When mortgage rates are compelling for borrowers, you might be considering finally buying a new home or refinancing your existing one. For both of these transactions, you can expect to have a home appraisal, though you may have been hearing more about appraisal waivers lately. Its name sounds straightforward, but it’s important to understand what an appraisal waiver involves and how it affects your mortgage.
To understand what an appraisal waiver is, it’s helpful to understand how regular appraisals work. When you’re trying to buy or refinance a home, an independent and unbiased appraiser will assess the property’s condition to estimate value. They will perform a thorough evaluation of the interior and exterior of the home to determine the home’s value based on their in-person findings and local real estate data. Your lender needs the appraisal to be completed before proceeding with the loan process in order to confirm your loan-to-value (LTV).
When you have an appraisal waiver, you’re able to move forward without having your property appraised. Instead of having someone survey your home, home value can be determined using proprietary software from Fannie Mae and Freddie Mac. It is important to note that appraisal waivers are only available for conventional financing. One plus of getting a waiver is being able to save money. An average home appraisal can cost between $450 and $500, depending on factors such as the home’s size and location. The appraisal fee falls on the buying or refinancing party, so not having to pay for this requirement will save you money that can be put towards a down payment. Another benefit to not having an appraisal is that the process moves faster because you don’t have to schedule an appointment and wait for the evaluator’s results.
Appraisal waivers are used for 30% of conventional mortgages and can also be used for refinances because there is an assumption that the homeowner knows their home’s condition and is financially stable. Due to the pandemic and accompanying safety measures, waivers have become more accessible for borrowers. Some purchases and loan programs may not require one, like single unit properties (including condos) and cash-out refinances up 70% LTV for primary residences. Waivers are not granted when it comes to construction loans, leasehold properties, Homestyle loans, or housing co-ops. Your lender may still require an appraisal if they feel one is needed. Additionally, you’re likely to need an appraisal if your LTV is above 80% or if your financial profile is less than stellar. The appraisal helps protect the lender, so you are more likely to get a waiver when your finances instill confidence. If you’re wondering if you’re eligible for an appraisal waiver, ask your lender if you meet the requirements.
It’s crucial to remember that having a waiver does not mean home value calculations are disregarded or not needed. The in-person component is being waived, not the evaluation itself. Even if physical appraisals aren’t possible, you can be assured that your best interests are being protected and you will have a better understanding of your situation.
If you have any questions about home appraisals or appraisal waivers, contact one of our licensed Mortgage Loan Originators. If you are ready to refinance or buy a home, click here to get started!