Are Property Inspection Waivers worth the risk?
If you are getting a loan for a home, your lender may give you the option to use a Property Inspection Waiver (PIW) on your application. The program, introduced by Fannie Mae in 2017, allows you to be approved for a mortgage without an appraisal. It's a relatively new concept, and some lenders love it. But what determined it, and what are the risks for you?
How do PIWs work?
Essentially, the value of your home is determined by your lender. They determine its value automatically on a computer, employing a database from Fannie Mae in lieu of hiring a local appraiser to personally inspect the property you're about to buy. So, rather than a manual evaluation, lenders rely on computer methods to sift through a bank of previously collected data.
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Who's qualified for a Property Inspection Waiver?
The program's limited currently, but it's including more transaction types regularly. Your home needs to have records in Fannie Mae's electronic database, so homes which have never been appraised are not eligible for a Property Inspection Waiver. Additionally, you're required to have an excellent credit score and high assets for approval.
Why do lenders use it?
The waiver cancels out appraisal fees, and it can considerably reduce closing time for buyers. On the surface, this simplified process sounds like a good deal — but there's a bottom line you will want to consider. With a PIW, your lender is NOT held liable if the valuation ends up wrong. That's great for lenders, but offers no protection to the home buyer whatsoever.
What could go wrong?
The information in Fannie Mae's database is derived from past appraisal reports completed by professional appraisers. This data might be somewhat accurate, but by definition, it won't be a current evaluation of the exterior and interior quality in a building that's constantly changing. Without a professional valuation of your home, recent improvements and/or damages could absolutely be neglected by the system.
Because of these deficiencies, it's easy to imagine a scenario where your home is valued too high by the program evaluating it. If that happens, you could run into issues when it's time to list it for sale. You may 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.
What is the bottom line?
An accurate, professional appraisal typically costs a few hundred dollars, but it can save you a great deal more in the future. With a Property Inspection Waiver, there's no guarantee that you're receiving an honest valuation of your most expensive asset.
Buying or refinancing a property is a big decision with grand consequences. You should know without a doubt that you're receiving a fair deal, and working with a licensed appraiser is the safest action you can take. 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 precise than the careful examination of a licensed professional you trust.