Is a Property Inspection Waiver worth the risk?

If you are getting a loan for a home, your lender might give you the option to use a Property Inspection Waiver (PIW) on your loan application. The waiver program, introduced by Fannie Mae in 2017, allows you to be approved for a mortgage without an appraisal. It's a newer concept, and some lenders love it. But what caused the change, and what are the associated risks?

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How do Property Inspection Waivers work?

Essentially, your lender decides what your home is worth. They determine its value systematically on a computer, employing a database from Fannie Mae rather than hiring a local appraiser to inspect the home you're about to buy. So, rather than a manual evaluation, lenders rely entirely on computer processes to sift through a trove of previously collected data.

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Who can receive a Property Inspection Waiver?

The program is limited currently, but it's progressively building to include more transaction types. Your home has to have entries in Fannie Mae's electronic database, so homes which have never been appraised aren't eligible for a PIW. Additionally, you must have an excellent credit score and high assets to be approved.

Why is a PIW applied?

The waiver cancels out appraisal expenses, and it can substantially shorten closing time for buyers. On the surface, this simplified process sounds like a good deal — but there's a bottom line you'll want to consider. With a PIW, your lender is NOT liable if the assessment ends up wrong. That's a benefit to lenders, but presents zero protection to the home buyer whatsoever.

Is there anything that could go wrong?

The information in Fannie Mae's database is derived from previous appraisals completed by professional appraisers. This data might be accurate to a degree, but by definition, it will not be an up-to-date assessment of the exterior and interior quality in a building that changes over time. Without a professional valuation of your home, recent improvements, renovations, or damages can certainly be overlooked by the system.

Due to these shortcomings, it's easy to imagine a situation where your home is priced too high by the program evaluating it. If that happens, you could run into snags when it's time to sell. You may not be able to get what you paid for it, and you'll have no recourse against your lender when the money falls short.

What's the bottom line?

An accurate appraisal typically costs a few hundred dollars, but it could save you a great deal more in the future. With a PIW, there's no guarantee you're getting an honest valuation of your most expensive asset.

Alamance Appraisals can help.

Buying or refinancing a house is a big decision with grand consequences. You should know with certainty that you're getting a fair deal, and working with a licensed appraiser is the smartest move you can make. Computers and algorithms are in almost every area of modern life, but when it comes to measuring the value of your property, nothing is more accurate than the careful examination of a licensed professional you trust.