No-Appraisal Mortgage

What Is a No-Appraisal Mortgage?

The term no-appraisal mortgage refers to a type of home loan that doesn't require an appraisal. This means an independent opinion of the property’s current fair market value (FMV) is not necessary. The majority of lenders provide no-appraisal mortgages for refinancing purposes while others may offer them for first-time loans. No-appraisal mortgages account for borrowers' credit histories and how much each owes on their existing mortgages. This type of mortgage does not consider the going price for similar homes in the area.

Understanding No-Appraisal Mortgages

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 in the property. The appraisal is a very important part of the home buying process and is required before a lender agrees to advance a mortgage. 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. As of October 2019, appraisals may not be required for real estate transactions under $400,000, as per a new rule set by the Office of the Comptroller of the Currency (OCC), the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC). The move, which increased the threshold from $250,000, was in response to price appreciation in the housing market.

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 associated fee.

No-appraisal mortgage programs are found throughout the market. They are 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.

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 the creation of the Home Affordable Refinance Program (HARP), which provided loans to individuals who couldn’t otherwise afford them.

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 throughout the financial industry. The majority of these 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 borrowers have an existing FHA loan.

HARP also offered no-appraisal mortgages. This program, which ran between April 1, 2009, and Dec. 31, 2018, provided loans to borrowers who struggled to afford the monthly payments on their conventional mortgages backed by Fannie Mae and Freddie Mac.

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.

Lastly, the Veterans Administration (VA), provides streamlined, no-appraisal refinancing loans. These mortgages are called VA Interest Rate Reduction Refinance Loans (IRRRL) and are meant 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.