No-Appraisal Home Loan | Is it Worth the Risk?

Home appraisals serve many purposes from determining the market value of a house to adjusting the borrowing limit as part of a mortgage loan. Although this step can be stressful for buyers and sellers alike, it is crucial.

A recent article, Is a no-appraisal home loan too good to be true? explains that while no-appraisal mortgage is available—where an appraisal is not mandatory to purchase a home—it’s not as easy as just skipping that step. Instead of using an appraiser to estimate a home’s value, lenders set borrowing limits based on existing mortgage loans.

This new option for only recently became available through Fannie Mae and Freddie Mac and has been typically utilized for refinancing; however, this type of home loan could be available for other applications.

At this time, only four programs offer the no-appraisal option: FHA, HARP, VA and USDA, and there are many restrictions. At the top of the list is good payment history. The available programs are as follows:

  • The Federal Housing Authority (FHA) offers a streamline refinance loan for existing FHA members.
  • HARP, or Home Affordable Refinance Program, offers a no-appraisal mortgage option for Fannie Mae and Freddie Mac recipients who can’t afford monthly payments.
  • The third, from the U.S. Department of Agriculture, is for USDA recipients who want to refinance.
  • VA Interest Rate Reduction Refinance Loans is a refinance loan offered by the Veteran’s Administration. Military families and service members with existing VA loans can switch to this program.

The big question is, are no-appraisal home loans worth it? The option does help homeowners refinance at a more affordable rate and it can speed up paperwork. Yet, there are disadvantages. The article sites these top two downsides, among others:

  • “The home value may rise since the last appraisal. A higher appraisal means better interest rates and freedom to select a better mortgage payment. Going for a no-appraisal mortgage loan, however, throws that possibility away.”
  • “New qualifiers who obtained a no-appraisal loan could overpay for a home and not realize it. Conversely, sellers could sell a home to a buyer with a no-appraisal loan for less than it’s worth. Sellers are undervaluing the home with no evidence to prove suspicions.”

Whether the no-appraisal option appeals or applies to you or not, it’s important to work with a realtor, mortgage or financial professional to guide you through the many options available to you.

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