Do you need an appraisal for a HELOC?

A home equity line of credit (HELOC) has traditionally been a cost-effective way to borrow money. With the home in question serving as collateral, borrowers tend to be offered lower interest rates than they’d otherwise secure with unsecured debt like personal loans and credit cards. And with a variable interest rate subject to change monthly for borrowers and a requirement that interest-only payments be made during the initial draw period, this is often one of the more affordable borrowing options for homeowners.

In recent months, however, it’s become even more attractive. With the average home equity amount over $300,000 now and with average HELOC rates down around two full percentage points from last September, a HELOC offers an inexpensive way to borrow a six-figure sum of money. That all said, simply owning a home won’t be sufficient. There will be an application process that homeowners will need to complete to get their line of credit in order. 

But does that process include the use of an appraisal? Specifically, do you need an appraisal for a HELOC? That’s what we’ll answer below.

See how low a HELOC interest rate you could secure online today.

Do you need an appraisal for a HELOC?

While there are some circumstances in which it won’t be needed or lenders who won’t mandate an appraisal to approve your HELOC application, in many cases, yes, you will need an appraisal for a HELOC. A thorough appraisal allows lenders to determine your home’s accurate value at the time of application, potentially resulting in a home equity level amount different from the average $313,000 most homeowners have right now. This is done by physically evaluating the inside of the home and the outside of it. Electric and water systems could also be evaluated, among others. And the appraiser will also research the recent home sale prices of comparable homes in your neighborhood to see where your home falls in the local spectrum.

This can be an advantage if home prices in your neighborhood have increased since you first purchased the home, but it can be detrimental if home values have decreased recently or if the condition of your home has deteriorated over time. So it’s important to have a realistic idea of what your home will be appraised for before the formal appraisal takes place, to determine if it aligns with your home’s current worth.

That all noted, some lenders will allow for alternative appraisal methods, like a drive-by one in which an appraiser drives past the property but doesn’t go inside. Desktop appraisals, meanwhile, don’t require an in-person visit at all, as property records and home values will be researched online to determine where your home value ultimately lies. But these less thorough appraisals could result in your being approved for a smaller line of credit than you’d otherwise receive if officials were allowed into the property to evaluate newly made renovations and improvements. So borrowers will need to weigh those concerns before applying, although it may be less of an issue for homeowners looking for HELOCs for smaller amounts.

Learn more about the HELOC appraisal process here.

How to boost your HELOC appraisal value

If you ultimately elect to proceed with the conventional HELOC appraisal, it helps to know some ways to improve it. Specifically, homeowners should have:

• Documentation of recent home renovations or upgrades: A kitchen remodel, bathroom renovation, solar panel installation, etc.
• Up-to-date landscaping: Make sure the lawn is mowed and manicured and that the outside property is clean and well-maintained in time for the appraisal.
• Recently inspected home systems: Check to ensure that the furnace is working properly and that the HVAC system is too, as appraisers will inspect both, where applicable.
• Researched recent home sales: It won’t hurt to have documentation showing the recent comparable home sale prices in your neighborhood, particularly if they’ve been increasing.

The bottom line

An appraisal isn’t always mandatory for homeowners looking to secure a HELOC, but it can be beneficial to complete if you’re looking to secure an elevated credit line. If that’s the case, then taking certain steps like documenting recent home renovations and upgrades and inspecting home systems for issues or repairs can help boost your home’s value and, thus, give you a greater credit line to use as needed.

Learn more about the HELOC application process online today.