisals is required.
Full appraisal. This is the most in-depth type of appraisal and includes a full exterior inspection (front yard, back yard, and home measurements to verify the square feet of the property). The appraiser will be required to enter your home to gather details on the interior condition and to verify there is no mold or extensive damage.
Drive-by appraisal. As the name implies, the appraiser does not leave their vehicle to inspect the exterior or interior of the property and will rely solely on the most recent MLS listing for size, photos, and room allocation. The appraiser may also rely on online real estate valuation data and online maps to view the property boundaries.
Desktop appraisal. This appraisal is done entirely using online information. The appraiser will not drive by the property but will use data from public records and compare the home to others listed by local real estate agencies. Instead of conducting an in-person inspection of the property, appraisers use a variety of digital data sources to complete their valuation, such as photos, floor plans, tax records, and information obtained through the Multiple Listing Service (MLS).
Hybrid appraisal. The National Association of REALTORS® defines a hybrid appraisal one in which a third party performs the property inspection and provides the information to the licensed or certified appraiser, who uses this information, as well as other data, to complete the appraisal.
Automated valuation model (AVM). This is a computer program that uses publicly available real estate information such as home sale prices and comparable home sales in your neighborhood, as well as property characteristics to generate an estimated market value for your home.
How much do HELOC appraisals cost?
The amount you are charged for a home appraisal will depend on the pricing of the appraisal company; however, the price will be based on several factors, including the size of the home, location of the home, and the type of appraisal needed.
Here are some examples:
- Full appraisal on a single-family home: $350 to $2,000. If your property is large, in a remote area, or on an ocean or lake the cost may be at the high end of the range.
- Desktop (digital) appraisal: $75 to $200.
- Drive-by appraisals: $100 and $150.
How long does a HELOC appraisal take?
The HELOC appraisal process can take one to three weeks, depending on your lender and the appraisal company. Many people ask,
“how long does it take to open a HELOC?” The appraisal process tends to move quickly in most cases and getting a HELOC can take anywhere from two to six weeks.
Additional HELOC appraisal requirements
Getting a HELOC is a simple process you may do in person or online from a lender’s website. Before you apply for a here are some additional
HELOC requirements you should be aware of:
Proof of income and employment. This can include paystubs, W2s, and 1099s (if you’re self-employed)
Up to 85% Loan-to-value (LTV) ratio. The LTV ratio is a mathematically calculated comparison of your current mortgage loan balance to the current appraised value of your home.
A minimum credit score of 660. Having a
good credit score is important and can influence the interest rate a lender offers you. The higher (better) your credit score the lower the interest rate you’ll likely be charged on the loan.
How to apply for a HELOC
It’s easy to start the
HELOC application process, just follow these steps:
- Check your credit score. You are entitled to request your free credit reports from the three major credit reporting bureaus: Equifax, Experian, and TransUnion.
- Calculate your home equity. Equity is the amount of your home you own. For example, a homeowner who doesn’t have a mortgage loan has 100% equity in their home. To calculate equity, subtract your mortgage amount from your home’s appraised or market value amount. For example: Appraised value $600,000 – Amount owed on mortgage $250,000 = $350,000 equity. Divide the equity ($350,000) by the home value ($600,000), which is 58% equity. Lenders typically look for a minimum of 15-20% equity in a home.
- Gather the necessary documents. You’ll need a government-issued photo identification, paystubs, W2 or 1099s, your Social Security number, a copy of your homeowners insurance police, and a current mortgage statement
- Shop different lenders. Credit unions and banks can provide HELOCS. Be sure to shop around and compare interest rates and loan terms.
- Apply in-person or online. Many people will start the application online, then visit a credit union or bank branch to sign the application and provide copies of required documents.
Alternatives to HELOCs
A HELOC isn’t the only way to borrow money from a credit union or bank. Here are some other popular loans to consider:
Home equity loans: A
home equity loan is similar to a HELOC because the money you borrow is secured with the equity of your home. However, a home equity loan has a fixed interest rate, and you pay interest on the entire loan amount, whether you use any of it or not.
Cash-Out Refinance: With mortgage interest rates very low, refinancing your current mortgage to a new mortgage loan could help you lower your monthly payments. Getting cash out means borrowing more than what you owe on your current mortgage and getting a cash disbursement of the extra funds at closing. You can use the cash any way you choose.
Personal Loans: Credit unions and banks offer a wide variety of
secured and unsecured personal loans to meet a wide variety of borrowing needs. You’ll find variable and fixed rate
personal loan options.
Why Savvy Consumers Choose CU SoCal
For over 60 years, CU SoCal has been providing financial services, including HELOCs, car loans, personal loans, mortgages, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with one of our HELOC experts.
Get Started on Your Home Equity Loan Today!