If you’re getting a loan for a home, your lender may give you the option to use an Appraisal Waiver, or Property Inspection Waiver (PIW), on your loan application. The waiver program, begun by Fannie Mae in 2017, allows you to be approved for a mortgage without an appraisal at all. It’s a relatively new concept, and some lenders love it. But what prompted the change, and what risks are there for you?
Different than an Appraisal Waiver Letter
An Appraisal Waiver Letter is different than the Appraisal Waiver, or PIW, we are talking about here. An Appraisal Waiver Letter is a notice to the lender where the loan applicant waives his/her right to receive the appraisal at least three business days prior to loan closing. In this scenario, the appraisal still happens – but the loan applicant is waiving their right to review it. Why? If the appraisal comes in late, it can delay the closing. But signing away the right to review means you (the loan applicant) have no recourse if you find out from the appraisal that you have overpaid for the home.
How does the Appraisal Waiver (or PIW) work?
Basically, the task of deciding how much your home is worth falls into the hands of your lender. They determine the value systematically on a computer, employing an online database from Fannie Mae rather than hiring a local appraiser to personally inspect the home you’re getting ready to buy. So, rather than a firsthand evaluation, lenders rely solely on computer processes to sort through an array of previously collected data.
Who can get an Appraisal Waiver?
The program’s limited currently, but it is progressively building to include more transaction types. According to FannieMae.com, your home has to:
- One-unit properties, including condominiums
- Limited cash-out refinance transactions:
- Principal residences and second homes up to 90% LTV/CLTV
- Investment properties up to 75% LTV/CLTV
- Cash-out refinance transactions:
- Principal residences up to 70% LTV/CLTV
- Second homes and investment properties up to 60% LTV/CLTV
- Purchase transactions:
- Principal residences and second homes up to 80% LTV/CLTV
- Loan casefiles that receive an Approve/Eligible recommendation (you must have an excellent credit score and high assets for approval)
Who is NOT eligible for an Appraisal Waiver?
According to FannieMae.com, the majority of transactions will not receive a PIW offer, which means they will require an appraisal by a qualified residential appraiser to establish the market value. The following are not eligible for a PIW offer:
- Properties located in a disaster-impacted area, unless Fannie Mae has received an acceptable appraisal of the property that was completed after the disaster occurred
- When the lender has any reason to believe an appraisal is warranted
- Construction and construction-to-permanent loans
- Two – to four-unit properties
- Loan casefiles in which the value of the subject property provided to DU is $1,000,000 or greater
- HomeStyle® mortgage products (Renovation and Energy)
- DU Refi Plus™ loan casefiles
- Texas 50(a)6 loans
- Leasehold properties, community land trust homes, or other properties with resale restrictions
- Cooperative units and manufactured homes
- DU loan casefiles that receive an ineligible recommendation
- Loans for which the mortgage insurance provider requires an appraisal
- Loans for which rental income from the subject property is used to qualify
Why do lenders use Appraisal Waivers?
The waiver cancels out appraisal charges, and it can cut closing time substantially for buyers. At first glance, this process seems like a bargain — but there’s a key point you’ll want to recognize. With an Appraisal Waiver, your lender is NOT held liable if the valuation ends up wrong. That’s an added benefit for lenders, but a disadvantage to the home buyer.
What could go wrong if I agree to an Appraisal Waiver?
The information in Fannie Mae’s database is pulled from previous appraisal reports done by professional appraisers. This data might be accurate to some extent, but by definition, it will not be an up-to-date assessment of the exterior and interior quality in a building that’s constantly changing. Without a professional appraisal of your home, recent improvements and/or damages could certainly be overlooked by the system.
Due to these deficiencies, you can imagine a scenario where your property is priced too high by the system assessing it. If that happens, you could run into snags when it’s time to list it for sale. You might not be able to get what you paid for it, and you’ll have no recourse against your lender when the money starts adding up.
Can I still get an appraisal if the home sale qualifies for an Appraisal Waiver?
Yes, in fact – we recommend it. Buying a property without an independent appraisal is risky. Just because the homes in neighboring communities value at a similar price range, doesn’t mean your home value is the same. Buying or refinancing a house is a big decision with big consequences. You want to know without a doubt that you’re receiving a fair deal, and working with a licensed appraiser is the safest way to go.
What’s the bottom line?
Don’t risk your investment with an Appraisal Waiver (or PIW)
An accurate appraisal usually costs a few hundred dollars, but it could save you a lot more in the future. With an Appraisal Waiver, there’s no guarantee you’re receiving an honest valuation of a premium asset.
Buying or refinancing a house is a big decision with big consequences. You want to know without a doubt that you’re receiving a fair deal, and working with a state certified appraiser is the safest way to go. Computers and algorithms are in nearly every area of modern life, but when it comes to measuring the value of your property, nothing is more accurate than the careful assessment of a licensed professional you trust.