Don't risk your home with a Property Inspection Waiver
If you are getting a loan for a home, your lender may give you the option to use a Property Inspection Waiver (PIW) on your application. The PIW program, started by Fannie Mae in 2017, allows you to be approved for a mortgage without needing an appraisal. It's a relatively new concept, and some lenders love it. But what drove it, and what risks are there for you?
How do Property Inspection Waivers work?
Basically, your lender establishes what your property is worth. They determine its value automatically on a computer, employing a 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 hands-on evaluation, lenders rely on computer algorithms to sift through a trove of previously collected data.
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Who can receive a PIW?
The program's limited right now, but it's including more transaction types continuously. Your property 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 for approval.
Why is a PIW used?
The waiver eliminates appraisal expenses, and it can substantially pare down closing time for buyers. At first glance, this simplified process seems like a bargain — but there's an essential point you'll want to keep in mind. With a PIW, your lender is NOT held liable if the valuation is wrong. That's great for lenders, but offers no protection to the buyer whatsoever.
Could anything go wrong?
The information in Fannie Mae's database is pulled from previous appraisal reports completed by professional appraisers. it might be accurate to some extent, but by definition, it won't be an up-to-date assessment of the quality of a building that's constantly changing. Without a professional valuation of your home, recent improvements and/or damages could easily be missed by the system.
Due to these deficiencies, it's easy to imagine an instance where your property is valued too high by the system assessing it. If that happens, you could run into issues when it's time to list it for sale. You might not be able to receive 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 usually costs a few hundred dollars, but it can save you thousands in the future. With a Property Inspection Waiver, there is no guarantee you're receiving an honest valuation of your most expensive asset.
H.M. Hoffman & Company can help.
Buying or refinancing a home is a big decision with big consequences. You demand to know with certainty that you're receiving a fair deal, and working with a licensed appraiser is the smartest action you can take. Computers and algorithms are in nearly 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.