Do HELOCs and home equity loans require an appraisal?

This article is for educational purposes only. JPMorgan Chase Bank, N.A., does not offer HELOCs or home equity loans. Any information described in this article may vary by lender.

Quick insights

• Appraisal requirements when you apply for a home equity loan or line of credit (HELOC) will differ depending on the lender’s requirements.
• The amount of a HELOC or home equity loan can vary based on your current equity, and lenders don’t normally allow you to borrow the full amount.
• Without an appraisal, the lender may not have an objective assessment of your home’s value.

Home appraisals are important to real estate and lending, particularly when it comes to home equity loans or HELOCs. Here’s an overview of the role that appraisals have in both scenarios.

Do you need an appraisal for a HELOC or home equity loan?

Most lenders require a home appraisal early in an application for a HELOC or home equity loan. The appraisal helps determine the current equity, which is the current market value minus your outstanding mortgage balance. With an appraisal, the lender can more accurately set the terms of a loan or line of credit.

Why do home equity loans and HELOCs require an appraisal?

Lenders typically only allow you to borrow a certain portion of your home equity, so they need to know how much you have. An appraisal provides an accurate valuation at a certain point in time. A current valuation makes for a more accurate calculation of equity. This helps a lender ensure that any loan or HELOC amount it extends to you is supported by the value of the home.

What do appraisers look at for a home equity loan or HELOC?

When visiting your home, an appraiser would likely evaluate its condition, specific features and improvements. Those aspects, along with comparisons to similar local properties, help determine your home’s current market value.

Types of appraisals

• Full appraisal or inspection: This involves a comprehensive review of a property, including the interior and exterior, where the layout, size and construction quality may be examined. Specific exterior elements and their condition may be evaluated—important features like the roof, siding, grading and foundation. HELOCs do not typically require full interior/exterior appraisals.
• Exterior-only: Only the exterior of a property will be reviewed. To evaluate the home’s interior, the appraiser would have to rely on public information, real estate records or other provided documents.
• Hybrid: Typically conducted by two people, one remote and one who visits the home. The remote appraiser examines available records, while the other party visits the property to collect firsthand information. This on-site visitor might evaluate the home’s interior, exterior or both. HELOC products typically use AVM or electronic values (not completed by a professional), sometimes coupled with an exterior inspection of property.
• Desktop/online: Completed remotely using information available online and, if the lender orders it, some on-site information. Comparable properties in the area will also factor into the appraised value. Much of what an appraiser might need, including comparable homes, can be found online, including property records, listing services and tax assessments. 

The cost of home equity appraisals

The cost varies mostly depending on the appraiser and details of their evaluation, but the borrower usually pays. The location and size of the property might also influence the cost. At the end of the process, though, getting a current market value is important to the terms of a HELOC or home equity loan.

Accessing home equity without an appraisal

Although lenders typically require an appraisal for home equity loans and HELOCs, some lenders might offer alternatives. These options, such as automated valuation models, may be less accurate but sufficient for the lender to approve a loan or line of credit. In some scenarios, lenders could also waive the appraisal requirement for qualified borrowers. The lender might also waive the requirement if a recent appraisal is accessible.

In summary

An appraisal will probably have to happen when you apply for either a home equity loan or HELOC. Sometimes, a lender may offer a home equity loan or HELOC without a full appraisal. However, lenders usually prefer to formally appraise your home’s market value rather than estimate it. The appraisal can more accurately determine your home equity and help the lender manage risk when extending a loan or line of credit.