What Is an Appraisal Waiver?

Appraisal waivers are a program offered by Fannie Mae and Freddie Mac that allows lenders to bypass the traditional home appraisal process for certain eligible loans and properties.

They are also known as “Property Inspection Waivers” (PIWs) or “Value Acceptance,” allow lenders to forgo the requirement of a full in-person appraisal conducted by a licensed appraiser. Instead, the property’s value is estimated using automated valuation models (AVMs) and data analytics based on previous appraisals, recent sales data, and property characteristics.

How Do Appraisal Waivers Work?

When a lender submits a mortgage application through Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Product Advisor, the automated underwriting system checks if the loan meets the eligibility criteria for an appraisal waiver. If eligible, and if there is a recent appraisal report on file for the property, the AVM assesses the appraisal’s quality and may offer a waiver.

If the waiver is accepted, the lender’s estimated property value is used, and they receive relief from certain representations and warranties related to the property’s value, condition, and marketability.

What Types of Loans are Eligible for Appraisal Waivers?

Here are the main types of loans that are typically eligible for appraisal waivers from Fannie Mae and Freddie Mac:

Purchase Mortgages:

• Primary residences up to 80% loan-to-value (LTV) ratio
• Second homes up to 80% LTV

Refinances and Limited Cash-out Refinances:

• Primary residences up to 90% LTV
• Second homes up to 80% LTV
• Investment properties up to 75% LTV

For Cash-out Refinances:

• Primary residences up to 70% LTV
• Second homes up to 60% LTV
• Investment properties ineligible

Loan Types:

• Conventional loans (those meeting Fannie Mae and Freddie Mac guidelines) are generally eligible
• Government-backed loans like FHA, VA, and USDA loans are typically ineligible for appraisal waivers

Property Types:

• Single-family, one-unit properties are eligible
• Condominiums are eligible
• 2-4 unit properties, manufactured homes, and co-ops are ineligible

Other Eligibility Criteria:

• Estimated property value must be under $1 million
• Borrower must have a strong credit profile and meet lender’s requirements
• Appropriate loan-to-value ratios as mentioned above

If you’re refinancing your mortgage loan, you might qualify for an appraisal waiver. This allows you to skip the appraisal process, as well as the fees that come with it.

As stated above, appraisal waivers are only available on conventional loans, so if you have an FHA loan or VA loan, you won’t be eligible. Jumbo loan appraisals can’t be waived either.

Still, having a conventional loan isn’t the only requirement. Though there’s no hard-and-fast rule for who’s eligible, you’re more likely to get a waiver if your last appraisal was fairly recent, you’re a particularly strong borrower (you have low debts, high income, or a great credit score), or you have a lot of equity in the home.

The pros of appraisal waivers

If you are lucky enough to qualify for one, an appraisal waiver can come with big benefits. It can mean:

• Fewer closing costs: Most appraisals cost about $300 to $400, and you’ll pay the fee as part of your closing costs. Skipping the appraisal can lower your upfront costs to refinance considerably.
• A faster closing: The appraisal takes about a week to complete, on average. The appraiser has to visit your property, do research on similar properties and sales in the area, and produce a report evaluating your property.
• Reduces stress: If you live in an extremely competitive seller’s marketplace this can be a lifesaver for sellers. Especially where demand is greater than supply and might reduce the chances of a deal falling through.
  

The cons of appraisal waivers

Keep in mind that waiving your appraisal isn’t always a good thing. If your home has risen in value since your last appraisal, it could make you eligible for more cash (in a cash-out refinance) or lower rates (because your loan-to-value ratio is lower). You would have to get a new appraisal to prove this new value, though. Here are some other considerations:

• Potential inaccuracy in property valuation compared to in-person appraisals
• Limited availability for unique properties or specialized loan programs
• Missed opportunity for buyers to negotiate based on a low appraisal
• Lack of professional inspection for property condition and defects

The bottom line on appraisal waivers

For many homeowners, appraisal waivers can be highly beneficial whether buying or refinancing.

If you’re interested in learning more about appraisal waivers, get in touch with Embrace Home Loans today to see if you might be eligible.