An appraisal waiver is an agreement between the lender and the borrower that waives the appraisal requirement for a property appraisal. It allows qualified home buyers to skip the in-person appraisal process when buying a home. Instead, lenders use data generated by an automated underwriting system to determine the value of the home based on the information it has collected from other recent home sales in the area. An appraisal waiver can save buyers both the cost of paying for an appraisal and the time involved in scheduling an in-person assessment. However, a professional appraisal is probably the most accurate way of determining a home’s value, so buyers who skip it run the risk of overpaying for the home.
To qualify for an appraisal waiver, buyers need to take out a home loan with lenders that use the automated underwriting systems run by Fannie Mae (known as Desktop Originator) or Freddie Mac (known as Loan Prospector) . The good news is that most lenders use these systems. Waivers can only be granted for purchases of single-unit first or second homes and condos, with limited cash-out refinancing options. Buyers must have a strong credit score and be purchasing or refinancing a one-unit property, such as a single-family home or condominium.
The eligibility requirements for an appraisal waiver may vary depending on the lender, so its best to ask your individual lender. Many lenders won’t allow appraisal waivers because they don’t want to loan you more mortgage dollars than what the home you are buying is worth. The odds of gaining an appraisal waiver are higher if you are buying in a neighborhood in which there have been several other recent sales, giving your lender comps that they can study to make sure they aren’t loaning too much.
An appraisal waiver can mean that the inspection is waived in certain situations, usually only if the property is relatively new and considered to be in good condition. Whether waiving an appraisal is a good idea depends on several factors. Waiving the appraisal can make your offer more attractive in competitive markets, increasing the chances of winning a bidding war. However, it also involves risks like overpaying for the property or being unaware of any issues with the property that a professional appraisal could identify.
