What is an appraisal waiver?
Written by
Writer, Fox Money
Carisa Chappell has over two decades of finance experience and is an expert on real estate and mortgages. Her byline has been featured by The New York Times, The Motley Fool, and Realtor.com.
Updated October 16, 2024, 2:48 AM EDT
An appraisal waiver gives some potential home buyers the option to decline having their property appraised. Not all homes are eligible to waive the appraisal, but it can help save both time and money.
Although it’s called an appraisal waiver, it’s really waiving the traditional method of appraising a home and depends on automated underwriting findings. Instead of someone coming out to walk through the property, the lender will use automated information based on data such as recent home sales in your neighborhood, to get the appraised value.
Who qualifies for an appraisal waiver?
While it’d be nice if everyone qualified for an appraisal waiver, that’s not the case. In fact, Fannie Mae said the majority of homes won’t qualify for the appraisal waiver. However, your chances increase if you have a conventional loan that is tied to a single-family home or condominium with one unit.
Ryan Dibble, chief operating officer of Flyhomes, said at minimum, borrowers must prove they have an excellent credit score and documentation that proves their assets. Properties must also meet specific loan-to-value (LTV) ratios and meet other loan requirements to qualify.
Because it is inconsistent and random as to which buyers and what properties receive appraisal waivers, some housing and mortgage experts said it feels like a black box.
“Some buyers get appraisal waivers on one property, but a similar buyer or property will not. When our clients get an appraisal waiver it feels like winning the lottery, but it only happens 10 to 20 percent of the time,” said Dibble, who advises borrowers to work with a qualified mortgage lender who can help them navigate the process.
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Who offers appraisal waivers and why?
Lenders with eligible loans to sell to government mortgage giants, Fannie Mae and Freddie Mac, offer the appraisal waivers. They began offering them to streamline the mortgage underwriting process by eliminating an extra step for borrowers. Also, since the COIVD-19 pandemic, it translates to safety. An appraisal waiver avoids having to send a live person into someone’s home.
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How do you apply for one?
To apply for an appraisal waiver check with your lending institution. It’s important to point out that just because you may qualify for one, it is your right to request an appraisal if you prefer to go the traditional route. An appraisal waiver can be denied any time the lender has a reasonable belief that an appraisal is necessary, said Dibble.
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The positives and negatives of an appraisal waiver
Just like everything, there are pros and cons to getting an appraisal waiver, so experts advise borrowers to explore all options.
Pros
Faster closing. Paloma Timothee, a mortgage loan processor with Inland Home Mortgage, said one perk of the appraisal waiver is a shorter processing time for a mortgage loan. Dibble agreed and added it takes time to schedule the appraisal, working around the dueling schedules of the seller and the appraiser, and then additional time to get the results.
Saving money. “An appraisal commonly costs between $500 to $1000, so the savings are big,” said Dibble. Buyers are usually responsible for paying for the appraisal. But with the waiver, that’s money you can keep in your pocket.
Alleviating stress. Waiting weeks to find out if you‘re going to be able to close on the house in the event of a low appraisal is unnerving. When that happens, Dibble said the buyer may have to bring additional funds to the closing table to cover the difference. “An appraisal waiver immediately removes stress from the transaction. It eliminates a volatile and disruptive component of a transaction for both the buyer and seller,” he said.
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Cons
Under- or over-valued property. Borrowers may miss the opportunity of obtaining a current market analysis on the property. “If the borrower decides to sell his or her property in the near future and uses the value given to the property by the underwriting engine, they run the risk of underselling their property,” said Timothee.
An appraisal contingency is present. One potential con is a scenario where you have a financing and/or appraisal contingency in the contract. Dibble said in this circumstance, if the appraisal comes in low, sellers can try to negotiate for a lower price.
Waiver can be taken back. Since automated underwriting engines (AUS) determine if an appraisal is required or can be waived, that waiver can be lost during the processing of the mortgage loan, said Timothee. The AUS is run every time there is a change in credit score, income or assets, and these changes can affect the decision on whether a waiver is granted or not.
“If an appraisal waiver finding is lost during the process of the mortgage loan, then an appraisal must be ordered and the transaction will be delayed,” she said.
Moreover, Timothee added that the borrower should consider why they are refinancing, how long they plan to stay in the home, and if they currently pay mortgage insurance. “Not getting an appraisal might be a lost opportunity for more savings,” she said.
However, with today’s interest rates at an all-time low, borrowers interested in saving even more money want to find out if they qualify for the waiver.