Home Mutual Funds What it Means, How it Works, Examples

What it Means, How it Works, Examples

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What Is a No-Appraisal Mortgage?

A no-appraisal mortgage is a type of home loan in which you don’t have to get an appraisal, or third-party assessment of the property’s current fair market value. No-appraisal mortgages are common for refinancing, but they may be offered with first-time loans as well.

With no-appraisal mortgages, mortgage lenders take your credit history and finances into account as well as how much you owe on an existing mortgage, if you have one. This type of mortgage does not consider the going price for similar homes in the area. Learn more about how no-appraisal mortgages work and when you may use one.

Key Takeaways

  • A no-appraisal mortgage is a home loan that doesn’t require an appraisal.
  • The majority of lenders provide no-appraisal mortgages for refinancing purposes while others may offer them for first-time loans.
  • The threshold for no-appraisal mortgage loans is $400,000.
  • No-appraisal mortgages may help troubled borrowers stay in their homes by lowering their monthly payments.
  • No-appraisal loans are offered by a number of government agencies, including the Federal Housing Administration (FHA).

How No-Appraisal Mortgages Work

An appraisal determines the total value of a property based on the value of the land, the age and condition of the structure, as well as the features of the property. Mortgages use the appraisal, which is typically an important part of the home buying process, to determine how much they are willing to lend you.

An appraisal is required regardless of whether a borrower wants a new mortgage or is just looking to refinance. That’s because lenders use appraisals to calculate loan values.

Some mortgage products eliminate the need for an appraisal. These are called no-appraisal mortgages or no-appraisal loans.

Lenders may only allow no appraisals for real estate transactions under $400,000, as per a rule set by the Office of the Comptroller of the Currency (OCC), the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC).

Many no-appraisal mortgages help homeowners in trouble by lowering their monthly mortgage payments and keeping them in their homes. Since no appraisal is required, these products also help borrowers save the appraisal fee, which can cost about $500 for a single-family home.

In some cases, no-appraisal mortgage programs may be offered to homeowners who don’t qualify for conventional refinancing from banks or direct mortgage lenders by different agencies. The majority of these borrowers are underwater, meaning they owe more than their homes are worth because their properties declined in value since the original date of purchase.

Ultimately, the lender decides whether to offer mortgages without requiring an appraisal.

Special Considerations

In some cases, income and employment status are not criteria. This allows unemployed homeowners or those with reduced salaries to refinance. This type of loan is extremely helpful for homeowners with significant equity in their homes who need to tap some of that value during a period of financial hardship.

As a matter of policy, however, offering no-appraisal loans to individuals who may not otherwise qualify is a matter of debate.

Low lending standards arguably contributed to a run-up in housing prices prior to the Great Recession, and also to the subsequent crash. Part of the government solution to the Great Recession, involved creating the Home Affordable Refinance Program (HARP), which provided loans to individuals who couldn’t otherwise afford them. That program has ended.

Examples of No-Appraisal Mortgages

As mentioned above, borrowers can check with their lenders to see if they qualify for a no-appraisal mortgage for properties under $400,000. Qualifying borrowers may also find no-appraisal programs with a range of lenders offering different types of mortgages.

FHA loans

The majority of no-appraisal loans are refinancing loans that help lower-income or homeowners who are struggling, like those offered by the Federal Housing Administration (FHA). This agency offers streamlined refinancing with no appraisal, provided you have an existing FHA loan.

USDA loans

The U.S. Department of Agriculture (USDA), which caters to rural homeowners with low or very low incomes, also offers streamlined, no-appraisal mortgages. These loans sometimes come with low-interest rates plus a premium for mortgage insurance, although they do have strict income limits.

VA loans

Lastly, the Veterans Administration (VA), provides streamlined, no-appraisal refinancing loans. These mortgages are called VA Interest Rate Reduction Refinance Loans (IRRL) and are for qualifying service members of the U.S. military. IRRRLs are offered to those refinancing an existing VA loan, just like those offered by the FHA.

Will a Bank Give You a Loan Without an Appraisal?

A bank may give you a loan without an appraisal in some circumstances. Ultimately it is up to the bank whether they want to provide funds without requiring an appraisal. But banks are not permitted to lend more than $400,000 for a mortgage without requiring an appraisal.

Do Mortgages Always Require an Appraisal?

Most primary mortgages do require an appraisal, but it is up to the lender whether they will require one. No-appraisal mortgages are more common with loans for refinancing.

What Happens if Appraisal Is Lower Than the Offer?

If you are getting a mortgage that requires and appraisal, and the appraisal is lower than the offer then you will not get the mortgage. Even if you make a large deposit and the lender has preapproved your loan, you will not likely get an official approval. However, you can ask the lender to lower the agreed-upon price to the appraisal figure.

The Bottom Line

No-appraisal mortgages are not common for primary mortgages. Lenders want to reduce their risk and are unlikely to provide more funds than the underlying asset. That way, if you fail to pay your mortgages, the lender can more easily recoup their funds with a foreclosure. No-appraisal mortgages are more common with refinancing, when you have a significant amount of equity in the property.

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