Property Inspection Waivers: Are they really 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 PIW program, initiated by Fannie Mae in 2017, allows you to be approved for a mortgage without requiring an appraisal. It's a newer concept, and some lenders love it. But what caused it, and what are the associated risks?
How do PIWs work?
Basically, the value of your property is determined by your lender. They determine the value systematically on a computer, using an online database from Fannie Mae rather than hiring a local appraiser to inspect the property you're getting ready to buy. So, rather than a manual evaluation, lenders rely entirely on computer processes to sort through a trove of previously collected data.
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Who's eligible for a Property Inspection Waiver?
The program's currently limited, but it is progressively building to include more transaction types. Your property needs to have entries in Fannie Mae's electronic database, so homes which have never been appraised aren't eligible for a PIW. What's more, you must have an excellent credit score and high assets to be approved.
Why do lenders use Property Inspection Waivers?
The waiver removes appraisal expenses, and it can trim closing time substantially for buyers. Outwardly, this process seems like a good deal — but there's a bottom line you will want to consider. With a PIW, your lender is NOT held liable if the assessment turns out to be wrong. That's an added benefit for lenders, but affords zero protection to the buyer.
Could anything go wrong?
The information in Fannie Mae's database is pulled from previous appraisals done by professional appraisers. This data might be relatively accurate, but by definition, it will not be a current assessment of the exterior and interior quality in a building that changes over time. Without a professional appraisal of your home, new improvements, renovations, or damages can certainly be left out by the system.
Because of these shortcomings, it's easy to imagine a scenario where your home is priced too high by the program evaluating it. If that happens, you could run into problems when it's time to sell. You could wind up getting 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 substantial amount more in the future. With a Property Inspection Waiver, there's no guarantee that you're receiving an honest valuation of a premium asset.
Gregory James Company, Inc. can help.
Buying or refinancing a house is a big decision with grand consequences. You need to know with certainty that you're receiving a fair deal, and working with a licensed appraiser is the safest way to go. Computers and algorithms are in almost 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.