The Home Appraisal Waiver – Should you?

The Home Appraisal Waiver – Should you?

The housing market has become even more competitive in the Age of COVID-19, creating challenges for those seeking to purchase a home. One change that has come as a result of the global pandemic is many mortgages have stopped requiring home appraisals, making it simpler for borrowers to purchase a home or refinance an existing loan. With historically low interest rates and demand for appraisers high, potential homebuyers and homeowner refinancing have seen appraisals waived just under 50 percent of the time.

For homeowners who are refinancing existing homes and homebuyers who are purchasing new homes, the wait is nearly double the norm for getting an appraisal when one is required. Getting an appraisal recent months is taking a month or more which leads homebuyers and home refinancers wondering about appraisal waivers. The professionals at Coastal Home Team are here to help homebuyers and home refinancers understand home appraisal waivers, including the advantages and disadvantages.

The Home Appraisal Waiver Explained

Generally, a home appraisal is required by a mortgage lender for a purchase mortgage or a refinance application in order to minimize risk. The process includes a licensed appraiser, an independent third party, whose duty is to assess a home’s value by checking the condition of the property as well as analyzing “comps” (comparable properties). This analysis means the home being appraised is compared to recently sold homes in the area which possess a similar size and style. The two factors, property condition and comps, along with current market trends are used to determine a value.

Appraisal waivers essentially take the appraisal our of the homebuying or refinancing process. Lenders evaluate the loan application, issuing appraisal waivers to the loans which qualify, based on automated Fannie Mae and Freddie Mac underwriting systems which are used by nearly all lenders.

The Advantages of the Appraisal Waiver

The appraisal waiver offers a number of advantages to homebuyers and home refinancers. The first is money saved. Appraisals for single family homes are in the $300 to $500 range, which means an appraisal waver saves borrowers that amount which can be used to bolster savings, buy furniture, or make improvements to their homes. On top of that, appraisal waivers make the mortgage approval process faster because there is no long wait for an appraisal. With appraisal waivers, the mortgage approval process is considerably streamlined.

In addition, with an appraisal waiver, homebuyers can also waive any appraisal contingency when making an offer, a proven advantage in homes with multiple bids in play. Home sellers appreciate offers with waived appraisal contingency, knowing a low appraisal can result in contract termination, thus destroying the sale.

The Disadvantages of the Appraisal Waiver

For homeowners, the appraisal process shows how much equity they have gained while paying down their mortgage. Without an appraisal, homeowners who are refinancing don’t get valuable information – how much home equity they’ve built over time. In similar fashion, without an appraisal, homebuyers can’t know if the home they are buying is overpriced. Appraisals show potential homebuyers any existing gap between their contract prices and the home’s actual market value. If the lender has issued an appraisal waiver, borrowers can hire an independent appraiser to do the job, as long as they are willing to wait, given the current demand for appraisals.

Appraisal Waiver Eligibility

For most borrowers, appraisal waivers are advantageous, but they aren’t available on all mortgages. Generally, loans for new construction, and loans issued by the U.S. Department of Agriculture Rural Development, Federal Housing Administration, and the U.S. Department of Veteran’s Affairs are not offered appraisal waivers. In most, but not all instances, loans backed by Fannie Mae and Freddie Mac (conventional, conforming loans) are eligible for appraisal waivers.