Don't risk your investment with a Property Inspection Waiver
If you are buying or refinancing a home, your lender might give you the option to use a Property Inspection Waiver (PIW) on your loan application. The program, introduced 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 motivated the change, and what are the associated risks?
How does a PIW work?
Basically, the task of deciding how much your house is worth falls into the hands of your lender. They determine the value systematically on a computer, using an online database from Fannie Mae in lieu of hiring a local appraiser to personally inspect the home you're getting ready to buy. So, rather than a firsthand evaluation, lenders rely on computer processes to sort through an array of previously collected information.
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Who's eligible for a Property Inspection Waiver?
The program is currently limited, but it's building continually to include more types of transactions. Your property has to have records in Fannie Mae's electronic database, so homes which have never been appraised are not eligible for a PIW. What's more, you're required to have an excellent credit score and high assets for approval.
Why do lenders use PIWs?
The waiver eliminates appraisal charges, and it can substantially pare down closing time for buyers. Outwardly, this simplified process seems like a bargain — but there's an essential point you'll want to consider. With a PIW, your lender is NOT held responsible if the assessment winds up being wrong. That's a bonus for lenders, but offers zero protection to the buyer whatsoever.
What could go wrong if I accept a PIW?
The information in Fannie Mae's database is derived from past appraisal reports done by professional appraisers. This data might be relatively accurate, but by definition, it won't be an up-to-date evaluation of the exterior and interior quality in a building that changes from year to year. Without a professional appraisal of your home, recent improvements and/or damages can easily be overlooked by the system.
Because of these deficiencies, you can imagine an instance where your property is valued too high by the program assessing it. If that happens, you could run into issues 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 falls short.
What is the bottom line?
A definitive appraisal typically costs a few hundred dollars, but it can save you a lot more in the long run. With a PIW, there's clearly no guarantee that you're receiving an honest valuation of your most expensive 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 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 property, nothing is more precise than the careful examination of a licensed professional you trust.