Don't risk your home with a Property Inspection Waiver
If you're buying or refinancing a home, your lender might give you the option to use a Property Inspection Waiver – or PIW – on your loan application. The waiver program, initiated by Fannie Mae in 2017, allows you to move forward with your mortgage without an appraisal at all. It's a newer concept, and some lenders love it. But what motivated the change, and what are the associated risks?
How does a PIW work?
Essentially, determining what your property is worth falls into the hands of your lender. They determine the value systematically on a computer, using 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 manual evaluation, lenders rely on computer processes to sort through a pile of previously collected information.
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Who can get a PIW?
The program's currently limited, but it's 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. Additionally, you need to have an excellent credit score and high assets to be approved.
Why do lenders use it?
The waiver omits appraisal fees, and it can shorten closing time substantially for buyers. On the surface, this process seems like a good deal — but there's a bottom line you will want to keep in mind. With a PIW, your lender is NOT held liable if the assessment winds up being wrong. That's a bonus for lenders, but affords zero protection to the buyer whatsoever.
What could happen if I accept a PIW?
The information in Fannie Mae's database is pulled from previous appraisals done by professional appraisers. it might be accurate to some extent, but it won't necessarily be an up-to-date assessment of the quality of a building that's constantly changing. Without a professional appraisal of your home, recent improvements and/or damages could easily be missed by the system.
Because of these shortcomings, you can imagine a scenario where your property is valued too high by the computer program evaluating it. If that happens, you could run into issues when it's time to sell. You could wind up getting 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 typically costs a few hundred dollars, but it can save you thousands in the long run. With a PIW, there's simply no guarantee you're getting an honest valuation of your most expensive asset.
Gregory James Company, Inc. can help.
Buying or refinancing a property is a big decision with big consequences. You should know without a doubt that you're receiving a fair deal, and working with a licensed appraiser is the safest move you can make. Computers and algorithms have assumed a place in nearly every area of modern life, but when it comes to measuring the value of your property, nothing is more accurate than the careful assessment of a licensed professional you trust.