No-Appraisal Mortgage

A no-appraisal mortgage is a type of home-loan refinancing for which the lender does not require an appraisal, meaning an independent opinion of the property’s current fair-market value is not necessary.

No-appraisal mortgages takes into account borrowers’ respective credit histories and how much each owes on their existing mortgages. It does not consider the going price for similar homes in the area.

No-appraisal mortgages in the U.S. generally consist of refinancing loans that help lower-income or financially struggling homeowners. For example, the Federal Housing Administration - FHA, which caters specifically to low-to-moderate income borrowers, offers a streamlined refinancing with no appraisal, provided borrowers have an existing FHA loan.

The Home Affordable Refinance Program (HARP) also offers no-appraisal mortgages. This loan program offers loans to borrowers with conventional mortgages owned by Fannie Mae or Freddie Mac who are struggling to afford their monthly payments. Of note, the HARP program is scheduled to end on December 31, 2018.

Similarly, the USDA, which caters to rural homeowners with low or very low incomes, offers streamlined, no-appraisal mortgages. These loans sometimes come with interest rates of about 1%, plus a premium for mortgage insurance, although they have strict income limits.

Lastly, the Veteran’s Administration, or VA, provides streamlined, no-appraisal refinancing loans, called VA Interest Rate Reduction Refinance Loans (IRRRL), for qualifying U.S. military service members. Similar to the FHA’s rule, IRRRLs are offered to those refinancing an existing VA loan.

All of these no-appraisal mortgages generally are for homeowners who would not qualify for a conventional refinancing loan from a bank or direct lender. In many cases, these borrowers are underwater, meaning they owe more than their homes are worth, because the respective properties declined in value since the date of purchase.

Many no-appraisal mortgages help homeowners in trouble by lowering their monthly payments and keeping them in their homes. In some cases, income and employment status is not a criteria, which allows homeowners who have lost their jobs or had their pay reduced to refinance. This especially helps homeowners with significant equity in their homes who need to tap some of that value during a period of financial hardship.

Appraisals also cost hundreds of dollars, and this fee is passed on to borrowers, often as part of the total amount borrowed in a refinancing.

As a matter of policy, however, offering no-appraisal loans to individuals who might 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. Ironically, part of the government solution to the Great Recession, involved the creation of HARP, which again provided loans to individuals who couldn’t afford them otherwise.