Whatever your reason for taking out a home equity line of credit (HELOC), you’re probably going to need to have your home appraised before your bank will agree to advance you a loan. This HELOC appraisal will help the lender determine the value of your home to calculate the amount you can borrow. But unlike a regular home appraisal, a home equity appraisal is a relatively painless process and should cause only minimal stress.
What is a HELOC?
A home equity line of credit (HELOC), also known as a home equity loan, is a one-time loan from a bank in which the homeowner borrows against the value of their house. Your home equity is calculated by subtracting the balance of your current mortgage from the market value of your home. Once you take out a loan, you can use the money to do with it as you please, whether it’s to cover home improvements, pay medical bills, or consolidate debts. HELOCs come with fixed interest rates and typically have a repayment period of from 5 to 30 years.
Does a Home Equity Loan Require an Appraisal?
A common question when it comes to applying for a HELOC is: do you need an appraisal for a home equity loan? The answer is almost always yes. Since you are borrowing against the value of your home, your lender will want to perform a HELOC appraisal to determine exactly what that value is. Although the home equity appraisal is performed primarily to protect the lender, it also protects you since you don’t want to borrow more than your house is worth and find yourself in a tough situation later.
How Does a Home Equity Appraisal Work?
Compared to a regular home appraisal, the HELOC appraisal is typically much quicker and less complicated. There are three types of home equity appraisals:
- AVM Appraisal. In many cases, the appraisal takes place virtually. In the automated valuation model (AVM) appraisal, the appraiser puts your address in the computer, and a program calculates its value based on neighborhood comps and other information. This form of HELOC appraisal can take less than a minute and may run you only $20.
- Drive-by Appraisal. This is a hybrid approach in which the appraiser looks at the AVM data but then also drives by your house to ensure that everything looks as it should. The drive-by appraisal may cost between $350 and $400.
- Full Appraisal. A full appraisal is rare when it comes to a HELOC, but if you have bad credit or minimal credit history, the lender may insist on a full-scale walk-through.