Is a Property Inspection Waiver worth the risk?
If you're buying or refinancing a home, your lender may give you the option to use a Property Inspection Waiver – or PIW – on your loan application. The PIW program, introduced by Fannie Mae in 2017, allows you to be approved for a mortgage without an appraisal. It's a newer concept, and some lenders love it. But what motivated it, and what risks are associated?
How do Property Inspection Waivers work?
Basically, deciding what your house is worth falls into the hands of your lender. They determine the value automatically on a computer, employing a database from Fannie Mae instead of hiring a local appraiser to inspect the property you're getting ready to buy. So, rather than a manual evaluation, lenders rely on computer methods to sort through a bank of previously collected information.
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Who can receive a PIW?
The program's limited currently, but it is progressively building to include more transaction types. Your home has to have entries in Fannie Mae's electronic database, so homes which have never been appraised are not eligible for a PIW. What's more, you need to have an excellent credit score and high assets for approval.
Why is it applied?
The waiver omits appraisal expenses, and it can cut closing time substantially for buyers. On the surface, this streamlined process sounds like a good deal — but there's a bottom line you will want to recognize. With a PIW, your lender is NOT held liable if the valuation turns out to be wrong. That's great for lenders, but offers zero protection to the home buyer whatsoever.
Is there anything that could go wrong?
The information in Fannie Mae's database is derived from previous appraisal reports done by professional appraisers. This data might be accurate to some extent, but by definition, it will not be a current assessment of the exterior and interior quality in a building that's regularly changing. Without a professional valuation of your home, new improvements, renovations, or damages could certainly be omitted by the system.
Due to these deficiencies, you can imagine an instance where your home is valued too high by the program assessing it. If that happens, you could run into problems when it's time to put it back on the market. You could wind up settling for less than you paid, and you'll have no recourse against your lender when the money starts adding up.
What is the bottom line?
An accurate, professional appraisal typically costs a few hundred dollars, but it could save you a lot more in the future. With a PIW, there is clearly no guarantee that you're receiving an honest valuation of your most expensive asset.
West Valley Appraisal Services can help.
Buying or refinancing a house is a big decision with grand consequences. You need to know without a doubt that you're getting a fair deal, and working with a licensed appraiser is the smartest way to go. Computers and algorithms have assumed a place in almost 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.