Don't risk your investment with a Property Inspection Waiver
If you're buying or refinancing a home, your lender might give you the option to use a Property Inspection Waiver (PIW) on your loan application. The waiver program, introduced by Fannie Mae in 2017, allows you to move forward with your mortgage without requiring an appraisal at all. It's a relatively new concept, and some lenders love it. But what determined the change, and what are the associated risks?
How does a Property Inspection Waiver work?
Basically, your lender determines what your property is worth. They determine the value systematically on a computer, using a database from Fannie Mae instead of hiring a local appraiser to inspect the property you're about to buy. So, rather than a firsthand evaluation, lenders rely entirely on computer methods to sort through a pile of previously collected data.
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Who can receive a PIW?
The program is limited currently, but it's including more types of transactions continuously. Your home has to have entries in Fannie Mae's electronic database, so homes which have never been appraised are not eligible for a Property Inspection Waiver. Additionally, you need to have an excellent credit score and high assets for approval.
Why is a PIW used?
The waiver cancels out appraisal fees, and it can reduce closing time considerably for buyers. At first glance, this streamlined 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 zero protection to the buyer.
What could go wrong?
The information in Fannie Mae's database is pulled from previous appraisals done by professional appraisers. This data might be somewhat accurate, but by definition, it will not be an up-to-date assessment of the exterior and interior quality in a building that changes from year to year. Without a professional valuation of your home, new improvements, renovations, or damages can absolutely be neglected by the system.
Because of these deficiencies, you can imagine an instance where your home is valued too high by the system assessing 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 starts adding up.
What is the bottom line?
A definitive appraisal typically costs a few hundred dollars, but it can save you thousands in the future. With a PIW, there is no guarantee that you're receiving an honest valuation of your most expensive asset.
Gregory James Company, Inc. can help.
Buying or refinancing a house is a big decision with grand consequences. You demand to know without a doubt that you're receiving a fair deal, and working with a licensed appraiser is the smartest move you can make. Computers and algorithms are in almost 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.