What are Appraisal Waivers?

An appraisal waiver is a provision in a mortgage loan agreement that allows the lender to forgo the process of having an independent appraiser assess the value of the property being used as collateral for the loan. Instead, the lender will use their own internal processes and systems to determine the value of the property. This can be beneficial for both the lender and the borrower, as it can speed up the loan process and save the borrower money on the cost of the appraisal. 

However, there may be some risk involved for the lender as they will be relying on their own internal processes and systems to determine the value of the property, which may not be as accurate as an independent appraisal.

How to Get an Appraisal Waiver

To get an appraisal waiver, the borrower would need to apply for a mortgage loan that offers this option. Not all lenders offer appraisal waivers, so shop around and find a lender that does. When applying for a loan, the borrower should ask the lender if they offer appraisal waivers and what the requirements are. Generally, lenders will only offer appraisal waivers to borrowers who meet certain criteria, such as having a high credit score or a large down payment.

Additionally, the loan must also meet certain requirements such as being a Conventional, Fannie Mae or Freddie Mac eligible loan and being a Purchase or a Refinance with a loan-to-value ratio of 80% or less.

The lender will also typically require that the borrower provide additional documentation, such as proof of income and assets, to verify that they meet the requirements for an appraisal waiver.

In some cases, if the lender does not offer an appraisal waiver but the property is considered a low-value property, an Automated Valuation Model (AVM) can be used instead of a full appraisal.

It’s important to note that even if a lender offers an appraisal waiver, the borrower should still consider getting an independent appraisal done, to ensure that the value of the property being used as collateral is accurately reflected. Also, an appraisal waiver may not be available in certain geographic areas, or in certain situations such as refinancing, cash-out refinance or second homes.

The Appraisal Waiver Process

An appraisal waiver process is a way for a lender to waive the requirement for a property appraisal when refinancing or purchasing a home. In this process, the lender uses alternative means to determine the value of the property, such as a previous appraisal, an automated valuation model, or other data sources.

The process begins when the borrower expresses interest in obtaining an appraisal waiver. The lender will then review the borrower’s application and determine if an appraisal waiver is possible based on their guidelines and the available data on the property.

If the lender is able to approve an appraisal waiver, they will inform the borrower and proceed with the loan process without requiring an appraisal. If the lender is unable to approve an appraisal waiver, they will inform the borrower that an appraisal is required and will arrange for an appraiser to inspect the property.

Can you Waive an Appraisal on a Conventional Loan?

Yes, it is possible to waive an appraisal on a conventional loan, but it is not guaranteed and it depends on the lender and the specific loan program. Some conventional loan programs, such as those offered by Fannie Mae and Freddie Mac, allow for appraisal waivers under certain circumstances. To be eligible for an appraisal waiver, the borrower usually needs to meet certain criteria such as having a high credit score, a low loan-to-value ratio, and a strong financial history. Additionally, the property must be considered a low-risk property, such as a single-family home, and have a recent sales history.

It’s always best to check with the lender about the specific terms and requirements for getting an appraisal waiver on a conventional loan before applying for a mortgage.

Can you Waive an Appraisal on a Refinance?

It is possible to get an appraisal waiver for a refinance, but it depends on the lender and the specific loan program. Some refinance loan programs, such as those offered by Fannie Mae and Freddie Mac, allow for appraisal waivers under certain circumstances. However, it’s less common to find appraisal waivers for refinance loans than for purchase loans. In general, refinance loans have more strict requirements and a higher bar to clear to get an appraisal waiver.

Are Appraisal Waivers Good or Bad?

Appraisal waivers can be beneficial for both borrowers and lenders in certain situations. For borrowers, an appraisal waiver can save them money on the cost of the appraisal, and can also speed up the loan process. For lenders, appraisal waivers can save them time and resources, and can also make the loan process more efficient.

However, there are also potential downsides to appraisal waivers. One of the main risks for the lender is that they will be relying on their own internal processes and systems to determine the value of the property, which may not be as accurate as an independent appraisal. This can lead to a potential undervaluation of the property, which could lead to losses for the lender if the borrower defaults on the loan.

For borrowers, an appraisal waiver may also be a problem if the property is overvalued by the lender, as the borrower may end up paying more for the property than it is actually worth.

Overall, the decision whether to take an appraisal waiver or not should be based on the specific case, the lender’s reputation, the market conditions and the borrower’s own research. You should consider the potential risks and benefits, and weigh them against each other before making a decision.