What Is the Appraisal Process for Home Equity Loans and Lines of Credit?

If you’re looking to borrow against the equity you have in your home, you’re not alone. This is a popular option, with borrowers taking out 47% more home equity loans and 41% more home equity lines of credit (HELOCs) in the third quarter of 2022 compared with the year before. 

Home equity loans offer a lump sum, similar to a personal loan. Conversely, a HELOC offers a line of credit you can draw against as needed, similar to a credit card. 

Unlike most other credit, you’ll need a home appraisal before approval. We’ll show you how the home equity appraisal process works.

In this guide:

• How does the home equity loan appraisal process work?
• Types of home appraisals
• What if I disagree with my HELOC appraisal?

How does the home equity loan appraisal process work?

If you took out a mortgage for your home, the home equity loan and HELOC appraisal processes are similar because you’re applying for a second mortgage with both. 

Most lenders require a new home appraisal when you apply for a home equity loan or HELOC because your home’s value has likely changed since your last home appraisal. 

An appraisal protects the lender from giving out too much money. It protects you because it prevents you from being underwater on your home loans and ensures you can borrow the right amount. 

We’ve outlined the steps to the home equity loan appraisal process below:

Step 1: Get conditional approval for the loan

When you submit your HELOC or home loan application, your lender needs to evaluate two main factors: 

1. You as a borrower
2. The home you’re offering up as collateral (because you’re applying for a secured loan). 

Verifying your information is easy based on documents you submit to your lender, such as pay stubs and bank statements. If you meet the requirements, your lender may give you conditional loan approval. 

Verifying your home, however, takes more work—and that’s where the appraisal comes in. 

Step 2: Discuss the appraisal with your lender

Lenders handle home equity loan and HELOC appraisals differently. Your lender can choose the type of appraisal (more on this below) and schedule it for you, so it’s essential to remain in touch with your lender. 

Remember: You’ll pay the appraisal fee as a part of your loan closing costs.

Your lender chooses the appraiser, and you pay for it, but the appraiser should remain a neutral third party. 

Step 3: Prepare for the home appraisal

If your lender requests a drive-by appraisal or a traditional walk-through, an appraiser will visit your home. Before the appraiser comes out, get your home in tiptop shape. 

Do any repair work in advance, if possible. Imagine you’re having a judgmental relative over, and clean everything up as much as possible to impress that person and make your home shine.

Step 4: Check the results

Depending on the type of appraisal your lender selects, you might get your home value immediately if the appraisal is automated. If the lender requires a full walk-through, it could take a couple of weeks to schedule an appraiser, do the walk-through (which often takes an hour or two), and then write up the report. 

Either way, check the appraisal results when they arrive to determine whether you agree with your home’s appraised value. From there, your lender will continue the underwriting process to approve you for the HELOC or home equity loan. 

Types of home appraisals for HELOCs and home equity loans

Lenders often use one of four types of home appraisal for HELOCs and home equity loans. The lender will usually choose the appraisal type. 

We’ve researched them, including their pros and cons:

Type of appraisal	How it works	Pros	Cons
Automated Valuation Method (AVM)	Uses computer algorithms to estimate your home’s value based on the averages from surrounding properties, similar to what you see on Zillow and Redfin.	Might not penalize you as much if your home is in disrepair or poor condition. Can be remote. Results can be fast—even instant. Can be more affordable—even free.  Reduces potential for appraiser’s human bias or discrimination.	Might not reflect if your home is in above-average condition, or you upgraded it. May not be as accurate, depending on how good the data and the algorithm are. May be less accurate in areas with fewer home sales, such as rural areas.
Desktop	An appraiser collects records, photos, and other information on your property and prepares an estimate without ever visiting your home.	Can be fast. Less expensive than a full walk-through appraisal.	Doesn’t include improvements you’ve made to the house.  Requires an appraiser to work on your estimate.
Drive-by	An appraiser uses the desktop method to prepare an estimate, then drives by your home to confirm that your home exterior doesn’t deviate much from the averages in your area.	Can be fast. Less expensive than a full walk-through appraisal.  Can include upgrades you’ve done to your home exterior.	Doesn’t include your interior improvements. Requires an appraiser to travel to your home, which may slow the process. You may be penalized if your home’s exterior isn’t in good condition.
Full walk-through	The traditional appraisal: An appraiser inspects your home to prepare an estimate. Many lenders switched to the above remote methods during the COVID-19 pandemic due to safety concerns, but some are switching back to this method.	Most thorough approach, covering all home upgrades you’ve done.	Can cost several hundred dollars.  Slower; requires an appraiser to visit your home, spend several hours, and then write a report. Potential for human bias and discrimination by the appraiser.  You may be penalized for items other forms miss, especially if your home interior is in poorer condition.

What if I disagree with my HELOC appraisal?

Much rides on your home appraisal, and of course, you want it to be accurate—but that isn’t always what happens. In particular, systemic racial basis is a real and significant concern. 

If you’re unhappy with your appraisal, ask your lender for a copy of the report. Go through it and identify where you disagree. For example, maybe they didn’t use accurate comps (comparable, similar homes) or include significant improvements you’ve made. 

Gather evidence to support your case, and take that to your lender. Your lender can then ask the appraiser to reconsider the report based on the evidence you brought forth. You can also ask your lender to get a second appraisal, but it isn’t required to do so. 

You have several other options if you’re still unhappy with the outcome. Consider hiring an attorney, and report any violations or unfair practices to the authorities to investigate. Authorities include:

• Your state’s appraisal board
• Your local fair housing agency
• Appraisal Complaint National Hotline
• Office of the Comptroller of the Currency
• Department of Housing and Urban Development