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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 application. The program, started by Fannie Mae in 2017, allows you to move forward with your mortgage without an appraisal at all. It's a newer concept, and some lenders love it. But what prompted it, and what risks are associated?

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How do Property Inspection Waivers work?

Essentially, your lender determines what your property is worth. They determine its value systematically on a computer, employing a database from Fannie Mae rather than hiring a local appraiser to personally inspect the home you're getting ready to buy. So, rather than a hands-on evaluation, lenders rely on computer processes to sort through a trove of previously collected information.

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Who is qualified for a PIW?

The program's limited currently, but it is including more transaction types regularly. Your home needs to have records in Fannie Mae's electronic database, so homes that have never been appraised are not eligible for a Property Inspection Waiver. What's more, you must have an excellent credit score and high assets to be approved.

Why do lenders use Property Inspection Waivers?

The waiver cancels out appraisal fees, and it can shorten closing time substantially for buyers. On the surface, this streamlined process seems like a good deal — but there's a key point you will want to consider. With a PIW, your lender is NOT liable if the valuation turns out to be wrong. That's great for lenders, but terrible for the buyer.

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 a degree, but it won't necessarily be a current assessment of the quality of a building that's constantly changing. Without a professional appraisal of your home, recent improvements, renovations, or damages can easily be missed by the system.

Because of these deficiencies, it's easy to imagine a situation where your property is valued too high by the system assessing it. If that happens, you could run into snags when it's time to list it for sale. You could wind up getting less than you paid, and you'll have no recourse against your lender when the money falls short.

What is the bottom line?

An accurate appraisal usually costs a few hundred dollars, but it can save you a great deal more in the long run. With a Property Inspection Waiver, there's no guarantee that you're getting an honest valuation of your most expensive asset.

Appraisal Evaluations, Inc. can help.

Buying or refinancing a house is a big decision with big consequences. You demand to know without a doubt that you're getting 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 examination of a licensed professional you trust.