Property Inspection Waivers: Worth the risk?
If you're 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 program, initiated by Fannie Mae in 2017, allows you to move forward with your mortgage without an appraisal. It's a relatively new concept, and some lenders love it. But what drove it, and what are the associated risks?
How does a Property Inspection Waiver work?
Essentially, determining what your property is worth falls into the hands of your lender. They determine its value automatically on a computer, using an online database from Fannie Mae in lieu of hiring a local appraiser to personally inspect the property you're getting ready to buy. So, rather than a hands-on evaluation, lenders rely solely on computer methods to sort through a bank of previously collected data.
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Who can get a Property Inspection Waiver?
The program's limited right now, but it is including more types of transactions regularly. Your property needs to have records in Fannie Mae's electronic database, so homes that have never been appraised are not eligible for a PIW. What's more, you're required to have an excellent credit score and high assets for approval.
Why is it used?
The waiver omits appraisal fees, and it can considerably reduce closing time for buyers. Outwardly, 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 liable if the valuation winds up being wrong. That's an added benefit for lenders, but a disadvantage to the home buyer.
What could happen if I agree to a PIW?
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 won't be a current evaluation of the quality of a building that's constantly changing. Without a professional valuation of your home, recent improvements, renovations, or damages could easily be missed 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 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 falls short.
What is the bottom line?
An accurate appraisal typically costs a few hundred dollars, but it could save you a lot more in the future. With a PIW, there is no guarantee you're receiving an honest valuation of a premium asset.
Aaliyah Appraisals can help.
Buying or refinancing a property is a big decision with grand consequences. You demand to know with certainty that you're getting a fair deal, and working with a licensed appraiser is the safest way to go. 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 assessment of a licensed professional you trust.