Don't risk your investment with a Property Inspection Waiver
If you are getting a loan for a home, your lender may give you the option to use a Property Inspection Waiver (PIW) on your loan application. The program, started by Fannie Mae in 2017, allows you to be approved for a mortgage without an appraisal at all. It's a relatively new concept, and some lenders love it. But what caused the change, and what risks are associated?
How do Property Inspection Waivers work?
Basically, your lender establishes what your home is worth. They determine its value automatically on a computer, employing an online database from Fannie Mae rather than hiring a local appraiser to personally inspect the property you're about to buy. So, rather than a firsthand evaluation, lenders rely solely on computer algorithms to sift through a pile of previously collected information.
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Who is qualified for a Property Inspection Waiver?
The program's limited right now, but it's progressively expanding to include more types of transactions. Your home 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 is a PIW applied?
The waiver cancels out appraisal charges, and it can substantially pare down closing time for buyers. On the surface, this simplified process seems like a good deal — but there's a bottom line you'll want to consider. With a PIW, your lender is NOT liable if the valuation winds up being wrong. That's an added benefit for lenders, but affords no protection to the buyer.
What could go wrong?
The information in Fannie Mae's database is derived from past appraisals done by professional appraisers. This data might be somewhat accurate, but by definition, it will not be an up-to-date evaluation of the quality of a building that changes from year by year. Without a professional appraisal of your home, recent improvements, renovations, or damages can absolutely be left out by the system. But, you are also relying on other Lenders, Banks, Mortgage Companies selected appraiser's that may have (or may not have) properly measured the home your are about to purchase. We are increasingly finding that the MLS and Tax records regarding many homes square footage is WRONG! Sometimes the homes are larger, sometimes smaller. Our Company has appraiser's that have measured over 20,000 properties. Use our appraisal services to make sure the home you are buying is actually the size that is being listed in the MLS and/or Tax Records.
Due to these deficiencies, it's easy to imagine an instance where your property is priced too high by the system evaluating it. If that happens, you could run into snags when it's time to put it back on the market. You might not be able to receive what you paid for it, and you'll have no recourse against your lender when the money (or Square Footage) falls short.
What's the bottom line?
An accurate, professional appraisal typically costs a few hundred dollars, but it can save you a great deal more in the long run. With a Property Inspection Waiver, there's no guarantee that you're getting an honest valuation of your most expensive asset.
Harper & Strickland, Inc. can help.
Buying or refinancing a home is a big decision with big consequences. You need to know with certainty 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 almost every area of modern life, but when it comes to measuring the value of your property (and the size of the home you are buying), nothing is more precise than the careful examination of a licensed professional you trust.
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