Property Inspection Waivers: Worth the risk?
If you are getting a loan for a home, your lender might give you the option to use a Property Inspection Waiver (PIW) on your application. The program, started by Fannie Mae in 2017, allows you to move forward with your mortgage without needing an appraisal at all. It's a relatively new concept, and some lenders love it. But what caused it, and what are the risks for you as a home buyer?
How does a PIW work?
Essentially, your lender determines what your house is worth. They determine its value automatically on a computer, using an online database from Fannie Mae instead of hiring a local appraiser to inspect the property you're about to buy. So, rather than a hands-on evaluation, lenders rely on computer processes to sift through an array of previously collected data.
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Who's qualified for a PIW?
The program's limited currently, but it's including more transaction types continuously. Your property has to have entries in Fannie Mae's electronic database, so homes that have never been appraised aren't eligible for a Property Inspection Waiver. Additionally, you must 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 pare down closing time for buyers. Outwardly, this simplified process seems like a good deal — but there's a vital point you'll want to consider. With a PIW, your lender is NOT liable if the assessment turns out to be wrong. That's a benefit to lenders, but terrible for the home buyer.
What could happen if I accept a PIW?
The information in Fannie Mae's database is pulled from past appraisals done by professional appraisers. it might be relatively accurate, but by definition, it won't be an up-to-date assessment of the exterior and interior quality in a building that's constantly changing. Without a professional valuation of your home, recent improvements, remodels, or damages could certainly be missed by the system.
Because of these deficiencies, it's easy to imagine a scenario where your property is priced too high by the program assessing it. If that happens, you could run into issues when it's time to put it back on the market. You could wind up getting less than you paid, and you'll have no recourse against your lender when the money falls short.
What is the bottom line?
A definitive appraisal typically costs a few hundred dollars, but it could save you a substantial amount more in the long run. With a PIW, there's clearly no guarantee you're getting an honest valuation of a premium asset.
Hill Appraisal Associates, LLC can help.
Buying or refinancing a home is a big decision with big consequences. You should 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 accurate than the careful examination of a licensed professional you trust.