Don't risk your investment with a Property Inspection Waiver

If you're buying or refinancing a home, your lender may give you the option to use a Property Inspection Waiver (PIW) on your loan application. The PIW program, initiated by Fannie Mae in 2017, allows you to move forward with your mortgage without requiring 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?

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How do Property Inspection Waivers work?

Essentially, your lender establishes what your property is worth. They determine the value automatically on a computer, employing an online database from Fannie Mae in lieu of hiring a local appraiser to inspect the property you're getting ready to buy. So, rather than a firsthand evaluation, lenders rely solely on computer algorithms to sort through an array of previously collected data.

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Who is eligible for a PIW?

The program is limited currently, but it's expanding regularly to include more types of transactions. Your home 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. What's more, you're required to have an excellent credit score and high assets to be approved.

Why do lenders use Property Inspection Waivers?

The waiver omits appraisal fees, and it can substantially pare down closing time for buyers. Outwardly, this process sounds like a good deal — but there's a bottom line you'll want to recognize. With a PIW, your lender is NOT held liable if the valuation is wrong. That's an added bonus for lenders, but a disadvantage to the home buyer.

What could happen if I agree to a Property Inspection Waiver?

The information in Fannie Mae's database is pulled from previous appraisals completed by professional appraisers. it might be accurate to a degree, but it won't necessarily be an up-to-date assessment of the quality of a building that's constantly changing. Without a professional appraisal of your home, recent improvements and/or damages can certainly be left out by the system.

Due to these shortcomings, it's easy to imagine a scenario where your home is valued too high by the system assessing it. If that happens, you could run into issues when it's time to sell. You may not be able to get what you paid for it, and you'll have no recourse against your lender when the money starts adding up.

What is the bottom line?

A definitive appraisal typically costs a few hundred dollars, but it could save you a lot more in the long run. With a PIW, there's no guarantee you're receiving an honest valuation of a premium asset.

Fowler Appraisal Service can help.

Buying or refinancing a house is a big decision with grand consequences. You need to know with certainty that you're receiving a fair deal, and working with a licensed appraiser is the safest action you can take. Computers and algorithms are in nearly every area of modern life, but when it comes to measuring the value of your property, nothing is more accurate than the careful assessment of a licensed professional you trust.