Property Inspection Waivers: Worth the risk?

If you are buying or refinancing a home, your lender may give you the option to use a Property Inspection Waiver – or PIW – on your application. The PIW program, begun by Fannie Mae in 2017, allows you to be approved for a mortgage without getting an appraisal. It's a relatively new concept, and some lenders love it. But what prompted it, and what are the risks for you?

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How do PIWs work?

Basically, your lender determines what your property is worth. They determine its value automatically on a computer, using an online database from Fannie Mae rather than hiring a local appraiser to inspect the property you're getting ready to buy. So, rather than a hands-on evaluation, lenders rely on computer algorithms to sort through a pile of previously collected data.

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Who can get a Property Inspection Waiver?

The program's currently limited, but it's including more transaction types regularly. Your property has to have records in Fannie Mae's electronic database, so homes that have never been appraised are not eligible for a Property Inspection Waiver. Additionally, you're required to have an excellent credit score and high assets to be approved.

Why do lenders use it?

The waiver omits appraisal charges, and it can considerably shorten closing time for buyers. At first glance, this simplified process seems like a bargain — but there's a bottom line you will want to consider. With a PIW, your lender is NOT liable if the valuation winds up being wrong. That's great for lenders, but affords zero protection to the home buyer.

What could happen if I agree to a Property Inspection Waiver?

The information in Fannie Mae's database is pulled from past appraisals completed by professional appraisers. it might be somewhat accurate, but it won't necessarily be a current evaluation of the quality of a building that changes from year by year. Without a professional valuation of your home, new improvements, renovations, or damages could absolutely be overlooked by the system.

Because of these shortcomings, it's easy to imagine an instance where your home is priced too high by the computer program evaluating it. If that happens, you could run into problems when it's time to sell. You may 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 is the bottom line?

An accurate, professional appraisal usually costs a few hundred dollars, but it can save you thousands in the future. With a PIW, there is clearly no guarantee you're getting an honest valuation of your most expensive asset.

H.M. Hoffman & Company can help.

Buying or refinancing a property is a big decision with grand consequences. You should know without a doubt 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 property, nothing is more precise than the careful assessment of a licensed professional you trust.