When interest rates dropped to record lows in March, I decided to refinance the mortgage on my house. Yet after applying for a refi with my lender, it sent me an email that left me scratching my head.
“Great news,” it announced. “You’re eligible for an appraisal waiver!”
Nice. So what is an appraisal waiver?
Mystified, I dove in to Google to figure out exactly what this meant for me. For one, my lender assured me, it meant keeping $625 in my pocket that I would have otherwise spent on an in-person appraisal.
But should I accept? I wondered if there was a catch.
So, I did some digging, and learned more about this option, the pros and cons, and whether it’s a good idea based on your circumstances. Here’s the scoop on this home financing option.
What is an appraisal waiver?
When you’re buying or refinancing property, your lender typically engages an independent appraiser to visit your home, study it inside and out, analyze your neighborhood, and review nearby home sales among other factors.
Appraisers help lenders better understand the risks of helping you buy or refinance a particular house. After all, your home serves as the loan’s collateral, meaning that if you stop paying your mortgage, your lender can foreclose on your property, take it over, and then sell the place to recoup its losses.
With an appraisal waiver, however, also known as a property inspection waiver, the loan is underwritten without hiring an appraiser. Instead, the lender assesses the property.
Appraisal waivers were once rare, but the coronavirus pandemic has made them more popular. After all, offering an appraisal waiver means lenders can skip sending an appraiser—a living, breathing human being—into a home. In the era of COVID-19, an appraisal waiver is a safer, healthier option that helps limit the potential spread of the virus, says Kevin Leibowitz, mortgage broker and founder of Grayton Mortgage.
COVID-19 aside, appraisal waivers can also help streamline and speed up the loan approval process. This can be a huge relief in areas where professional appraisers are hard to find, which could cause a loan closing to drag on for much longer than necessary.
An appraisal waiver also helps save money. Independent home appraisals range in price from $200 to $750, depending on where you live. And since the borrower typically pays the appraisal fee, that’s extra cash in their pocket.
Who is eligible for an appraisal waiver?
Appraisal waivers aren’t an option for every loan. Generally speaking, your loan may be eligible if you’re buying or refinancing a single-family home or condo (even if it’s a second home or investment property). But eligibility is also dependent on how much you’re borrowing in contrast to the value of the property (often referred to as loan-to-value ratio). Manufactured homes, co-ops, multiunit properties, and new construction homes generally aren’t eligible.
Because mortgage rates have been at or near record lows for quite some time, and because appraisal waivers are also relatively new, they are most commonly granted during a refinance. However, an appraisal waiver also applies to a home purchase.
So, can a property be accurately assessed without an independent, in-person appraisal? Experts are somewhat divided on this issue, although appraisal technology has gotten fairly sophisticated.
“In a waiver situation, they truly have it down to a science,” says Jeremy Sopko, CEO of Nations Lending.
How to apply for an appraisal waiver
Want to find out if you’re eligible for an appraisal waiver? Just ask your lender. From there, your lender will typically submit some information about your property to Fannie Mae and Freddie Mac, institutions that buy mortgages from banks and lenders.
Fannie Mae and Freddie Mac have special underwriting technology that helps lenders meet these two institutions’ loan requirements. This technology evaluates properties by using data from millions of home sales. It analyzes your loan, then produces a simple yes or no for appraisal waiver eligibility. If it’s a yes, the lender lets you know, and you decide whether to take advantage of this option.
But even if you’re eligible for an appraisal waiver, that doesn’t mean you have to take it. Since it’s your home and you’re spending hundreds of thousands of dollars, you can choose to accept the waiver or ask your lender to order an in-person appraisal.
