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 – or PIW – on your application. The program, started by Fannie Mae in 2017, allows you to be approved for a mortgage without an appraisal at all. It's a relatively new concept, and some lenders love it. But what prompted it, and what risks are associated?
How do PIWs work?
Basically, the value of your property is determined by your lender. They determine the value systematically on a computer, using a database from Fannie Mae rather than hiring a local appraiser to inspect the home you're getting ready to buy. So, rather than a firsthand evaluation, lenders rely on computer algorithms to sort through a bank of previously collected information.
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Who can receive a Property Inspection Waiver?
The program is currently limited, but it is including more types of transactions regularly. Your home has to have records in Fannie Mae's electronic database, so homes that have never been appraised are not eligible for a PIW. Additionally, you're required to have an excellent credit score and high assets to be approved.
Why is it applied?
The waiver omits appraisal expenses, and it can trim closing time substantially for buyers. At first glance, this simplified process seems like a bargain — but there's a key point you'll want to recognize. With a PIW, your lender is NOT held liable if the assessment ends up wrong. That's a bonus for lenders, but awful for the buyer.
What could go wrong if I accept a Property Inspection Waiver?
The information in Fannie Mae's database is derived from previous appraisal reports done by professional appraisers. it might be accurate to some extent, but by definition, it will not be an up-to-date evaluation of the exterior and interior quality in a building that's regularly changing. Without a professional valuation of your home, new improvements, remodels, or damages can absolutely be overlooked by the system.
Due to these deficiencies, you can imagine a situation where your property is valued too high by the computer program assessing it. If that happens, you could run into problems when it's time to sell. 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 absolutely no guarantee you're getting an honest valuation of a premium asset.
Gregory James Company, Inc. can help.
Buying or refinancing a property is a big decision with big consequences. You need to know without a doubt that you're receiving a fair deal, and working with a licensed appraiser is the smartest action you can take. Computers and algorithms are in nearly every area of modern life, but when it comes to measuring the value of your property, nothing is more precise than the careful assessment of a licensed professional you trust.