Is a Property Inspection Waiver worth the risk?
If you are buying or refinancing a home, your lender may 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 be approved for a mortgage without an appraisal. It's a newer concept, and some lenders love it. But what drove it, and what are the associated risks?
How do PIWs work?
Basically, what your home is worth is determined by your lender. They determine the value systematically on a computer, employing a 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 on computer methods to sift through a bank of previously collected data.
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Who's eligible for a PIW?
The program is currently limited, but it is including more transaction types continuously. Your home needs to have records in Fannie Mae's electronic database, so homes that have never been appraised aren't eligible for a Property Inspection Waiver. Additionally, you're required to have an excellent credit score and high assets to be approved.
Why is a Property Inspection Waiver used?
The waiver eliminates appraisal expenses, and it can substantially pare down closing time for buyers. At first glance, this streamlined process seems like a bargain — 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 great for lenders, but offers zero protection to the buyer whatsoever.
Could anything go wrong?
The information in Fannie Mae's database is derived from previous appraisal reports done by professional appraisers. it might be somewhat accurate, but by definition, it won't be a current assessment of the exterior and interior quality in a building that's regularly changing. Without a professional valuation of your home, recent improvements and/or damages could easily be overlooked by the system.
Due to these shortcomings, you can imagine a situation where your property is priced too high by the computer program evaluating it. If that happens, you could run into problems when it's time to put it back on the market. You may not be able to get what you paid for it, and you'll have no recourse against your lender when the money falls short.
What's the bottom line?
A definitive appraisal typically costs a few hundred dollars, but it could save you thousands in the long run. With a PIW, there's no guarantee you're receiving an honest valuation of your most expensive asset.
Wolf Appraisal Service, PLLC can help.
Buying or refinancing a home 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 smartest way to go. 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 precise than the careful examination of a licensed professional you trust.