An appraisal waiver is a provision that allows a buyer to forgo the appraisal process typically required by the lender and still qualify for a loan. Instead of relying on a traditional appraisal, a lender will use their underwriting system to generate a rough home valuation by pulling comparable sales data in a similar process that real estate agents use to generate a comparative market analysis.
Lenders will also require buyers to meet specific criteria to qualify for an appraisal waiver. To qualify you'll typically need to be purchasing a single-family home and have excellent credit.
1. Home Value Was Recently Calculated
Appraisals aren’t free, so if the lender determines that an appraisal isn’t necessary, they may decide to grant a waiver. For instance, if the buyer purchased the home earlier that year but needs to sell for whatever reason, the lender may be content with the original appraisal and not require a new one to be commissioned.
2. To Speed Up the Underwriting Process
Appraisals take time – you have to find a qualified professional and schedule a time to have them come out to inspect the home, which may take a few weeks or more. So, if the lender would rather speed up the process and feels confident in their ability to gauge the property’s value, they may waive the appraisal.
3. There's a High Down Payment
If the buyer is making a large down payment on the home, it will be relatively easy to get an appraisal waiver as the lender won't consider the loan to be risky. The more equity you have in the house, the less risk for the lender as they will always be able to get their money back if you are unable to make your monthly mortgage payments and they need too foreclose.
4. It’s a Government-Backed Streamlined Refinance
The FHA and the VA offer streamlined refinance programs that allow eligible homeowners to refinance a mortgage already insured by one of these government programs. So, if you meet the requirements, the lender is required to let you refinance without a new appraisal.
Consult with your lender to determine how you can qualify for an appraisal waiver. Not all lenders offer them, and you’ll usually need a high credit score and plenty of money for a down payment. They will also consider your loan-to-value ratio, which generally must be 80% or above to qualify for an appraisal waiver. The type of property you’re buying also matters. Appraisal waivers are typically reserved for single-family homes and condos and won’t work if you buy new construction, a co-op, multifamily property, or a manufactured home. So, check with your lender to find out the exact requirements.
Buyers are typically required to pay the appraisal fee unless the seller is willing to cover some of the closing costs. This means that an appraisal waiver can spare you from paying this fee – which is typically anywhere from $300 - $500. When you factor in all the other costs of purchasing a home, this can be a welcomed relief for many buyers.
Waiving the appraisal can also help speed up the closing process. Depending on where you live, there may only be a limited number of qualified appraisers that your lender trusts. So, by skipping this step, you avoid potential delays that could impact the closing.
The downside is that you won’t be entirely sure that the home is worth the amount you offer. The point of an appraisal is to verify that the home is worth roughly what you’re paying for it. While the computerized comps pulled by the lender are generally accurate, they aren’t as dependable as an actual appraisal.
So, without an official valuation, there’s no guarantee that the home is worth the amount you’re offering. The chances are that if the lender is willing to skip the appraisal, there’s little risk that you overpaid. But you can’t be entirely sure, and if you need to sell in the near future, there’s a chance that you won’t get as much as you paid.
Appraisal waivers are an excellent way to speed up the home buying process and avoid paying an additional fee just to confirm the home’s value. But they aren’t easy to qualify for and carry certain risks you should consider. So, if you are thinking about getting an appraisal waiver, consult your lender and realtor to determine the qualifications and decide whether it’s the right move for you.