An appraisal waiver allows a lender to close on a loan without the requirement for an appraisal. Fannie Mae calls them Property Inspection Waivers (PIW), and Freddie Mac calls them Automated Collateral Evaluation (ACE).
How do they work?
Lenders use a variety of automated approval systems; for Fannie Mae it’s Desktop Underwriter (DU), Freddie Mac it’s Loan Prospector (LP), FHA uses Total Expert, etc. Both Fannie Mae and Freddie Mac utilize a system that will automatically evaluate a property, and will compare the estimated value to previous appraised values of the subject property, home price trends in the immediate area, etc. If the system believes that the lender’s estimated value is a good representation of the actual value of the house, the results from the automated approval system will include a waiver for the need for an appraisal. At this point the value of the home will be established, and there is no need for a physical appraisal of the property.
What is the benefit?
Well, aside for the cost savings of not having to pay $400+ for an appraisal, appraisal waivers save a lot of time. It also gives the lender upfront confidence of the home’s value, without the need to wait for the appraised value. This prevents loan terms from potentially changing due to a lower than expected appraised value.
How do I get one?
They are automatic. There is nothing the lender can do to “request” one. Whenever a qualifying loan is run through either DU or LP, the system checks to see if an appraisal waiver is possible, and alerts the lender on the findings. Luckily, the process of submitting a loan through the automated approval systems takes less than a minute, generally.
What loans qualify?
Though at the moment loan guidelines are changing rapidly, the current general guidelines for appraisal waivers are as follows:
Purchase – 80% loan-to-value or less
No cash-out refi – 90% loan-to-value or less
Cash-out refi – 70% loan-to-value or less
The above guidelines are for primary homes. For second homes and investment properties, some of the allowable loan-to-value limits are lower. Ask your mortgage professional for specific guidelines based on your transaction.