How Can an Appraisal Waiver Affect Me
Your lender may allow you to use the Appraisal Waiver or Property Inspection Waiver (PIW) on your loan application if you are applying for a loan to buy a house. Fannie Mae’s waiver program allows you to get a mortgage approval without the need for an appraisal. Some lenders love this option. The appraisal waiver is not available for all loan types and may not be offered by all lenders. What are the risks and why did it happen?
An Appraisal Waiver Defined?
An appraisal waiver is a document that allows a borrower to forgo the home appraisal process when refinancing their mortgage. A waiver of appraisal is an offer to waive appraisals for eligible transactions. This includes mortgages purchased by Fannie Mae or Freddie Mac. Fannie Mae and Freddie perform the valuations for mortgages in-house using proprietary analytics and deep storages of property data in their database of information.
Who Qualifies for An Appraisal Waiver?
Although the program is limited at present, it is gradually expanding to include more types of transactions. FannieMae.com outlines the requirements for appraisal waivers:
- Condominiums and one-unit properties are also available
- Refinance transactions with cash-out restrictions:
- Principal residences, second homes and up to 90% LTV/CLTV
- Investment properties with up to 75% LTV/CLTV
- Refinance transactions with cash-out
- Principal residences with up to 70% LTV/CLTV
- Investment properties and second homes up to 60% LTV/CLTV
- Purchase transactions
- Principal residences, second homes and other properties up to 80% LTV/CLTV
- Lending casefiles are approved if they receive a recommendation of Approve/Eligible. You must have excellent credit and assets to be approved.
- According to a 2019 survey by Quicken Loans, 26% of respondents said they would be interested in an appraisal waiver if it meant they could save time and money.
- The same survey found that 43% of respondents were not familiar with appraisal waivers.
Who Homes Don’t Qualify for a Waiver?
FannieMae.com states that the majority of transactions won’t be eligible for a PIW. This means that they will need an appraisal by a qualified residential appraiser in order to determine the market value. These are not eligible to receive a PIW Offer:
- Fannie Mae will not accept properties located in disaster-affected areas unless it has received an acceptable appraisal for the property completed after the disaster.
- If the lender believes an appraisal is necessary
- Construction and construction-to-permanent loans
- Properties with two- to four units
- Casefiles involving loan cases in which the property subject to DU has a value of $1,000,000 or more
- HomeStyle(r), mortgage products (Renovation & Energy)
- DU Refi Plus(tm) loan casefiles
- Texas 50(a),6 loans
- Leasehold properties, community-land trust homes, and other properties subject to resale restrictions
- Manufactured homes and cooperative units
- DU loan case files which receive an ineligible referral
- Appraisal required by the mortgage insurance provider for loans
- Rent income from the property qualifies for loans
How the Appraisal Process Works?
Your lender is responsible for determining the value of your home. The lender determines the value of your home using a computer. Instead of hiring an appraiser to inspect the property, they use an online Fannie Mae database to calculate the value. Instead of relying on firsthand inspections, lenders use computer processing to sort through a variety of data.
If the appraisal comes in low, the lender may require a higher down payment from the borrower.
There are many ways to avoid an appraisal. We have discussed them here. However, we don’t believe it’s a good idea not to go to the appraisal. Here’s why.
Not the same as an appraisal waiver letter
We are not talking about the Appraisal Waiver or PIW. A Waiver letter is a different type of Waiver Letter. A Waiver letter is a notice to a lender in which the loan applicant waives the right to receive an appraisal at least three days before loan closing.
This scenario is similar to the one above, except that the appraisal will still be performed. However, the loan applicant has waived their right of reviewing it. Why? Late appraisals can cause delays in closing. The loan applicant has no recourse if the appraisal shows that they have paid more than the appraised value of the home.
Lenders use appraisal waivers for a variety of reasons.
A waiver can cancel appraisal fees and reduce closing time for buyers. This process may seem like a bargain at first glance. But there is a crucial point that you need to remember. Your lender is not liable for any incorrect valuations if you have an Appraisal Waiver. This is a benefit for lenders but not for home buyers.
If I Waive the Appraisal, What Kind of Risk Do I have?
Fannie Mae’s database draws information from professional appraisers’ appraisal reports. Although this data may be accurate to a certain extent, it is not an up-to-date assessment of the interior and exterior quality of a building that is constantly changing. The system could overlook any recent repairs or improvements to your home without a professional appraisal.
These deficiencies can lead to a situation where the system is valuing your property too high. You could face problems when you list your property for sale if this happens. It’s possible that you won’t get the amount you paid and you may lose your rights to sue your lender if you don’t have enough.
Lenders may require an appraisal waiver if the property is located in an area with a declining or stagnant housing market.
Is it possible to obtain an appraisal if the sale qualifies for an appraisal waiver?
We recommend it. It is dangerous to buy a property without an appraisal. Your home’s value may not be the same as the homes in nearby communities. Refinancing or buying a house can be a major decision that has big consequences. It is important to be certain that you are getting a fair deal.
An Appraisal Waiver (or the PIW) is not a good idea.
A good appraisal can save you hundreds of dollars. An Appraisal Waiver does not guarantee that you will receive an accurate valuation of premium assets.
Frequently Asked Questions
What are the benefits of an appraisal waiver?
There are a few benefits of an appraisal waiver, which include saving time and money on the appraisal process, as well as avoiding the hassle of coordinating an appraisal. Additionally, an appraisal waiver may provide more flexibility when it comes to negotiating the purchase price of a home.
What are the drawbacks of an appraisal waiver?
There are a few drawbacks of an appraisal waiver. First, the buyer may not be able to get as much money for their home if they need to sell it in the future. Additionally, an appraisal waiver may not be accepted by all lenders.
What should I do if I am considering an appraisal waiver?
If you are considering an appraisal waiver, you should speak with your lender to see if they accept them. Additionally, you should have a conversation with your real estate agent to see if they think it is a good idea.