Lenders need your home’s market value before they approve your application for a home equity loan or line of credit (HELOC). However, some homeowners may not need a full appraisal for a home equity loan or HELOC.
We’ve researched why lenders need appraisals, the different types of appraisals, and whether you’ll need to pay for an appraisal when you get a home equity loan or a HELOC.
In this guide:
- Why do lenders require appraisals?
- What appraisals do lenders require for HELOCs and home equity loans?
Why do lenders require appraisals for HELOCs and home equity loans?
The value of your home is crucial to applying for a HELOC or home equity loan. Two primary reasons lenders need a valuation of your home include:
- To determine how much equity is available to lend against.
- To ensure enough value is in the home to secure the loan.
The HELOC appraisal process protects the homeowner and the lender. It covers the homeowner from borrowing too much against the value of their home. And for the lender, an accurate appraisal can reduce risk exposure. It ensures adequate value in the home and no adverse conditions, protecting the lender from losing money.
An inaccurate appraisal that’s too high could put the home underwater if you borrow too much. Conversely, if an appraisal is too low, you may be unable to obtain the desired loan.
What kind of appraisals do lenders require for HELOCs and home equity loans?
The type of appraisal needed for a home equity loan or HELOC is typically determined on a case-by-case basis.
Many home equity loan and line of credit requirements include a professional in-person appraisal. However, due to a large amount of available real estate valuation data online, it is often possible to obtain a home value estimate without a full in-person appraisal.
The appraisal types you might see include:
- An automated valuation model (AVM)
- Desktop appraisal
- Drive-by or exterior-only appraisal
- Full appraisal
Here’s more about what each appraisal type entails.
Automated valuation model (AVM)
An automated valuation model is a statistical program that finds the value of a home using recent sales data, tax assessments, and characteristics of properties from your area. AVMs are not appraisals, but because enough home data is available online, these estimates are accurate enough for many lenders to rely on.
A notable exception, however, is in rural areas. Often, the data is insufficient to assess a property value fairly.
Lenders that advertise no-closing-cost loans, appraisal-free loans, or appraisal waivers are likely using AVMs to determine the value of your home.
A professional appraiser conducts this appraisal without visiting your home. They use available data to estimate a value based on what they can discover without seeing the property. It’s similar to an AVM, but a live human does the legwork.
If you’re worried about accuracy, you can request an in-person appraisal for your loan. Just bear in mind you may then need to pay for the appraisal as part of your closing costs.
It’s often the lender that requires an appraisal for the loan who orders the appraisal —not the borrower.
Drive-by or exterior-only appraisal
A drive-by or exterior-only appraisal is conducted by a professional using photos of your home’s exterior to supplement their assessment of your home’s value.
A full appraisal is conducted in person by a professional appraiser who assesses the condition of the home and how it compares against other homes in the neighborhood. Due to the work entailed, this type of appraisal is often considered the most accurate.
An appraiser can consider the upgrades, significant defects, and general condition of the property.
Appraisal requirements by lender
If you’re considering a HELOC, it might help to know what some of the top home equity lenders offer and their appraisal requirements.
|Lender||HELOC or home equity loan?||Loan limits||Interest rate (APR)||Appraisal or valuation required?||Type of appraisal|
|Navy Federal||Both||Up to $250,000||Home equity loan: Starting at 6.64%|
HELOC: Starting at 8.0%
|Yes||Loan processor determines|
|Figure||HELOC||$15,000 – $400,000||6.10% – 14.74%||Valuation||AVM|
|PNC||Both||Up to $150,000||Undisclosed||Appraisal||Exterior-only or full|
|Bank of America||HELOC; Can convert to a fixed-rate loan||Up to $1 million||Starting at 6.24%||Undisclosed||Undisclosed|
|Truist||HELOC||Up to $1 million||7.66% – 14.26%||Appraisal||Undisclosed|
|Huntington National Bank||Both||Undisclosed||8.44% – 16.92%||Appraisal||Undisclosed|
|Citizens Bank||HELOC||Up to $400,000||Starting at 7.75%||Yes||Undisclosed|
Most lenders prefer to evaluate each property and borrower situation. Your appraisal type often depends on your credit, income, equity, location, and lender.
When going through the loan estimate process, you can ask the lenders whether your loan qualifies for automated valuation. If so, this can save you time and money on the appraisal.
You can also request a full appraisal if you think it would generate a more accurate home value, which is critical for the specific details of your loan.
Is one type of appraisal better than another?
An in-person appraisal by a qualified professional is often considered the most accurate. The appraisers can observe the home’s current condition, note upgrades or defects, and use data for the best estimate of the home’s value.
The simpler AVM may suffice if you don’t need an exact value but enough to obtain the loan.
What type of appraisal do I need for a home equity loan?
The appraisal you’ll need for your home equity loan depends on your lender’s requirements. Many lenders will allow an AVM or desktop appraisal for this type of loan.
What type of appraisal do I need for a HELOC?
An AVM is possible with many credit unions and banks, but it depends on your lender and property in many cases.