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How to Get an Appraisal Waiver

By Alene Laney · March 15, 2023 · 6 minute read

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How to Get an Appraisal Waiver

If you’re looking to save money and time on the purchase of a home, you might have heard that an appraisal waiver can do that for you.

An appraisal waiver substitutes an automated valuation for an in-person assessment of a property you’re buying. It saves time and money, thereby simplifying the buying process. However, only certain transactions qualify for it, and an automated appraisal may miss some of the home’s important details.

Learn more here. This guide will answer such questions as:

•   Why do you need a home appraisal?

•   What is an appraisal waiver?

•   How do you get an appraisal waiver?

•   What are the pros and cons of appraisal waivers?

Why Do You Need a Home Appraisal?

If you’re financing a home with a mortgage, getting a home appraisal is usually a requirement for the lender. An appraisal is an independent evaluation of the home’s value that protects the borrower’s investment in the property. Consequently, it also helps minimize the lender’s risk when releasing money to the borrower for the property.

A home’s value is critical to a lender since the money they make available as a mortgage uses the home as collateral. If they lend out more money than the home is worth and the home goes into foreclosure, they will be unable to recoup their losses when reselling the home. An appraisal assures the bank that the home is worth at least as much as they think it is when lending money.

An appraisal is also important to borrowers because it assures them the property is worth what they’re contracted to buy it for. If there’s something that hurts the home appraisal and the property is not worth as much as they offered in a real estate contract, the buyer has the option of backing out of the sale. They might also renegotiate the terms of the contract (assuming there’s a financing contingency in place). Or, the buyer could come up with more cash to bridge the appraisal gap if they still want the property.

Recommended: Estimate the Value of Your Property

What Is an Appraisal Waiver?

An appraisal waiver is not a situation when an appraisal is not required. Rather, it is an automated property valuation tool versus using the services of a professional appraiser to determine the market value of your home. It can be convenient to get one if your transaction qualifies, saving time and money (more on that below).

However, many transactions won’t qualify, so it’s important to be prepared to go the route of having a professional appraiser involved.

It’s important to note that an appraisal waiver is not the same as the following:

•   A property inspection waiver. This is something a prospective homebuyer may offer to sweeten a deal. It means they will forgo a home inspection, which could reveal structural or maintenance issues, when proceeding with the purchase of a home.

•   An appraisal contingency. This is part of a real-estate transaction that says if a home doesn’t appraise for the purchase price, you can exit the deal and get your deposit back.

Getting an Appraisal Waiver

If you are interested in getting an appraisal waiver, here are some important points to know.

•   You need to go through your lender to be considered for an appraisal waiver. Lenders must submit paperwork through the home mortgage loan program you’re applying for and help determine when an appraisal is not required.

•   Typically, you can qualify for an appraisal waiver if your lender uses the automated underwriting systems known as Desktop Originator (run by Fannie Mae) or Loan Prospector (run by Freddie Mac). Many lenders do use these systems, but that doesn’t guarantee that you will get approved for a waiver.

•   There are likely additional qualifications to get a waiver. For instance, conventional mortgages through Fannie Mae have different rules than FHA when it comes to appraisal waivers. Check with your lender for details about eligibility for an appraisal waiver. You may need, among other factors:

◦   A solid credit score

◦   To be purchasing or refinancing a single-unit property, whether that is a single-family house or a condo.

◦   You may need to pony up a down payment of at least 20%, though there are exceptions, such as people who are applying for homes in what are considered to be high-need rural areas.

Next, take a closer look at the pros and cons of an appraisal waiver.

Benefits of an Appraisal Waiver

Some of the benefits of an appraisal waiver include:

•   A shorter time to closing since you don’t need to schedule an in-person appraisal and wait for paperwork to be completed and filed.

•   Saving the cost of an appraiser’s fee.

Drawbacks of an Appraisal Waiver

There are some downsides of appraisal waivers, too. For example:

•   Automated systems can miss improvements and special features of a home, such as a recent renovation that substantially increases the value of the home.

•   Conversely, they can also miss things that substantially decrease the value of the home, such as a recent flood or signs of water damage in an attic. Hiring a professional appraiser can help mitigate valuation issues like these.

Recommended: Understanding the Different Types of Mortgage Loans

Who Is Eligible for an Appraisal Waiver?

If your transaction meets the following qualifications, it may be considered for an appraisal waiver:

•   If your loan casefile has been recommended for approval

•   The property involved is a single-family residence

•   New construction where there is a prior “as is” appraisal

•   Limited cash-out refinance transactions up to 90% loan-to-value (LTV) ratio for principal residence and second homes; investment properties up to 75% LTV

•   Cash-out refinance transactions up to 70% LTV for principal residences and 60% for second homes

•   Principal residence and second home purchases up to 80% LTV

•   Principal residences in high-needs rural areas identified by FHFA up to 97% LTV

Transactions Not Eligible for an Appraisal Waiver

As per Fannie Mae policy, transactions not eligible for an appraisal waiver include:

•   Construction loans

•   Two- to four-unit properties

•   Cooperative units vs. a condo

•   Manufactured homes

•   Properties valued at $1,000,000 or more

•   Transactions where a gift of equity is used

•   Leasehold properties

•   Texas 50(a)6 loans

•   Community land trust home

•   Homes with a restricted resale price

•   Renovation loans

•   When rental income is used to qualify for the loan

•   When an appraisal waiver is not recommended by underwriting

•   When the lender believes an appraisal is needed

Fannie Mae states that most transactions are not eligible for an appraisal waiver offer, so if you’re not able to get one, it’s not unusual.

Can a Homeowner Do Their Own Appraisal?

A homeowner cannot order their own appraisal when financing through a lender. The lender must order the appraisal, and it must be impartial, independent, and unbiased.

A homeowner can employ a professional appraiser for their own informational purposes, but the appraisal cannot be used in the lending process.

The Takeaway

Getting an appraisal waiver can help streamline the home loan process and save you money, but if your transaction isn’t eligible, don’t fret. The most important thing is likely getting a reliable, on-target appraisal so that you and your lender feel reassured that the property has at least the value of its purchase price. If you don’t qualify for an appraisal waiver, your lender can usually help you through the home-buying process and every challenge that comes your way.

If you’re getting ready to shop for a home loan, consider giving SoFi Mortgages a look. SoFi offers competitive rates, low down payments, and flexible terms for today’s borrowers. Qualifying first-time homebuyers may be able to put as little as 3% down.

Explore the advantages of an online mortgage lender like SoFi today.


Photo credit: iStock/Prostock-Studio

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