Appraisal Waiver Explained: How It Works, Who Qualifies, and Pros & Cons

Buying or refinancing a home is a difficult and complicated process with several steps, and appraisal is one of the critical steps that can considerably impact the process. The common practice is that lenders hire a professional appraiser to evaluate and determine a property’s market value before approving a mortgage.

However, in some situations, the lender can offer a waiver of appraisal which can significantly relieve the buyer of this complex process.

An appraisal waiver allows borrowers to skip traditional home appraisals, saving them time and money. But how do these waivers work, who qualifies for them, and what are the pros and cons? This guide will explain everything in an easy-to-understand way.

What Is an Appraisal Waiver?

An appraisal waiver is a lender’s decision to drop the standard process of property appraisal while financing a mortgage loan. But how is the property appraised now? The lender has another method: The lender relies on other data sources, such as automated valuation models (AVMs), previous appraisal data, and public records, to estimate the property’s worth.

In this way, the borrower manages to save both time and money by not hiring a professional appraiser and going through the lengthy process.

In the mortgage industry, appraisal waivers are usually issued by two major government-sponsored enterprises:

• Fannie Mae

• Freddie Mac

The reason is that these enterprises have advanced automated underwriting systems (AUS) to analyze vast amounts of data and assess the risk of a loan.  Still, the waivers are issued where the risk is low and the lender has confidence in the estimated property value.

How Does an Appraisal Waiver Work?

The matter of appraisal waiver begins when you apply for a mortgage. Your lender enters your data such as financial information, property details, into your loan application through an automated underwriting system, such as Fannie Mae’s Desktop Underwriter (DU) or Freddie Mac’s Loan Product Advisor (LPA).

Then the system assesses the risk associated with the loan based on factors like the borrower’s credit score, the loan-to-value(LTV) ratio, and the history of the property. If your application meets all the requirements, you may receive an appraisal waiver.

If the lender gains confidence in the AUS estimated value of the property, then they will not go for a physical appraisal by a professional appraiser.

Who Qualifies for an Appraisal Waiver?

Not everyone is eligible for an appraisal waiver. To qualify, you generally need to meet certain criteria:

1. Loan Type

Except for FHA, VA, or USDA loans, appraisal waivers can be available for conventional loans like Fannie Mae and Freddie Mac offer these waivers for eligible purchases and refinances.

2. Loan-to-Value (LTV) Ratio

You can raise the chance of your property to qualify for appraisal waiver by increasing the low loan-to-value ratio. One way to do this is by making a significant down payment (typically 20% or more).

3. Property Type

Single-family homes and condos (excluding new construction) are more favorable to qualify for waivers while Multi-family properties and investment properties are less likely to be eligible.

4. Loan Purpose

Lenders prefer Refinances and home purchases more for waiver while cash-out refinances and high-risk loans, such as jumbo loans, have strict criteria to be eligible.

5. Previous Appraisal Data Availability

Provide the property’s previous appraisal data to the lender. Lender’s decision whether to grant a waiver or not partially depends on this data.

Appraisal Waiver Pros and Cons

Pros

Here are the main benefits of appraisal waiver:

1. Saves Time

Appraisal waiver can save you several days or weeks by eliminating that long process.

2. Reduces Costs

Appraisal waiver can save you professional appraisal cost which ranges from $300 and $600.

3. Avoids Appraisal Delays

In high-demand real estate markets, appraisers can be difficult to obtain and therefore, delay the process. An appraisal waiver eliminates this issue.

4. Removes the Risk of Low Appraisals

There’s a risk that professional appraisers sometimes value a home lower than expected, which affects the loan terms and may cause the deal to break. An appraisal waiver removes this risk.

5. Simplifies the Refinancing Process

An appraisal waiver simplifies the refinancing process of a mortgage for homeowners by making the process quick, smooth, and reducing paperwork.

