Appraisal Waiver Guide

Table of Contents

What Is an Appraisal Waiver?
Why Would a Lender Waive an Appraisal?
How to Get an Appraisal Waiver
Benefits of an Appraisal Waiver
Downsides of an Appraisal Waiver
Appraisal Waiver Bottom Line

What Is an Appraisal Waiver?

An appraisal waiver is an option provided by some lenders that allows borrowers to forgo the property appraisal, which is typically required to determine the fair market value of the property. Instead, the lender pulls comparable sales data and uses automated valuation models (AVMs) and other data to assess the property’s value.

Appraisal Waiver Requirements

Not all properties or borrowers qualify for an appraisal waiver. Eligibility is determined by the lender’s criteria. To get an appraisal waiver, lenders typically require high credit scores and low loan-to-value (LTV) ratios. To qualify, buyers also typically need to be purchasing a single-family home with an eligible mortgage. 

Why Would a Lender Waive an Appraisal?

1. Home Value Was Recently Calculated
2. To Speed Up the Underwriting Process
3. There's a High Down Payment
4. It's a Government-Backed Streamlined Refinance

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.

How to Get an Appraisal Waiver

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. If you're thinking of investing in multi-family property, you won't be able to get an appraisal waiver. So, check with your lender to find out the exact requirements.

Benefits of an Appraisal Waiver 

1. Saves Money On Appraisal Fee

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.

2. Speeds Up the Closing Process

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.

Downsides of an Appraisal Waiver

1. You Might Overpay

The main downside of an appraisal waiver 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. 

2. Loan Limitations

Another drawback of appraisal waivers is that they are generally available only for certain loan types and scenarios, often excluding jumbo loans, FHA loans, and properties in unique markets.

Appraisal Waiver Bottom Line 

An appraisal waiver can be a beneficial option for eligible homebuyers and refinancers, offering cost savings, faster closing times, and reduced hassle. However, it’s important to weigh the potential downsides, such as accuracy concerns and the risk of overpayment. Consult with your lender to determine if an appraisal waiver is a viable option for your mortgage needs and to understand the specific eligibility criteria and implications.