Even If You’re Eligible to Waive the Appraisal, Should You?

If you’re involved in a low-risk homebuying transaction, you may be eligible to waive your appraisal. But when you’re investing hundreds of thousands of dollars in a home, knowing all you can about appraisals may help you to determine if it’s worth not doing an appraisal even if you save a few hundred dollars.

What is an appraisal?
An appraisal is an unbiased professional opinion of a home’s value, performed by a trained and licensed professional appraiser. Before lenders approve a new mortgage for the purchase or refinancing of your home, they contract with a professional real estate appraiser to determine the market value of the home. The appraiser’s opinion of market value, as presented in the appraisal report, helps to determine the maximum allowable loan amount.

What is the purpose of the appraisal?
Lenders want to protect their investments in case borrowers default on loans. Lenders often require you to have at least 20 percent equity in your home before they’ll loan you money. Why? The more equity you have, the lower your monthly payment, and the better the bank’s chances of selling your home in the event of a foreclosure, for at least the outstanding debt amount. The bank may not make a lot of money, but they hope they won’t lose either.

For homebuyers, the equity comes from your cash down payment. If you don’t have 20 percent to put down, there are down payment assistance programs available to help you qualify for the loan. If you’re refinancing, the 20 percent equity is the difference between the loan you are seeking and the appraised value of your property.

Is an appraisal always required?
In some cases, new Fannie Mae and Freddie Mac programs allow the appraisal to be skipped or “waived.” Additionally, some FHA and VA loan programs have a “Streamline” process that allow skipping the appraisal requirement.

What does it mean to waive the appraisal?
Some loan applications, including mortgages purchased by Fannie Mae and Freddie Mac, are run through an automated loan approval system that tells the lender the minimum appraisal number required to support the requested loan. Sometimes, the system accepts the borrower’s loan application without the need for an appraisal.

This means the lender accepts the sale price, or the estimated home value, as the actual value of the property. Usually, only strong borrowers with significant equity achieve an appraisal waiver.

Are there other situations in which an appraisal might be waived?
The Department of Housing and Urban Development and the Department of Veterans Affairs offer streamline refinance programs that do not require an appraisal. The programs are designed for eligible homeowners wanting to refinance a mortgage loan already insured by the Federal Housing Administration or the Department of Veterans Affairs.

To qualify for the appraisal waiver, the borrower must have made previous payments on time and the refinance must result in a lower monthly payment.

What is the benefit of skipping the appraisal?
Skipping or waiving the appraisal saves the cost of the appraisal fee, which can be from $450 to $600. It also saves the time involved in obtaining the appraisal report, which can be from seven to 20 days in most cases.

Why would I want an appraisal anyway?
You may want to move forward with an appraisal to confirm that you’re not paying too much for the property or that the bank has the correct valuation. For example, if you think your home is worth more than the lender says it’s worth, and an appraisal confirms this, you may be able to access more financing products with different or preferential terms. Knowing your options may save you in the long run.

There’s a lot to consider when you’re buying a home or refinancing. A home is one of the biggest purchases you’ll ever make. Don’t be hasty in your decisions. Always consult with your real estate agent before making the decision to skip the appraisal.