Are you about to buy or refinance your house or investment property, and you do not want to pay or go through the trouble of an appraisal? There is such a thing as an appraisal waiver; it’s also called a PIW (Property Inspection Waiver). How do you get one?
We will go over all the things you need to know about appraisal waivers, including the things you can do to stack the deck in your favor. We’ll also be discussing many things that loan officers are not even aware of. So follow closely as you can share some of these things with your loan officer to get them to push for that appraisal on your behalf.
To be candid, I’m not a fan of appraisals. I’m not too fond of the appraisal process. If I had to say, in a word, my least favorite part of the whole mortgage industry, it would be appraisals.
There are no two ways to get an appraiser to see a house the same way. It’s an opinion of value. Appraisals are an art, not a science. It’s not like appraisers have a check box for everything they have to look for. Everything is an opinion of value. You might see two appraisals of a house and they do not look the same. An appraiser might value the house at 700 while the next appraiser values it at 825 within the same week; it’s a process subjective to the appraiser. If they’re in a bad mood, they can mark it wrong. If you’re rude to the appraiser, they can screw you. It’s a very fragile process.
Another reason why I do not like appraisals is that they have gotten expensive. Appraisals used to cost $500 – $600, depending on what part of the country you’re in, sometimes a little less. However, after COVID started and everybody started refinancing, there were too many demands for appraisers, so they raised their prices. Now, I’ve seen appraisals, not uncommon to be $1,000+. It’s like lawyer costs.
Again, If you want to get the absolute best rate on your refinances or purchase for your home or investment property, you deserve to educate yourself. As I always say, as the third or fourth loan officer that people talk to, I still get them the best rate. This is because many people do not know anything about mortgages, and they let other lenders and loan officers price-gouge them. People are not aware of how much they can save by learning a little bit more about the mortgage process.
How are Appraisal Waivers Considered?
Appraisal waivers are done with software. When you apply for a conventional loan, you’re applying for the loan to be eventually bought by one of two GSEs (Government-Sponsored Entities). This can be either Fannie Mae or Freddie Mac. So what happens when you have a mortgage loan is that you have a note on your house. The lender then usually sells that note to another investment group and it eventually gets bought by a government-sponsored entity, either Fannie Mae or Freddie Mac.
For the loan to be bought seamlessly by one of these two GSEs, it has to check all the boxes that that specific entity requires. Bear in mind that they have different rules. Freddie Mac has different rules from those of Fannie Mae.
Now, what lenders is to train their underwriters when they get your loan application, credit report, and supporting documentation to ensure that your loan qualifies under the Freddie Mac or Fannie Mae product guidelines. These guidelines ask questions like: what’s the loan to value? What’s the debt to income ratio? How many years of employment do you have? Sometimes you need cash reserves or financial reserves for a particular loan. They check everything, ranging from your bank statements, pay stubs, W2s or taxes if you’re self-employed, all so that they can get it sold.
The first step to getting a loan approved with either of these entities is to run it through an automated Underwriting system, called an AAUS for short. Each of these entities has theirs. Fannie Mae has one called Desktop Underwriter, also known as DU. Freddie Mac has one called Loan Product Advisor (LPA).
These software systems take your loan application and credit report that your lender or mortgage broker has run and collected from you, put it together in a file, and spit it into their respective automated underwriting systems (DU or LPA). The software reads all the data; it sees the debt to income. It sees what the loan to value is. It sees how much you say the house is worth because you have to put an assigned value on the house. We usually get these values from you, Zillow, or a look at the comparative market. So the software looks at these things and it makes a ruling. Do you get a PIW or an appraisal waiver? Again, a person cannot decide if you get an appraisal waiver; it’s the software. So don’t beg your loan officer or say that a particular lender gave me an appraisal waiver.
However, the truth is if one lender or loan broker can get it, they all can get it. It’s only a question of how they structure your loan. So there are a few things that you can do to try and get an appraisal waiver.
Things to avoid when trying to get an Appraisal Waiver
There are some things on your loan that can stand as automatic red flags. You should avoid them when trying to get an appraisal waiver. Now, let’s go over them.
Your Property Worth
If your property is worth, or you are saying it’s worth $1,000,000+, make sure your officer is not putting down a million dollars or more. You need an appraisal as soon as you hit that $1,000,000 mark. It’s forced unto you by both Fannie Mae and Freddie Mac.
To avoid this, you can make sure your loan officer is not putting in $1,000,000 or more. Make sure they’re putting $999,999. We do that a lot. With $999,999, you have a chance. It does not mean you will automatically get an appraisal waiver, but if you put it at a million-plus, you definitely will not get an appraisal waiver.
High Loan to Value
Another significant factor in getting appraisal waivers is having a high loan to value. Loan to value means how much of the loan or how much loan are you getting to the value of the house? If you have a million-dollar house and you’re getting a loan for $800,000, that’s an 80% percent loan to value. This is usually the maximum you could do on a refinance.
Bear in mind that the higher the loan to value, the less likely you will get an appraisal waiver. There’s not much you can do about it. If you need a high loan to value, perhaps, because you need to refinance or that’s the amount of cash out, then be aware that it’s less likely you will get an appraisal waiver.
