More homeowners and homebuyers can hope for appraisal-free transactions as Fannie Mae’s property inspection waiver is in full swing. Approvals on conventional loans with no appraisal are expected to climb, reducing the costs and time it takes to get a mortgage.
An appraisal is a staple in any refinance or purchase transaction. Lenders normally require it to ensure the home’s value as collateral for the loan and to keep under maximum allowable loan limits per the mortgage program guidelines.
Appraisal documentation standards and time needed to complete the report have increased. It’s no surprise that appraisal costs have increased too. $700 is not an uncommon cost even in major metro areas. Higher costs, slower appraisal turn times and subjective appraisal risk score ratings can all impede the chances of a timely closing, or worse, prevent a transaction from happening. Appraisal issues only add greater costs and pain to getting the mortgage closed.
In October 2016, Fannie Mae introduced an offer to waive home appraisals to reduce time and money involved in the mortgage process. The PIW was widely adopted as part of Desktop Underwriter® or DU®’s December release.
Fannie Mae’s latest DU® Version 10.1 that was launched on the weekend of July 29, continued to carry this feature of waiving appraisals on certain refinance transactions. From there, the property inspection waiver only gets better.
Last August 19, 2017, Fannie Mae introduced an update to DU® 10.1 to allow certain purchase transactions to become eligible for appraisal waivers. With refinance and purchase mortgages possibly being exempt from appraisals, consumers can count on a faster, cost-effective mortgage process.
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The Enhanced Property Inspection Waiver
The PIW is an option to waive the appraisal requirement on certain loan files. DU® will issue this PIW offer, relying on Fannie Mae’s database of more than 26 million appraisal reports and its Collateral Underwriter™ that will evaluate the property valuation aspects of loans for delivery to Fannie Mae.
Eligibility for PIW Offer
“In response to market drivers, we updated PIWs (effective August 19, 2017) to allow our lenders to offer their borrowers a choice for efficiency and cost savings by foregoing an appraisal on some lower-LTV purchase transactions,” Fannie Mae said in its frequently asked questions on PIW.
The following factors must be present for DU® to consider offering a PIW:
1. One-unit properties such as condominium units
2. Limited cash-out refinances:
- primary residences and second homes up to 90% loan-to-value/combined loan-to-value (LTV/CLTV)
- investment properties up to 75% LTV/CLTV
3. Cash-out refinances:
- principal residences up to 70% LTV/CLTV
- second homes and investment properties up to 60% LTV/CLTV
4. Purchase transactions:
- Principal residences and second homes up to 80% LTV/CLTV
5. Loan casefiles that receive “Approve/Eligible” recommendation.
Prior appraisal requirements must be met to be considered for a PIW. For refinances, a prior appraisal on the subject property must be found in CU™ and that this appraisal must be associated with one of the borrowers on the loan casefile.
DU® will compare the address of the subject property and property addresses in CU™’s database. If there’s a property address match, DU® will compare the names of the borrowers on the prior appraisal with that of the loan casefile at hand.
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When there’s a borrower name match, Desktop Underwriter® will use the information found on the prior appraisal to determine if the loan is eligible for the PIW.
For purchase transactions, Fannie Mae does not require for the prior appraisal to be associated with one of the borrowers. All other prior appraisal requirements apply.
Transactions Ineligible for PIW
Fannie Mae notes that majority of loan transactions will not receive a PIW offer — meaning they still need an appraisal by an independent, licensed appraiser to assess the property’s value.
Properties in a disaster-impacted area, two-to-four-unit properties, loans whose underlying property is valued at $1M or more, HomeStyle® mortgages, Texas 50(a)6 loans, and loans that receive an “Ineligible” recommendation in DU® are some of the mortgages not qualified for a property inspection waiver.
Other than the specific loan product or term, Desktop Underwriter® may not issue a PIW offer if a Doc File ID is provided instead of a complete property address, or when an appraisal is obtained by the lender within the prior 120 days as specified by Fannie Mae.
As a mortgage borrower, you really need not do anything to get a property inspection waiver. It’s up to DU® to decide and for the lender to exercise the offer. But what this waiver can bring to the table is a speedier loan process. For refinances where appraisals are a sticking point, getting rid of the appraisal makes qualifying so much easier.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.