Is a Property Inspection Waiver worth the risk?

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

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How does a Property Inspection Waiver work?

Basically, deciding how much your property is worth falls into the hands of your lender. They determine its value automatically on a computer, using an online database from Fannie Mae in lieu of hiring a local appraiser to personally inspect the home you're about to buy. So, rather than a hands-on evaluation, lenders rely on computer methods to sift through a pile of previously collected data.

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Who's qualified for a Property Inspection Waiver?

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

Why is it used?

The waiver cancels out appraisal fees, and it can considerably shorten closing time for buyers. At first glance, this simplified process seems like a bargain — but there's a crucial point you'll want to keep in mind. With a PIW, your lender is NOT held responsible if the valuation is wrong. That's a benefit to lenders, but offers no protection to the buyer whatsoever.

Could anything go wrong?

The information in Fannie Mae's database is derived from previous appraisals done by professional appraisers. This data might be relatively accurate, but by definition, it won't be a current evaluation of the quality of a building that changes from year to year. Without a professional valuation of your home, new improvements and/or damages can absolutely be neglected by the system.

Because of these shortcomings, it's easy to imagine a situation where your property is valued too high by the system evaluating it. If that happens, you could run into problems when it's time to list it for sale. You may not be able to get 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 a lot more in the future. With a Property Inspection Waiver, there is clearly no guarantee that you're receiving an honest valuation of your most expensive asset.

Gregory James Company, Inc. can help.

Buying or refinancing a property is a big decision with grand consequences. You demand to 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 are in almost every area of modern life, but when it comes to measuring the value of your home, nothing is more precise than the careful examination of a licensed professional you trust.