What Is An Appraisal Waiver And How Do You Get One?
The real estate appraisal can be one of the most nerve-wracking parts of the home buying process. Why? A low appraisal can end a real estate sale, sending the buyers looking for a new home and the sellers back on the hunt for new offers.
But you might be able to skip this part of the homebuying process if your lender grants you an appraisal waiver.
The challenge? Not all lenders will let you skip the appraisal process when you’re buying a home. And without an appraisal to guide you on its market value, you might overpay for that home you’re buying.
What Is A Home Appraisal Waiver?
After you make an offer on a home that the sellers accept, the home appraisal process begins.
This is when an appraiser visits the home and determines how much it is worth in today’s market. An appraiser will study the sales of similar homes in the neighborhood, factor in the age and upkeep of a home and calculate the size of the property, its number of rooms and amenities when determining this value.
If the appraisal comes in too low, the real estate sale might fall through. If you offered $250,000 for a home and the appraiser determines that the property is worth only $200,000, your lender won’t loan you the $250,000 that the sellers have already accepted. To keep the deal alive, you might have to pay the additional $50,000 out of your own pocket or convince the sellers to lower their sales price to $200,000.
If neither of these happen, the deal will fall through, which is why an appraisal can stress both buyers and sellers.
A home appraisal waiver, though, means that you can skip the in-person appraisal. This takes away some of the uncertainty that comes with an appraisal. It can also save you money, as buyers usually pay for the appraisal.
Remember, though, that even if you skip the in-person appraisal, your lender will use other means to determine the value of the home you are buying. Your lender might rely on a recent appraisal of the property, or it might study the sales of nearby comparable homes to come up with a market value for the home.
Many lenders won’t allow appraisal waivers because they don’t want to loan you more mortgage dollars than what the home you are buying is worth. The odds of gaining an appraisal waiver are higher if you are buying in a neighborhood in which there have been several other recent sales, giving your lender comps that they can study to make sure they aren’t loaning too much. You’re more likely to get a waiver, too, if the home you are buying has a recent appraisal, perhaps one ordered by its owners.
Why Would A Mortgage Lender Waive An Appraisal?
It is rare that a lender will waive your appraisal when buying a home. But that doesn’t mean that it can’t happen.
You might qualify for a waiver if an in-person appraisal was conducted within the last year on a property you want to buy. This might have happened if the sellers of the home ordered an appraisal to help them determine its value before listing the property.
If the sellers purchased the home just one or two years ago, your lender might accept the results of the appraisal that was done at that time.
Lenders might also approve an appraisal waiver if they want to speed the underwriting process. This could save lenders money and time.
How To Get An Appraisal Waiver
You’ll need to ask your lender for an appraisal waiver. Lenders are more likely to approve a waiver if the property type you are purchasing is a single-family home and the loan type is a conventional loan, a mortgage loan not backed by a government agency such as the Department of Veterans Affairs or the Federal Housing Administration.
Appraisal Waiver Requirements
If you want to boost your odds of qualifying for an appraisal waiver, it helps to have solid financials in place.
- You should have a high credit score. There is no set score that will automatically convince your lender to waive an in-person appraisal, but the higher your score, the better. Most lenders consider a FICO® Score of 740 or higher to be an excellent one.
- Your loan-to-value (LTV) ratio matters, too. This ratio compares the size of your mortgage to the value of your home. Say the home you are buying is worth $200,000 and you are borrowing $190,000. Your loan-to-value ratio is 95%, or $190,000 divided by $200,000. You are more likely to qualify for an appraisal waiver if your loan-to-value ratio is no higher than 80%.
- You can get to a lower loan-to-value ratio by coming up with a larger down payment when applying for your mortgage. The larger your down payment, the lower your loan-to-value ratio will be. Save up down payment dollars if you want a chance at an appraisal waiver.
Pros And Cons Of Waiving An In-Person Appraisal
As with all decisions during the home buying process, waiving an in-person appraisal comes with both positives and negatives.
- The big benefit of an appraisal waiver is that you won’t have to worry that an in-person appraiser will appraise the home you are buying for too low of a cost, something that could complicate your purchase. Remember that lenders will use other data to determine the value of your home. This information might result in an appraised value that is too low, too.
- A waiver can save you money. Buyers typically pay for the costs of an appraisal, which can run as little as $400 or as high as $2,000 or more, depending on your home’s size, location and age. Skipping the appraisal means skipping that fee.
- A waiver can also save time. Instead of waiting for an in-person appraisal, your lender can determine the value of your home using other information, perhaps shaving a few days off the closing process.
- The big negative of an appraisal waiver is that you might overpay for your home. An appraisal is designed to give buyers an accurate idea of how much the home they are buying should cost. If you skip it, the odds increase that you might pay more than what your home is worth.
- Even if the sellers have had their home appraised recently, you are still missing out on a second chance at gaining an accurate picture of your home’s value.
The Bottom Line
Appraisals can be nerve-wracking, and they aren’t cheap. Still, it makes sense for buyers to schedule an in-person appraisal of the home they are purchasing. Those who don’t run the risk of overpaying for what might be the largest purchase they ever make.
Check out our Learning Center to discover more about the basics of mortgage lending and how long it takes to close on a house.