What Is an Appraisal Waiver?
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.
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.
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.
- A more socially distanced transaction: Perhaps the biggest benefit is that it allows you to skip the having-a-stranger-visit-your-home part of the process. If you’re trying to socially distance during the pandemic, this can be a big plus.
According to data from the American Enterprise Institute, appraisal waivers are on the rise in recent months. Just after the COVID-19 pandemic began, Freddie Mac adjusted its loan risk assessment to afford more borrowers the opportunity to refinance without the anxiety of having someone outside their immediate circle visit their home.
In May, more than 60% of Freddie Mac-backed non-cash-out refinances qualified for an appraisal waiver, while 26% of cash-out loans did. About 9% of purchase loans qualified for one as well.
Appraisal waivers were basically non-existent a few years ago. AEI shows only about 1-2% of conventional loans were granted them back in 2015.
The downside 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.
The bottom line
For many homeowners, appraisal waivers can be highly beneficial when refinancing — especially during the pandemic.
If you’re interested in refinancing, get in touch with Embrace Home Loans today to see if you might be eligible for an appraisal waiver.