Property Inspection Waivers: Are they really worth the risk?

If you are 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, 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 determined it, and what are the risks for you as a home buyer?

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How do PIWs work?

Essentially, deciding how much your house is worth falls into the hands of your lender. They determine the value systematically on a computer, employing an online database from Fannie Mae instead of hiring a local appraiser to personally inspect the home you're getting ready to buy. So, rather than a hands-on evaluation, lenders rely on computer methods to sift through a trove of previously collected information.

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Who can receive a Property Inspection Waiver?

The program's limited right now, but it is including more types of transactions continuously. 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. Additionally, you must have an excellent credit score and high assets to be approved.

Why do lenders use it?

The waiver omits appraisal expenses, and it can considerably pare down closing time for buyers. On the surface, this streamlined process sounds like a good deal — but there's a bottom line you'll want to consider. With a PIW, your lender is NOT liable if the valuation ends up wrong. That's a bonus for lenders, but offers no protection to the home buyer whatsoever.

Is there anything that could go wrong?

The information in Fannie Mae's database is derived from previous appraisal reports done by professional appraisers. it might be relatively accurate, but by definition, it won't be an up-to-date assessment of the exterior and interior quality in a building that changes from year to year. Without a professional valuation of your home, recent improvements and/or damages can certainly be left out by the system.

Because of these deficiencies, you can imagine a scenario where your property is priced too high by the computer program assessing it. If that happens, you could run into problems when it's time to sell. You could end up getting less than you paid, and you'll have no recourse against your lender when the money starts adding up.

What is the bottom line?

A definitive appraisal typically costs a few hundred dollars, but it could save you a substantial amount more in the long run. With a Property Inspection Waiver, there's no guarantee you're getting an honest valuation of a premium asset.

Gregory James Company, Inc. can help.

Buying or refinancing a home is a big decision with big consequences. You should know with certainty that you're receiving a fair deal, and working with a licensed appraiser is the smartest way to go. Computers and algorithms are 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 examination of a licensed professional you trust.