Property Inspection Waivers: Are they really worth the risk?

If you're getting a loan for a home, your lender may give you the option to use a Property Inspection Waiver – or PIW – on your loan application. The program, started by Fannie Mae in 2017, allows you to move forward with your 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?

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How do PIWs work?

Essentially, the task of deciding what your home 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 property you're getting ready to buy. So, rather than a manual evaluation, lenders rely solely on computer algorithms to sort through an array of previously collected information.

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Who can get a Property Inspection Waiver?

The program is currently limited, but it is progressively expanding to include more types of transactions. Your home has to have entries in Fannie Mae's electronic database, so homes which have never been appraised aren't eligible for a PIW. Additionally, you're required to have an excellent credit score and high assets for approval.

Why do lenders use it?

The waiver cancels out appraisal charges, and it can trim closing time considerably for buyers. On the surface, this streamlined process sounds like a good deal — but there's an essential point you will want to recognize. With a PIW, your lender is NOT liable if the valuation is wrong. That's an added benefit for lenders, but terrible for the home buyer.

What could go wrong?

The information in Fannie Mae's database is pulled from past appraisals completed by professional appraisers. This data might be accurate to a degree, but by definition, it will not be a current evaluation of the exterior and interior quality in a building that changes from year by year. Without a professional appraisal of your home, new improvements, remodels, or damages could absolutely be omitted by the system.

Due to these deficiencies, it's easy to imagine an instance where your property is priced too high by the system assessing it. If that happens, you could run into problems when it's time to list it for sale. 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 usually costs a few hundred dollars, but it could save you a great deal more in the future. With a Property Inspection Waiver, there's no guarantee that you're getting an honest valuation of a premium asset.

Gregory James Company, Inc. can help.

Buying or refinancing a house is a big decision with big consequences. You should know with certainty that you're getting 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 home, nothing is more accurate than the careful assessment of a licensed professional you trust.