Are Property Inspection Waivers worth the risk?
If you are getting a loan for a home, your lender may give you the option to use a Property Inspection Waiver (PIW) on your application. The waiver program, introduced by Fannie Mae in 2017, allows you to move forward with your mortgage without requiring an appraisal at all. It's a newer concept, and some lenders love it. But what drove the change, and what risks are associated?
How does a PIW work?
Basically, the value of your property is determined by your lender. They determine the value automatically on a computer, using a database from Fannie Mae rather than hiring a local appraiser to inspect the home you're about 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 get a Property Inspection Waiver?
The program is currently limited, but it is progressively building to include more types of transactions. Your home needs to have records in Fannie Mae's electronic database, so homes which have never been appraised are not eligible for a Property Inspection Waiver. 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 omits appraisal charges, and it can reduce closing time considerably for buyers. At first glance, this process seems like a bargain — but there's a key point you'll want to keep in mind. With a PIW, your lender is NOT liable if the valuation is wrong. That's a bonus for lenders, but affords zero protection to the buyer.
What could happen if I accept a PIW?
The information in Fannie Mae's database is derived from previous appraisals done by professional appraisers. This data might be relatively accurate, but it won't necessarily be an up-to-date evaluation of the quality of a building that's constantly changing. Without a professional valuation of your home, new improvements and/or damages could easily be neglected by the system.
Because of these deficiencies, it's easy to imagine an instance where your home is priced too high by the program evaluating it. If that happens, you could run into issues when it's time to sell. You could end up settling for far less than you paid, and you'll have no recourse against your lender when the money starts adding up.
What's the bottom line?
An accurate appraisal usually costs a few hundred dollars, but it could save you a lot more in the long run. With a Property Inspection Waiver, there's absolutely no guarantee you're receiving an honest valuation of a premium asset.
Gregory James Company, Inc. can help.
Buying or refinancing a home is a big decision with grand consequences. You should know without a doubt that you're getting a fair deal, and working with a licensed appraiser is the safest way to go. Computers and algorithms have assumed a place in nearly every area of modern life, but when it comes to measuring the value of your home, nothing is more accurate than the careful assessment of a licensed professional you trust.