DANGER! Appraisal Waivers Can Disappear!
I recently blogged about the increasing occurrence of Appraisal Waivers.
If a particular property is already in Fannie Mae’s or Freddie Mac’s database, it could be eligible for an Appraisal Waiver, meaning no property inspection or appraisal will be required.
Some lenders are offering to check for possible appraisal waiver status for particular properties for both listing and selling agents.
They market this service as a tool that will enable buyers to waive appraisal contingencies; this of course makes listings more enticing and offers much stronger.
BUT – waiving an appraisal contingency based on an “appraisal waiver” finding is very dangerous because lenders often LOSE appraisal waivers.
This is because the waivers are not just based on the property address and whether or not the property is in the Fannie/Freddie database.
Appraisal waivers also rely on the strength of the borrower.
We have seen numerous appraisal waivers disappear with minor changes in assets, debt ratios, and loan-to-value ratios.
So yes, we LOVE appraisal waivers when we get them.
But, we would NEVER advise a client to waive her appraisal contingency because we received an “appraisal waiver” notice at the front end of the process.
WHEN SHOULD YOU WAIVE APPRAISAL CONTINGENCY
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 CAVEATS
- 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).
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167