Appraisal waiver guide: What it is, and how it works

A home appraisal helps protect buyers and lenders from risky mortgage loans. But the appraisal also costs money, and it takes a week or two to complete.

This added cost and extra closing time prompts some buyers to ask for appraisal waivers.

They won't work for all borrowers or for all homes, but when they're available, appraisal waivers can help close the loan faster and save money. 

What is an appraisal waiver?

An appraisal waiver lets lenders skip the traditional home valuation during the mortgage underwriting process.

Instead of requiring a licensed appraiser to visit the property and set its appraised value, the lender can estimate the property's value based on automated valuation models (AVMs) and existing property data.

How this differs from a traditional appraisal

Traditional appraisals require a licensed professional to visit the property, measure rooms, examine the home's condition, and compare the home to recently sold homes nearby.

This process costs anywhere from a few hundred dollars to $1,000 or more, depending on the size and condition of the real estate. The appraiser also needs time to schedule the appointment, visit the home, and write up an official appraisal report.

An appraisal waiver eliminates these steps completely. Instead, algorithms do a lot of this work. 

...in as little as 3 minutes – no credit impact

Why lenders may offer appraisal waivers

Lenders allow appraisal waivers to help qualified borrowers close loans faster. This level of efficiency can help buyers and lenders alike.

Not every property will qualify for a waiver, though.

A lot depends on:

Recent valuations

Lenders can see existing appraisal data in Fannie Mae and Freddie Mac databases. When real estate has been appraised within the past three to five years, perhaps during a recent refinance, the lender may not need another home appraisal.

This works best in stable markets where property values haven't shifted dramatically.

For example, if you refinanced your home two years ago, that appraisal data remains in the system. Your lender can use this appraised value instead of scheduling a new home appraisal, especially if market conditions haven't changed much.

Robust local data

Automated valuation models (AVMs) analyze a wide variety of property data to set home values. These models examine:

– Recent comparable sales in the neighborhood
– Property tax records
– Previous transaction history
– Local market trends

Suburban neighborhoods with similar property types and frequent sales generate a lot of data for AVMs to analyze. 

Rural properties or unique homes with limited comparable sales rarely qualify for appraisal waivers because there's not enough data in the system to generate a reliable appraisal. 

Why homebuyers want their appraisal waived

Homebuyers tend to like appraisal waivers because:

They avoid surprise appraisals that kill deals

Picture this scenario: You've agreed to pay $500,000 for your dream home, only to have the appraisal come in at $480,000. Now you face a tough choice. Should you renegotiate with the seller for a lower price? Bring an extra $20,000 to closing? Or walk away from the property entirely?

Your appraisal contingency would let you exit the contract. But while you're thinking it over, other buyers may be waiting to see whether your deal will fall apart so they can make their own offers.

A property inspection waiver (PIW) could eliminate this risk. Likewise, waivers avoid appraisals that come in higher than expected.

Waivers stretch closing funds further

Standard appraisals cost $300 to $600, money that could go toward moving expenses, immediate home repairs, or building your emergency fund after purchase.

Cash-strapped buyers, particularly, benefit from this savings. Every dollar counts when you're stretching to afford a home, and reducing the appraisal fee provides immediate relief on your closing statement.

Waivers keep timed transactions on track

Waiving the appraisal can shorten your closing timeline by up to two weeks. This can be attractive to sellers who tend to like buyers that move quickly. 

Of course, this also helps buyers close and move in faster. This can be especially helpful to buyers who are also selling another home and need to coordinate two closings. 

...in as little as 3 minutes – no credit impact

Who qualifies for an appraisal waiver

Appraisals help keep new loan balances below the value of the home. This reduces the risk buyers and lenders take on with a mortgage loan.

To qualify for an appraisal waiver, the risk of the loan must already be low. If the stability of the loan depends on the appraisal coming in above the purchase price, the property should be appraised.

So, what kind of loans are most likely to waive the appraisal? That answer depends on:

Loan-to-value (LTV) requirements

Loan-to-value ratio measures how much of a home's value is mortgaged. A loan of $150,000 on a home valued at $200,000, for instance, creates an LTV of 75 percent. That's a low LTV for a new home loan.

To waive an appraisal on a conventional loan, a lender will typically want to see LTVs below 80 percent. For refinances, LTVs as high as 90 percent may still qualify or an appraisal waiver. 

Government-backed loans from the FHA, VA, or USDA programs rarely offer appraisal waivers, regardless of LTV, for home purchases. However, these loan programs can refinance with no appraisal.

