Home Appraisal Waivers: What They Are And How To Get One

Finding the ideal home can be one of the most exciting times of your life – but a high appraisal can create a price out of your range, blowing your dreams out of the water and sending you back to the drawing board. However, lenders have introduced appraisal waivers to the housing market, allowing you to skip this potentially problematic step.

If you’re unfamiliar with appraisal waivers, you’re not alone. Use this guide to dig into the ins and outs of an appraisal waiver and determine if it’s the right move for you.

Qualified home buyers and homeowners can bypass the in-person home appraisal process on a property via an appraisal waiver. This route allows lenders to determine the value of the property by using recent home sales data from an underwriting system. The information includes comparable home sales in the area but doesn’t involve a human appraiser evaluating your property.

Home appraisals for refinancing and purchases help lenders determine the risk of financing a specific piece of real estate. However, the underwriting system and market data used in an appraisal waiver are generally sufficient to create an accurate appraisal.

Plus, the waiver keeps another person from being involved in the transaction, promoting social distancing (which was crucial at the height of the COVID-19 pandemic and continues to be of concern for regional outbreaks and home buyers with health conditions).

Because an appraisal isn’t necessary to generate a price on a home, the lender might skip it if they think they can easily determine the home value. The upshot of this scenario is the lender takes on less risk when they provide a mortgage loan matching the home value. In other words, a lender will waive the appraisal if they have solid evidence that the home value matches the loan they are willing to give.

In addition, lenders perceive less risk when a buyer can quickly build equity in the home. Therefore, the smaller the borrower’s mortgage loan is compared to the value of a home, the lower the loan-to-value ratio. In this situation, the lender is more likely to waive the appraisal.

Lastly, mortgage loan companies Fannie Mae and Freddie Mac have proprietary software that accurately assesses home value without a human appraiser. As a result, appraisal waivers are growing in popularity and will likely be viable in the fast-moving housing market in years to come.

To obtain an appraisal waiver from a lender, borrowers must qualify for one through either Freddie Mac or Fannie Mae guidelines. Additionally, they must fulfill the following conditions:

• Single-family home or condominium: Appraisal waivers are solely for single-family homes and condominiums with conventional loans. Therefore, numerous homes don’t qualify for a waiver.
• Excellent credit score: The higher a borrower’s credit score for a mortgage, the better the chances of getting an appraisal waiver and better loan terms. Generally, lenders prefer a credit score of at least 740 to grant an appraisal waiver.
• Loan-to-value (LTV) ratio: A low LTV ratio can help a borrower qualify for an appraisal waiver. In other words, the lower your mortgage loan and the higher your home value, the better the chances of receiving a waiver. Therefore, putting more money towards the down payment and reducing the amount borrowed can help.

Pros Of An Appraisal Waiver 

An appraisal waiver helps borrowers and lenders in the following ways:

• Faster closing time: Bypassing the appraisal in the home buying process eliminates the time spent scheduling and waiting for completion of the assessment, speeding up the closing process.

• Saves money: An appraisal typically costs several hundred dollars, so waiving it saves home buyers a chunk of cash. So, an appraisal waiver reduces closing costs for buyers.
• Upper hand in bidding wars: Competition in hot housing markets creates bidding wars, so waiving the appraisal can streamline the transaction for sellers.

Cons Of An Appraisal Waiver

The drawbacks of getting an appraisal waiver can damage the buyer’s finances.

• Less accuracy: Without another set of eyes to evaluate the property, problems can arise that an automated system can’t identify or incorporate into its valuation process. For instance, failing appliances might escape detection, and the home buyer might pay an artificially high price for the house.
• Overvalued property: Borrowers risk paying a price that doesn’t match a current market analysis. As a result, waiving the appraisal can mean overpaying for a home and taking a significant loss when selling the home.
• You can lose the waiver: If a borrower’s financial situation changes before closing, they can lose the appraisal waiver. For example, a job loss or emergency expense can alter the borrower’s finances and cause the lender to reevaluate the conditions of the home purchase.

If you’re a refinancing homeowner or aspiring home buyer, an appraisal waiver can shorten the timeline to acquire financing or purchase a new home. Plus, it can save you between $400 and $2,000 in appraisal fees.

However, eliminating the appraisal can obscure crucial information about a home’s condition. Because automated appraisal software isn’t perfect, it can miss vital details and create situations where the buyer doesn’t get a home worth the price. As a result, getting a human appraiser is a reliable way to get the most accurate assessment of a home.

If you want an appraisal waiver, you’ll first need approval for a mortgage from a lender that provides appraisal waivers. Therefore, asking about appraisal waivers and other critical details like interest rate and loan amount when shopping around for a mortgage is a good idea.

Additionally, inquiring with lenders about how to become eligible for an appraisal waiver from your lender should give you an understanding of how to obtain one during the home buying process.

Generally, if your lender allows appraisal waivers, you’ll have to submit relevant information to their underwriting department. Specifically, you should have a credit score of 740 or higher to give yourself the best chance of qualifying.

In the past, appraisals were a routine part of refinancing a mortgage or purchasing a home. However, your lender might offer appraisal waivers to qualifying borrowers. This option can save money and speed up the home buying process, but it could lead to inflated prices for faulty homes.

As a result, borrowers should evaluate the risk based on their specific circumstances. Then, when you learn your lender’s requirements for an appraisal waiver and how it might affect your financial situation, you can pursue one with confidence.

If you want to buy a home, start by getting approved with Rocket Mortgage® today.