Do I Need an Appraisal for a Home Equity Line of Credit (HELOC)?

Learn about appraisals when taking out Home Equity Line Of Credit (HELOC). Find out what lenders require when applying for HELOCs.

Do I Need an Appraisal for a Home Equity Line of Credit (HELOC)?

When you apply for a HELOC, lenders often require an appraisal to obtain an accurate valuation of the property. That's because the value of your home, along with the balance and creditworthiness of your mortgage, determine if you qualify for a HELOC and, if so, how much you can borrow as collateral for your home. In general, a new appraisal will be required to qualify for a home equity line of credit. However, some credit unions and banks will use county assessments and automated value models.

When we receive an application for a home equity line of credit (HELOC), we must determine the value of the property. This, in turn, allows us to determine the amount that can be borrowed. However, most of the time, with a HELOC, a full valuation is not required. Take our 3-minute quiz and talk to an advisor today.

Founded in 1976, Bankrate has a long history of helping people make smart financial decisions. We have maintained this reputation for more than four decades by demystifying the financial decision-making process and giving people confidence in the actions to take next. The retirement period typically lasts about 10 years, during which time you may only be required to make interest payments. Then, you'll enter the repayment period, which is usually 20 years, and you'll make monthly payments to cover principal and interest.

A favorable credit score is essential to meet the approval requirements of most banks. A credit score of 680 or higher will most likely qualify you for a loan, as long as you also meet the capital requirements, but most lenders prefer a credit score of at least 700. In some cases, homeowners with credit scores of 620 to 679 may also be approved. Some lenders also provide loans to people with scores lower than 620, but these lenders may require the borrower to have more capital in their home and have less debt relative to their income.

Home equity loans and HELOCs with bad credit will have higher interest rates and lower loan amounts, and may have shorter terms. Qualifying DTI ratios will vary from lender to lender. Some demand that their monthly debts consume less than 36 percent of their gross monthly income, while other lenders may be willing to go as high as 43 percent or 50 percent. Be prepared to provide income verification information when you apply for your loan; examples of documents that may be requested include W-2 forms and payment receipts.

Applying for a home equity loan (HELOC) can be a wise decision if you need money to finance a home improvement project or consolidate high-interest debt. Because loans are guaranteed by your home, the interest rate is often lower compared to unsecured loan products, such as credit cards or personal loans. For example, home equity loan rates range from 3 to 12 percent, depending on the lender, the amount of the loan, and the borrower's creditworthiness, while the average credit card rate is higher than 16 percent. If you appeal the bank's decision to lower your credit limit or suspend your ability to use your HELOC, the bank may require you to pay reasonable fees for an appraisal fee or credit report on a home.

Keep in mind that an updated appraisal does not guarantee that the bank will approve your appeal. Or if the home equity loan is from the same lender as your mortgage, you may be able to skip a full appraisal, Mills said. This e-book will introduce you to current remodeling trends, affordability, the difference between a home equity loan and a home equity line of credit (HELOC), and includes tip sheets on how to adopt green measures and quick home improvement projects to fix your home in a hurry. A HELOC is a revolving line of credit that allows you to borrow from the capital you have accumulated in your home.

But remember that if you take out a home equity line of credit against your home and you can no longer pay the payments, the lender may require you to sell your house to repay the loan. If you have a history of late payments, lenders may be less willing to lend you loans, even if you have an otherwise decent credit score. During the drawing period, you can borrow funds up to a certain limit set by the lender, have a monthly balance and make minimum payments, such as on a credit card. A home equity line of credit (HELOC) is a loan secured with your home as collateral with no restrictions on how you can use the money.

In addition, a full valuation may not be required if a recent appraisal accurately reflects the current value of a home. The Hanscom FCU 3-in-1 plan combines the convenience of a home equity line of credit with fixed-rate advance options and a credit card. Subtract your outstanding mortgage balance from 75 percent of the value of the home to approximate the potential amount of your line of credit or home loan.

Sheree Mccomas
Sheree Mccomas

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