Is a Property Inspection Waiver worth the risk?

If you're getting a loan for a home, your lender might give you the option to use a Property Inspection Waiver (PIW) on your application. The program, introduced 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 drove the change, and what risks are associated?

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How does a Property Inspection Waiver 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 instead of hiring a local appraiser to personally inspect the property you're about to buy. So, rather than a manual evaluation, lenders rely entirely on computer processes to sort through a bank of previously collected information.

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Who can get a Property Inspection Waiver?

The program is currently limited, but it is including more types of transactions continuously. Your home has to have entries in Fannie Mae's electronic database, so homes which have never been appraised are not eligible for a Property Inspection Waiver. Additionally, you're required to have an excellent credit score and high assets for approval.

Why do lenders use Property Inspection Waivers?

The waiver cancels out appraisal expenses, and it can shorten closing time considerably for buyers. On the surface, 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 liable if the assessment winds up being wrong. That's great for lenders, but a disadvantage to the buyer.

Could anything go wrong?

The information in Fannie Mae's database is derived from past appraisal reports completed by professional appraisers. This data 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 constantly changing. Without a professional appraisal of your home, new improvements and/or damages could easily be missed by the system.

Due to these shortcomings, you can imagine an instance where your property is priced too high by the program assessing it. If that happens, you could run into snags when it's time to list it for sale. You could wind up getting far less than you paid, and you'll have no recourse against your lender when the money falls short.

What is the bottom line?

An accurate, professional appraisal typically costs a few hundred dollars, but it can save you a substantial amount more in the long run. With a PIW, there is no guarantee you're receiving an honest valuation of your most expensive asset.

Gregory James Company, Inc. can help.

Buying or refinancing a property is a big decision with grand consequences. You should know with certainty that you're getting a fair deal, and working with a licensed appraiser is the safest move you can make. Computers and algorithms have assumed a place in almost every area of modern life, but when it comes to measuring the value of your home, nothing is more precise than the careful assessment of a licensed professional you trust.