Property Inspection Waivers: Worth the risk?

If you're buying or refinancing a home, your lender might give you the option to use a Property Inspection Waiver (PIW) on your application. The waiver program, initiated by Fannie Mae in 2017, allows you to be approved for a mortgage without requiring an appraisal at all. It's a relatively new concept, and some lenders love it. But what caused the change, and what risks are associated?

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How do Property Inspection Waivers work?

Basically, what your home is worth is determined by your lender. They determine its value systematically on a computer, using a 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 on computer algorithms to sort through a bank of previously collected data.

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Who can receive a PIW?

The program is currently limited, but it's being expanded regularly to include more types of transactions. Your property needs to have records in Fannie Mae's electronic database, so homes which have never been appraised aren't eligible for a PIW. What's more, you're required to have an excellent credit score and high assets for approval.

Why do lenders use Property Inspection Waivers?

The waiver eliminates appraisal expenses, and it can trim closing time considerably for buyers. Outwardly, this simplified process sounds like a good deal — but there's a vital point you will want to consider. With a PIW, your lender is NOT liable if the valuation ends up wrong. That's a benefit to lenders, but a disadvantage to the home buyer.

What could go wrong if I accept a PIW?

The information in Fannie Mae's database is pulled from past appraisal reports done by professional appraisers. it might be accurate to some extent, but by definition, it will not be a current evaluation of the quality of a building that changes from year to year. Without a professional valuation of your home, recent improvements, remodels, or damages can certainly be neglected by the system.

Due to these deficiencies, you can imagine a situation where your property is priced too high by the computer program assessing it. If that happens, you could run into snags when it's time to put it back on the market. You might not be able to receive what you paid for it, and you'll have no recourse against your lender when the money starts adding up.

What's the bottom line?

A definitive appraisal usually costs a few hundred dollars, but it can save you thousands (or tens of thousands) in the future. With a PIW, there is absolutely no guarantee that you're getting an honest valuation of your most expensive asset.

Meador Group, Inc can help.

Buying or refinancing a property is a big decision with big consequences. You should know with certainty that you're getting 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 home, nothing is more precise than the careful assessment of a designated SRA professional you trust.