Refinance vs. purchase scenarios

Refinances qualify for waivers more often than home purchase loans.

With most rate-and-term refinances, for example, the lender already has recent appraisal data on file leftover from the purchase loan. The lender may not need a fresh appraisal. 

Cash-out refinances face stricter requirements. For these loans, borrowers remove home equity, increasing the LTV. The lender needs to make sure the property value can support the equity withdrawal. 

Credit score and property requirements

A FICO score of 680 or higher improves your chances of getting an appraisal waiver. Higher credit scores help because they decrease lender risk and put less emphasis on LTV. 

Borrowers who are getting a single-family home in an established neighborhood with plenty of comparable homes nearby are more likely to get appraisal waivers. Condominiums, multi-family properties, and unique or rural homes are more likely to need a full appraisal.

When full appraisals remain mandatory

Certain situations always require traditional appraisals:

– Properties with limited comparable sales data
– Homes with unusual features or architectural styles
– Properties in volatile or changing markets
– Jumbo loans exceeding conforming loan limits
– Construction loans and new builds
– Homes valued above $1 million

These homes almost always need in-person professional assessment regardless of other qualifying factors.

Appraisal waiver pros and cons

Should you accept an appraisal waiver when your lender offers one? Keep in mind appraisals also help protect buyers from taking on more debt than the home value can support.

Appraisal waiver advantages

– Speed: Close up to two weeks faster by eliminating appraisal scheduling and completion time.

– Savings: Paying less for the appraisal sets aside more cash for other closing expenses like discount points that can lower the mortgage rate.

– Lower stress: No need to worry whether a low appraisal will complicate your schedule.

– A competitive edge: Faster closings help buyers make stronger offers in hot markets where sellers prioritize quick closings.

Appraisal waiver disadvantages

– Risk of overpaying: Without independent valuation, you might pay more than the property is worth, especially in fast changing markets.

– Insurance complications: Your homeowners insurance policy is connected to the home's value. If the AVM misses unique property features or recent improvements, the insurance policy may not include the right coverage. 

– Lost negotiation tool: Without an appraisal you lose the appraisal contingency that's typically built into the purchase contract. This contingency allows a way out of the contract if the home value doesn't support the purchase price.

When to accept a waiver

Consider accepting an appraisal waiver when you're:

– Buying a home in data-rich neighborhoods with recent comparable sales,
– Competing with other buyers in hot markets where speed determines success,
– Buying or refinancing a property with recent appraisals already on file,

When to decline a waiver

Request a full appraisal for:

– A unique property with limited comparable sales
Homes in volatile or unfamiliar markets
– A home whose purchase price seems unnecessarily high
– If you're not sure about property values or market conditions, the cost of an appraisal often provides valuable peace of mind.

FAQs about appraisal waivers

Can I qualify for an appraisal waiver?

Qualification for an appraisal waiver depends on factors such as loan-to-value ratio, credit score, and property type. Generally, borrowers with lower LTV ratios (usually below 80 percent for purchases), strong credit scores (680+), and properties in established neighborhoods with ample comparable sales data are more likely to qualify.

Are there any risks associated with waiving an appraisal?

Yes, there are potential risks to waiving an appraisal. Most notably, skipping the appraisal removes a layer of human oversight that can protect buyers from paying too much for a property. 

When should a buyer consider declining an appraisal waiver?

Buyers should consider declining an appraisal waiver if they're concerned about the property value in relation to the purchase price. This often happens when the property has unique features, when there aren't many comparable sales in the area. A traditional appraisal can provide more accurate and detailed information about a property's value.

What is a property inspection waiver (PIW)?

A property inspection waiver (PIW) is Fannie Mae's specific term for its appraisal waiver program. Freddie Mac offers a similar option called an Automated Collateral Evaluation (ACE). Despite the name "property inspection waiver," PIWs don't eliminate home inspections. Inspections are separate from appraisals. They uncover details about your home's physical condition beyond what affects its market value.

To waive or not to waive? Your needs should guide your answer

Waiving the appraisal can save time and money during the closing process. For some buyers and refinancers, this matters a lot.

But most home buyers need a full appraisal to make sure the new loan matches the home value. The appraisal creates an important safety net to make sure mortgage payments can start building equity as soon as possible.

Fortunately for these buyers, there are other ways to speed up the homebuying process while saving money. For example, Better Mortgage's AI-driven loan process can help buyers close their loans faster than they would with many traditional lenders.

Try out the process with a pre-approval which requires only a soft credit check which won't affect your credit score.

...in as little as 3 minutes – no credit impact