Don't risk your investment with a Property Inspection Waiver
If you're buying or refinancing a home, your lender might give you the option to use a Property Inspection Waiver (PIW) on your application. The waiver program, introduced by Fannie Mae in 2017, allows you to move forward with your mortgage without requiring an appraisal at all. It's a newer concept, and some lenders love it. But what drove the change, and what risks are there for you?
How does a Property Inspection Waiver work?
Basically, what your home is worth is established by your lender. They determine its value systematically on a computer, employing an online database from Fannie Mae instead of hiring a local appraiser to inspect the property you're about to buy. So, rather than a hands-on evaluation, lenders rely entirely on computer processes to sort through a trove of previously collected information.
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Who can receive a Property Inspection Waiver?
The program's currently limited, but it's being expanded continually to include more transaction types. Your home needs to have entries in Fannie Mae's electronic database, so homes which have never been appraised aren't eligible for a Property Inspection Waiver. What's more, you're required to have an excellent credit score and high assets for approval.
Why is it used?
The waiver cancels out appraisal fees, and it can trim closing time substantially for buyers. Outwardly, this process sounds like a good deal — but there's a vital point you'll want to keep in mind. With a PIW, your lender is NOT liable if the assessment ends up wrong. That's a bonus for lenders, but presents no protection to the buyer whatsoever.
What could go wrong?
The information in Fannie Mae's database is derived from previous appraisal reports done by professional appraisers. it might be accurate to some extent, but it won't necessarily be an up-to-date evaluation of the quality of a building that changes from year to year. Without a professional appraisal of your home, recent improvements, renovations, or damages can certainly be overlooked by the system.
Because of these deficiencies, it's easy to imagine an instance where your home is valued too high by the computer program assessing it. If that happens, you could run into snags when it's time to list it for sale. You may not be able to get what you paid for it, and you'll have no recourse against your lender when the money starts adding up.
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 long run. With a Property Inspection Waiver, there's clearly no guarantee you're getting an honest valuation of a premium asset.
Buying or refinancing a house is a big decision with grand consequences. You should 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 almost every area of modern life, but when it comes to measuring the value of your home, nothing is more precise than the careful examination of a licensed professional you trust.