Appraisal Waivers; Appraisal Contingency Waivers; & DANGER!
Many lenders are again touting “Appraisal Waivers” as something unique that only they offer.
Appraisal or “Property Inspection Waivers” are, however, available to every borrower obtaining a “conforming” loan (that conforms to Fannie Mae and Freddie Mac guidelines).
Fannie and Freddie simply use an algorithm that decides when to grant appraisal waivers.
If we get a property address prior to a buyer making an offer, we can quickly and easily check to see if there will be an appraisal waiver.
But, we think it is often far too risky to make offers without an appraisal contingency (when we get an appraisal waiver) because appraisal waivers sometimes disappear at the 11th hour – when income, asset levels or credit changes even marginally.
We have in fact seen appraisal waivers disappear numerous times now.
We think buyers should only waive appraisal contingencies if:
- There is an appraisal waiver and the buyers are very strong (great credit, low debt ratios, tons of assets) so the risk of losing the waiver is minimal.
- The buyer has ample cash to cover a potential appraisal shortfall (when there is no appraisal waiver).
- The buyer is making a very large down payment of 30% or more – so an appraisal shortfall will not affect the transaction.OR
- The buyer is willing to change financing structures to something much less favorable if the appraisal comes in low, e.g. changing 20% down conforming financing to 3.5% down FHA financing.
APPRAISAL WAIVER REQUIREMENTS
(I talked about these requirements in July of 2019 and it bears repeating.)
- No appraisal waiver will be granted unless a prior appraisal for the subject property can be found in Fannie’s and Freddie’s databases.
- The prior appraisal must have a “low CU” score (or no “overvaluation flag”), and it must be over 120 days old.
BORROWER REQUIREMENTS FOR APPRAISAL WAIVERS
- For refinancing borrowers to get an appraisal waiver, the borrower must be in the Fannie/Freddie databases. This is not the case for purchases.
- Purchases up to 80% LTV for most primary residences.
- Refinances up to 90% LTV, for most primary residences.
- Refinances up to 75% LTV for investment properties.
- Borrowers must be very clean and strong from an underwriting perspective before appraisal waivers are granted.
- Former appraisals and borrowers (for refinances) must be in Fannie/Freddie databases already (as mentioned above).
- THIS IS THE MAJOR ONE: Appraisal waivers sometimes disappear at the 11th hour if a borrower’s credit, asset levels or income changes. We have seen this happen numerous times now (also as mentioned above).
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Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167