What it Means, How it Works, Examples

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.

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.

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.

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.