Cons

Here’s what to consider regarding appraisal waiver:

1. Inaccurate Property Valuation

As automated systems rely on past data, valuation might not match with current market conditions. In such a scenario, appraisal could be either overvalued or undervalued.

2. Limited Availability

One of the issues with appraisal waiver is that your property might not qualify for waiver. If your home is unique, newly constructed, or in a volatile market, you may not receive a waiver.

3. Higher Risk for Lenders

As automated systems can overestimate property so there’s more risk for lenders to take.  This could impact mortgage approval rates.

4. Issues in Volatile Markets

In volatile markets, home values keep changing. So, if a buyer pays more than the real market value, they might end up overpaying for the property.

How to Request an Appraisal Waiver

If you’re interested in securing an appraisal waiver, follow these steps:

Step 1: Work with a Lender That Supports Waivers

Though not all lenders choose appraisal waivers, you can choose a lender that offers a waiver. Such lenders are usually those who work with Fannie Mae and Freddie Mac.

Step 2: Provide Accurate Financial and Property Information

Ensure your loan application contains complete and accurate information and includes details about your credit score, income, and down payment.

Step 3: Check If Your Loan Qualifies

Your lender will submit your application through an automated underwriting system to determine eligibility.

Step 4: Review Your Options

If you won appraisal waiver, you have a choice whether to accept it or opt for a traditional appraisal.

Should You Accept an Appraisal Waiver?

Accept

If the property you’re buying is a well-established home in a stable market. Or the down payment is 20% or more. And you don’t have enough time for the traditional appraisal process, and you can take the risk of inaccuracy of automated systems.

Not Accept

If the property you’re buying is unique, newly constructed, or in a volatile market. You can also not accept appraisal waiver if you think the valuation is not right, and can go for the traditional appraisal process.

The Bottom Line: An Appraisal Waiver Saves Time and Money, But Weigh the Risks

An appraisal waiver can be a helpful tool for buyers & homeowners. Its role is to make the mortgage process faster and save money. But, it’s also wise to examine whether waivers would truly benefit you or not.

Waivers take away appraisal fees & hold-ups, but they also have some risks. These risks are about how accurate the property value is.

If you are thinking about an appraisal waiver, talk with your lender. See if it matches your financial situation & real estate goals. Choosing wisely will help you get the best deal while reducing possible risks.

Waive Appraisal: FAQs

Can a Tenant Refuse an Appraisal?

No, a tenant doesn’t have legal power to refuse an appraisal if the property owner or landlord has authorized it. As the appraisal is usually requested by either the lender or the property owner, and tenants do not have the legal authority to prevent it. However, tenants have the right to receive a proper notice before an appraiser enters the property, as per local laws and lease agreements

What Is a 3-Day Appraisal Waiver?

A 3-day waiver of appraisal is about the waiver of the requirement to provide the borrower with a copy of the appraisal report at least three days before closing. This waiver is generally provided when the lender determines that the appraisal is unnecessary for the loan decision, or when the borrower wants the report in advance.

Should I Waive the 3-Day Appraisal Delivery Disclosure?

If you’re waiving the 3-day appraisal delivery disclosure it means you are waiving your opportunity to receive the appraisal report three business days before closing. Though this decision will save time by wrapping up the process, you will also not be able to review the appraisal report in advance. If you’re confident in the property’s value and your lender’s assessment, waiving this requirement is a good idea.

Why Would a Lender Waive an Appraisal?

A lender may waive an appraisal if the loan is low-risk and they think that the property’s value assessed by automated valuation models (AVMs) is correct. This usually happens in the case of refinancing transactions, loans with low loan-to-value (LTV) ratios, or properties located in areas with sufficient sales data.

What Is an Appraisal Waiver Form?

An appraisal waiver form is a document that lenders sign from borrowers to confirm their agreement to drop the traditional appraisal process. For that purpose, this form outlines the benefits and risks of waiving so that the borrower takes an informed decision.