However, if you’re one of those fortunate people who have lived in a house for a long time or perhaps, you had a substantial down payment, of about 40% or 50%, and you own a lot of equity in your house, you can still play with the value of your home and bring it down.
I had a client who only owed $250,000 on a house that was probably worth 1.2 million. He had lived there for a long time. He was pretty wealthy and had made significant payments towards the loan. So, instead of putting 1.2 as the value, we put $999,999. We didn’t get an appraisal waiver.
But what I was able to do was lower the assessed value or guesstimate of the value down to 600, and then we got an appraisal waiver, and the truth is your loan to value affects your interest rate. But once you get under 60% loan to value, the interest rate is as good as it’s going to get, in terms of the loan to value (we call it the LTV). So if you have a million-dollar property and you’re borrowing $600,000, that’s 60%. But if you’re borrowing $400,000, you can bring that down until $400,000 is 60%, and it will be the same rate. That’s just the way it works.
Another thing that will make it very difficult to get an appraisal waiver is if you own multiple properties. If you own multiple properties and are collecting rent on them, it isn’t easy to get an appraisal waiver. Neither entity likes waving the value of a home if you collect rents on others. I’m not sure why but it’s already set up in their algorithm.
Another thing that they don’t typically like doing waivers on is cash-out refinances. Again, unless your loan to value is outstanding, cash-out refinances tend to have a forced appraisal because there’s more risk to the bank. They’re not just loaning something against the house’s security; they’re giving you cash in hand, which typically carries more risks. So when there’s more risk, they want more security and that appraisal.
Why Should You Get an Appraisal Waiver?
Why should you even consider an appraisal waiver? I already talked about how I do not like appraisals because they slow down everything. However, another reason is the cost. Appraisals cost anywhere from $500 to $1000. An appraisal waiver helps you to save that money.
Again, appraisal waivers save your time. An appraisal is the longest, slowest, and clunkiest part of the loan process; everything else these days can be done digitally. You can email, scan, fax, or even take pictures of your statements with your phone. You can DocuSign everything in the loan process, except for the final documents, which you still have to do with a notary.
However, an appraiser still has to come to your house, take pictures on their phone or a camera and then write a report. It’s a slow process. They also have to book an appointment and they’re usually backed up, so it just drags it on. If you don’t have an appraisal, I can sometimes get your loan closed in two weeks. If you have an appraisal, don’t even think about closing before thirty days. Once in a while, I can get a rush or get lucky with an appraisal, but I can’t really take credit. It’s just, is the appraisal going to come quickly or not? Nobody knows.
Another reason you don’t want an appraisal is because it could truly screw you on a deal. I’ll illustrate this with an example from my life. I wanted to do a cash-out refinance. I wanted to build a pool for my kids, so I wanted to take some equity out of my house. My house appreciated in value. So I got an appraisal done and it appraised for 850, which depending on where you are in the country, might sound like a very expensive one; but we’re in the LA area, so it’s a typical suburban home.
My next-door neighbor was doing a refinance three months later. His house had one less bedroom and several hundred square feet less. It also hadn’t been updated in like 20 years, whereas five years ago, mine was taken to the studs and everything was new. So for his appraisal, a few months later, his house was appraised for 940.
As you can see, it’s almost a hundred thousand dollars difference. Now, where does that affect me on the loan? Again, you can only borrow up to 80% of the appraised value. I wasn’t borrowing much, but getting more cash out was now impossible without ruining my interest rate because the appraiser screwed me on the value. So I was stuck. I could either pull the loan to start over with a different lender, or I could stick with what they gave me and move on with my life, which was what I was forced to do because I didn’t want to go through the process all over again, as I already paid for the appraisal.
On a purchase, it’s even worse. Let’s say you were buying a house for a million dollars, and you and the seller agree that it’s worth a million. Now, you proceed to get the appraisal because the bank requires it. The appraiser comes and says the house is only worth 900. You’re surprised because, after all, things are worth what people are willing to pay, just by the very nature of basic economics. So it’s worth a million because you’re saying it’s worth a million and because you’re paying a million dollars. However, the appraiser insists that it’s only worth $900,000 and that you’re just overpaying in the market. This does not consider that you probably had thirty offers and the next best offer was perhaps $995,000. So now that $900,000 appraised value is the most that the bank will loan you. So instead of coming in with 20% on a million, which was $200,000, and the bank would give you the $800,000, they will only give you 20% of the appraised value.
So now that it’s $900,000, you will come up with $180,000, which is the down payment. In addition to this, you also have to come up with the difference. This means you have to come in with $180,000, which is the 20% on the $900,000 appraised value, and another $100,000 to make the difference with the agreed payment. Remember that you already agreed with the seller to pay a million naira.
Getting an appraisal waiver on a purchase is also very rare. You might get it in a condo community, in which several have sold in the area for high value. As a loan officer, it has happened to me, but it’s very, very rare.
The key takeaways to remember are that you should make sure that you are under a million dollars on your value on the loan application. Otherwise, you will get a forced appraisal. Play with your loan to value. If possible, talk to your lender or your loan broker and ask if there is anything you can do to try and get an appraisal waiver. Sometimes it’s as easy as asking.