Don't risk your investment 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 loan application. The program, introduced by Fannie Mae in 2017, allows you to be approved for a mortgage without needing an appraisal at all. It's a newer concept, and some lenders love it. But what caused it, and what risks are there for you?

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How does a PIW work?

Basically, your lender determines what your property is worth. They determine the value systematically on a computer, employing an online database from Fannie Mae instead of hiring a local appraiser to inspect the property you're getting ready to buy. So, rather than a firsthand evaluation, lenders rely on computer methods to sort through a pile of previously collected information.

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Who is eligible for a PIW?

The program's currently limited, but it's including more types of transactions regularly. Your property needs to have entries in Fannie Mae's electronic database, so homes which have never been appraised are not eligible for a PIW. Additionally, you're required to have an excellent credit score and high assets to be approved.

Why do lenders use Property Inspection Waivers?

The waiver eliminates appraisal expenses, and it can substantially reduce closing time for buyers. Outwardly, this process seems like a good deal — but there's a bottom line you will want to recognize. With a PIW, your lender is NOT held liable if the valuation ends up wrong. That's a benefit to lenders, but offers no protection to the buyer whatsoever.

What could happen if I accept a PIW?

The information in Fannie Mae's database is derived from past appraisals done by professional appraisers. it might be accurate to some extent, but it won't necessarily be a current evaluation of the exterior and interior quality in a building that's constantly changing. Without a professional valuation of your home, recent improvements, remodels, or damages can easily be missed by the system.

Due to these deficiencies, 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 issues when it's time to sell. You could end up getting far less than you paid, 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 a substantial amount more in the future. With a Property Inspection Waiver, there's no guarantee that you're getting an honest valuation of a premium asset.

H.M. Hoffman & Company can help.

Buying or refinancing a home 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 move you can make. 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 accurate than the careful examination of a licensed professional you trust.