What does it mean when your client has an appraisal waiver?
An appraisal waiver is a feature offered by some lenders that allows them to bypass the traditional property appraisal process when assessing a mortgage application. Typically, an appraisal involves hiring a licensed appraiser to evaluate the property’s condition and determine its market value, which can take time and incur costs for the borrower. However, with an appraisal waiver, the lender can use alternative methods to establish the property’s value without a formal appraisal.
Here’s how it generally works:
- Automated Valuation Models (AVMs): Lenders can use technology that uses algorithms and data from recent property sales to estimate a property’s values (think Zestimates). These AVMs analyze factors such as location, property characteristics, and market trends to generate an estimated value.
- Eligibility Criteria: Not all loans qualify for waivers. Lenders typically look for certain qualifications like:
- The loan amount being significantly lower than the property’s assessed value.
- The borrower has a strong credit profile, often indicated by a high credit score and a low debt-to-income ratio.
- The property being a single-family home or meeting other lender-defined criteria.
- Benefits:
- Faster Processing: Without the need for a formal appraisal, the mortgage approval process can be expedited, allowing borrowers to close on their loans more quickly.
- Cost Savings: Borrows save on appraisal fees, which can range from a few hundred to over a thousand dollars, depending on the property and location.
- Lender Guidelines: Whether the waiver is granted depends on lender guidelines and risk assessment. A waiver cannot be purchased by a buyer to bypass the appraisal step if they do not meet lender requirement thresholds. Some government-backed loans from Fannie Mae or Freddie Mac, may have established criteria for appraised waivers that lenders follow.
Read more:
FHFA Announces Updates to Enterprise Policies on Appraisals, Loan Repurchase Alternatives, and Pricing Notifications
Learn more about real estate with these links:
What is DOM in Residential Real Estate?
5 Steps to Writing a Repair Addendum for Buyers
