There are a few processes that are typically carried out during a home sale, but may be waived in certain situations depending on the needs of both buyers and sellers. A good example here is the home appraisal, or third party valuation of the home -- this is almost always part of the home purchase process, but there may be some unique situations where the appraisal is actually waived.
At Integrity First Lending, we're happy to assist with a wide variety of mortgage loan and related services, including those for first-time homebuyers who haven't been through this process before. What is an appraisal waiver, why might it be considered, and what are the risks involved here? Let's take a look.
Appraisal Waiver Basics
As the name indicates, an appraisal waiver is simply an agreement between buyer and seller to forgo the appraiser's valuation of the home. In cases where the sale price is already agreed upon, and both parties are confident in that number, this can save time and money.
The appraisal process itself can take a week or more, and costs around $400-$500 -- so it's not a small expense, especially if you're also paying for other inspections and repairs as part of the home buying process. In cases where everyone is confident in the sale price, an appraisal waiver can streamline things considerably.
Appraisal Waiver Eligibility
It's important to note that not all buyers, sellers and even properties are qualified for appraisal waivers. Borrowers, for instance, must have strong credit scores and a solid history of making on-time payments in order to qualify. Additionally, the property must be a single-family home that isn't considered "high risk" -- so things like investment properties or vacation homes may not qualify.
And finally, there are some loan types that simply don't allow for appraisal waivers no matter what. For instance, FHA loans almost always require an appraisal, as do loans involving certain types of down payment assistance.
Risks Of Appraisal Waivers
While appraisal waivers can save time and money in the right situation, it's important to be aware of the risks involved as well. In some cases, properties may sell for far less than anticipated, leaving the buyer on the hook for any difference between the agreed-upon price and the actual appraised value.
Additionally, there's always the possibility that a property has hidden damage or other issues that an appraisal would have uncovered -- but without one, these risks are simply unknown. For this reason, it's almost always recommended that buyers get some form of home inspection even if an appraisal is waived.
Whether or not an appraisal waiver makes sense for your situation depends on a number of factors, but our team at Integrity First Lending can help you weigh the pros and cons and make the best decision for your needs. Contact us today to learn more!
FAQs
As the name indicates, an appraisal waiver is simply an agreement between buyer and seller to forgo the appraiser's valuation of the home. In cases where the sale price is already agreed upon, and both parties are confident in that number, this can save time and money.
How do you explain an appraisal waiver? ›
Appraisal waivers allow buyers who meet certain qualifications to skip the appraisal process when buying a home. For these qualified buyers, instead of requiring a professional in-person appraisal, the lender will typically rely on automated underwriting systems to determine the value of the home.
Can an appraisal waiver be used with an FHA loan? ›
FHA purchase.
Unlike conventional purchase loans, there is no appraisal waiver option if you buy a home with an FHA loan.
For which property would a lender be most likely to offer an appraisal waiver? ›
An appropriate loan-to-value (LTV) ratio: The LTV ratio compares the size of your mortgage to the value of your home. You're more likely to qualify for an appraisal waiver if your loan-to-value ratio is no higher than 80%. A larger down payment: The larger your down payment, the lower your loan-to-value ratio will be.
Is it hard to pass FHA inspection? ›
Is It Hard to Pass a FHA Inspection? As long as the property meets the 3 minimum standards set by the HUD, it shouldn't be hard to pass a FHA inspection. To increase the property's chances of passing, prepare for the FHA inspection in advance. Check the property for hazards, broken systems or parts, and quality issues.
How risky is waiving appraisal? ›
But while waiving the gap may give buyers a leg up in a competitive bidding situation, it also shifts a tremendous amount of risk onto them since they can lose their deposit if they lack sufficient funds to make up the difference.
Is appraisal waiver a good idea? ›
Pros of Waiving an Appraisal: Saves Time: Skipping the appraisal process can significantly expedite the loan approval and closing time. Appraisals typically take a few weeks to complete, and waiving it can cut down on unnecessary delays, which is especially advantageous in competitive real estate markets.
Why would a buyer waive an appraisal? ›
An appraisal waiver will save buyers money. The costs of these home appraisal in-person visits vary, but they typically can run anywhere from $600 – $2,000. You could have a quicker closing. An appraisal waiver can also reduce the amount of time it takes to close on a home.
What would cause a house to fail an FHA inspection? ›
The overall structure of the property must be in good enough condition to keep its occupants safe. This means severe structural damage, leakage, dampness, decay or termite damage can cause the property to fail inspection. In such a case, repairs must be made in order for the FHA loan to move forward.
What negatively affects home appraisal? ›
Updating appliances or any major systems, like plumbing, electrical or HVAC, can be costly. If yours are outdated, it could affect the overall value of the home. If the interior hasn't been changed for decades, it may not appeal to buyers, which can also cause the value to decrease.
However, it's important that nothing changes within your financial profile after you apply for a loan. For example, if you miss a credit card payment, apply for a new car loan, or face income inaccuracies, you could lose your Property Inspection Waiver.
Is value acceptance the same as appraisal waiver? ›
Value acceptance (formerly, appraisal waiver) uses data and technology to accept the lender-provided value, allowing lenders to deliver loans for certain eligible transactions to Fannie Mae without an appraisal.
How does Fannie Mae determine appraisal waiver? ›
For value acceptance (appraisal waiver) to be considered, generally a prior appraisal must be found for the subject property in Fannie Mae's Collateral Underwriter (CU) data. When required, DU will compare the address for the subject property to the property addresses found in CU.
Do appraisers turn on faucets? ›
Water pressure must be adequate for the house. Appraisers flush toilets, turn on all faucets and ensure that both hot and cold water are working.
What will be flagged in an FHA appraisal? ›
They check for the structures quality, the interior and exterior condition, the state of fixtures and systems and the condition of the lot. Market research: Appraisers research selling prices for comparable homes by reviewing homes that closed in the same general area and typically closed during the past six months.
How long does the FHA appraisal process take? ›
The appraiser will spend anywhere from 45 minutes to several hours evaluating a home. Once the appraisal has taken place, the report is usually complete within 7 to 10 business days.
Why would a seller waive the appraisal? ›
Waiving an appraisal contingency may also be a tactic that helps you stand out in a competitive seller's market. Waiving the contingency would eliminate a seller's fear of a deal falling through over an appraisal that's lower than the negotiated price. You should also know that this tactic is a big risk.
Why would you want an appraisal waiver? ›
An appraisal waiver will save buyers money. The costs of these home appraisal in-person visits vary, but they typically can run anywhere from $600 – $2,000. You could have a quicker closing. An appraisal waiver can also reduce the amount of time it takes to close on a home.
Why would a lender waive an appraisal? ›
The upshot of this scenario is the lender takes on less risk when they provide a mortgage loan matching the home value. In other words, a lender will waive the appraisal if they have solid evidence that the home value matches the loan they are willing to give.
