Understanding Appraisal Waivers: What Homebuyers Need to Know

Mortgage Dove

Understanding Appraisal Waivers: What Homebuyers Need to Know

Buying a home involves a home appraisal. Using this method, you can ensure you're not paying more than a house is worth. The downside of in-person appraisals is that they are costly, and buyers pay for them.

It is also possible for an in-person appraisal to slow down a home sale, primarily if the appraiser determines that the property is worth less than what the buyers are willing to pay. This situation, known as an "appraisal gap," often leads buyers and sellers to renegotiate the price or seek alternative solutions.

This is why some buyers might request an appraisal waiver, allowing them to buy a home without an appraisal. The option could save you money, but is it a wise choice? It depends on how worried you are about overpaying for your new home. Keep reading to find out more about appraisal waivers in real estate.


What is an Appraisal Waiver?

An appraisal waiver speeds up the home evaluation process. If eligible, buyers can skip the in-person visit by an appraiser. Instead, lenders use an automated system that checks nearby home prices (called real estate comps) and past sales data of the home being bought to decide its value.

This waiver helps buyers save money on the appraisal cost and time spent scheduling an in-person assessment.

However, not all buyers or homes qualify for this waiver. Lenders aren't obligated to grant it and might deny it if they think an in-person appraisal is necessary. This means lenders can decide who gets a waiver and who doesn't.


Why Do Lenders Sometimes Skip the Appraisal?

Lenders use appraisals to be sure they're not lending too much compared to a home's value. If they lend too much and the borrower defaults, the lender might face a significant loss.

When borrowers don't pay their mortgages, lenders can take their homes through foreclosure and sell them to recover their money. But it gets challenging if the lender gives more money than the home is worth. For instance, selling the home won't cover the debt if they lent $200,000 for a house worth only $180,000, and the borrowers stop paying with $190,000 still owed. The lender might end up losing around $10,000 on the sale.

Knowing this, why would a lender say yes to skipping an appraisal? There are two main reasons for this.

An Appraisal Isn't Necessary

Sometimes, lenders decide they don't need an in-person appraisal. For example, if a home was just appraised, lenders might skip a new one if it's being sold shortly after. This also applies when refinancing a house— if not much time has passed since the last appraisal, lenders might skip the in-person appraisal.

To Increase Efficiency

Skipping in-person assessments can speed up the loan process for borrowers and lenders, making it more efficient. Lenders usually check if borrowers can pay their mortgage, review credit reports and scores, and ensure they're not overspending on a house. This process takes days or even weeks. Cutting out unnecessary in-person appraisals can make the whole thing faster, getting the loan to closing sooner.


How Do You Qualify for One?

To be eligible for an appraisal waiver, you need to take out a home loan through a lender that uses the automated underwriting systems of Fannie Mae (Desktop Originator) or Freddie Mac (Loan Prospector, which has been rebranded as Loan Product Advisor lately).

This is the main requirement to qualify for an appraisal waiver. It is only possible to obtain waivers on purchases of single-unit first and second homes or condominiums, with limited options for cash-out refinancing available; waivers are not available on construction loans, co-ops, or purchases that exceed $1 million in value.

However, you must also meet a lot of other criteria. For example, you'll need a high credit score and a low loan-to-value ratio. Additionally, you will need to put at least 20 percent down on the home. Fannie Mae loans require a prior appraisal of the property to be found in their database.

There is a good chance that you will qualify for a home loan if the house you are buying has recently been professionally appraised (like within the last year or two) and if the home you are buying is located in a neighborhood with several recent sales, giving your lender a good set of comparisons. The specifics will vary from lender to lender, and some may have even more criteria to meet before a loan can be approved.


Pros and Cons of Appraisal Waivers

You can gain some advantages as a buyer by getting an appraisal waiver, including saving cash. However, it also has some downsides.


  • Save Money

You don't need to pay about $350 for a professional appraisal, which is what they usually cost, as per HomeAdvisor.

  • Faster Closing

Skipping the in-person visit can make the closing happen quicker.

  • Social Distancing

During the pandemic, sellers were cautious about letting strangers into their homes. Avoiding extra visits might make you more appealing as a buyer, even if it's less of a concern now.


  • Missed Details

People notice things that computers can't, like smells or sounds, which could be important when valuing a property. Also, computer algorithms often use outdated public records, missing recent changes. Without a human appraiser's input, you might overlook issues that could cost you later.

  • Accuracy Issues

Algorithms need up-to-date data to work well. If there's not enough recent info or the market keeps changing, the results may not be reliable. If the home's value is lower than expected, it might create problems for refinancing or selling in the future.

  • Potential Overpayment

Buying a home without a recent appraisal could lead to paying more, especially if the market has risen. Knowing the accurate value is crucial for insurance reasons to ensure your home is appropriately covered.


The Final words

Appraisal waivers can help buyers save money and close deals faster. However, there's a risk of not getting the complete picture of a home's value, which could cause problems later. In the end, saving money upfront on an appraisal could cost you more in the long run.

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