Property Inspection Waivers: Are they really worth the risk?
If you are buying or refinancing a home, your lender might give you the option to use a Property Inspection Waiver (PIW) on your loan application. The PIW program, introduced by Fannie Mae in 2017, allows you to move forward with your mortgage without an appraisal. It's a newer concept, and some lenders love it. But what drove the change, and what risks are associated?
How do PIWs work?
Basically, what your home is worth is established by your lender. They determine the value systematically on a computer, using an online database from Fannie Mae in lieu of hiring a local appraiser to inspect the home you're about to buy. So, rather than a hands-on evaluation, lenders rely on computer methods to sort through a bank of previously collected data.
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Who can get a PIW?
The program's limited currently, but it is including more types of transactions regularly. 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're required to have an excellent credit score and high assets to be approved.
Why is it applied?
The waiver cancels out appraisal expenses, and it can substantially shorten closing time for buyers. On the surface, this simplified process seems like a good deal — but there's a vital point you'll want to keep in mind. With a PIW, your lender is NOT held liable if the assessment ends up wrong. That's great for lenders, but presents zero protection to the buyer whatsoever.
What could go wrong if I accept a PIW?
The information in Fannie Mae's database is derived from past appraisal reports done by professional appraisers. it might be somewhat accurate, but it won't necessarily 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, recent improvements, renovations, or damages could certainly be overlooked by the system.
Due to these deficiencies, it's easy to imagine a scenario where your home is priced too high by the system assessing it. If that happens, you could run into issues when it's time to put it back on the market. You might 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 could save you thousands in the long run. With a PIW, there's no guarantee you're getting an honest valuation of a premium asset.
Gregory James Company, Inc. can help.
Buying or refinancing a house is a big decision with big consequences. You want to know with certainty that you're receiving a fair deal, and working with a licensed appraiser is the safest 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.