Getting a home loan? Your lender may tell you that you’re eligible for a property inspection waiver, or PIW. What is it and why would you opt for this, if approved? PIW is a property inspection waiver (also known as an appraisal waiver), and depending on your situation, you may say yes to one.
How it works
The waiver program started in 2017 with government-sponsored enterprise (GSE) Fannie Mae and has since extended to Freddie Mac.
For purchases, it’s only available on conventional mortgage loans, and it basically allows some borrowers and properties to get a new mortgage without a full appraisal report. For refinances, certain conventional loans may allow for a PIW, and homeowners who want to refinance and have VA, USDA or FHA-backed loans may also be eligible for streamlined refinance programs that may not require an appraisal.
Property Inspection Waiver offerings are based on a computer calculation, generated with an automated underwriting system or AUS, which has limited human intervention. The computer calculation will determine if a mortgage loan meets the eligibility requirements of GSEs like Fannie and Freddie, including: income, employment history, credit, assets and more important steps needed for lenders to originate mortgages.
The AUS also lets lenders leverage existing data on a property without asking for the consult of an appraiser. It’s a huge timesaver and benefit in markets that have experienced significant backup of appraisal orders, like Los Angeles, where demand exceeds supply.
The largest factor that plays into getting a PIW is the loan-to-value (LTV) ratio of the borrower. LTV looks at how much of your home’s value you’re borrowing. Most often, to qualify for a PIW, either a large down payment needs to be made — at least 20 percent — or, if refinancing, you need to have built up at least 10 percent equity in your home. And, if you’re interested in a cash-out refinance to get funds that surpass the amount your currently owe on your mortgage, you will need to have even more equity built in your home to qualify for a PIW.
The pros and cons
To start, your underwriter or Loan Officer cannot elect for you to get approved for a PIW; it’s something that is decided, or “allowed,” by the AUS So, the risk of subjectivity is ultimately eliminated. There is no fee if you’re approved for a PIW. And there’s no extra paperwork (previously, a PIW form was required to be signed for this option, but that is no longer required).
But why else would you say yes to a property inspection waiver — after all, this property may be one of the largest purchases of your life?
The first pro is that it will save you money on the cost of an appraisal. The second pro is that it will save you time because you won’t have to wait for the appraisal to be completed – this can remove a period of anxiety and unknowing from the process, which is a huge plus for some. If you’re doing a refinance on your own home, and are approved for a property inspection waiver, you don’t have to clean and perfect your house for the appraiser and the pictures they’d take for their report; that’s a huge time saver again. And lastly, not having to wait on an appraisal to be conducted will most likely get you to the closing table sooner, whether you’re going through a purchase or refinance transaction. The benefits can be huge depending on what type of transaction you’re doing, how much time you must dedicate to the transaction and what’s going on in your life.
There’s always a flip side though, so let’s talk about what might be cons for you. The first is that you won’t get a third-party opinion of your home’s value. That could be a con to you because a PIW essentially means that you’re relying on the data that’s pulled from a previous appraiser’s report, and that may not be accurate now. For example, if you’ve completed a lot of updates to your home and want to refinance, it could be more favorable for you to get a new appraisal completed, so comparable sales (often called comps) are more accurate. Or perhaps the market is really flexing, and you want to ensure that you don’t end up over borrowing money on a home that could be priced too high. Lastly, you won’t have the most up-to-date report on your home’s condition.
The choice to take a PIW is yours
If you’re approved for a property inspection waiver, the choice to take one or not is completely yours. You can still get an appraisal done on the property you want to purchase or refinance, even if AUS clears you, and one isn’t required. If you’re a first-time homebuyer or have concerns about a home you want to purchase, it might be the beneficial for your peace of mind to spend the money on appraisal services from a licensed real estate appraiser. They’ll provide you with an extensive report on the home, and it will include details on some features you may not be able to access while you’re touring the home, like the roof. An appraisal report can also help you from overpaying for a home, which might be a huge savings in comparison to a report that might cost you $400 – $500. If you do opt for an appraisal , you will get a copy of the report at least three days prior to your closing.
The bottom line
Getting an appraisal is a natural part of the homebuying and refinancing process. Lenders look at an appraisal report to ensure that the money they’re lending out will match what the value of a home really is and then calculate how much you’re eligible to borrow.
There may be times when you’re eligible for a property inspection waiver, and the choice to take one and forego an appraisal is completely yours. Your decision will most likely be based on: the type of mortgage transaction you want to complete (either a purchase or a refinance), the amount of time you have to dedicate to the transaction (appraisal completion times backup in some specific markets), the down payment you can make or equity built in the home, and simply whether or not this is an appealing option to you.
If you’re ready to make a home purchase or complete a refinance, a Homespire Mortgage Loan Officer can help lay out all your options.
This is not an offer for a loan or any type of extension. Eligibility for a loan or extension of credit from Homespire Mortgage Corporation is subject to completion of a loan application, credit, income, and employment qualification, and meeting established underwriting criteria. Rates are subject to change without notice based on market conditions. See Loan Consultant for information on program income limits, buyer contribution, area median income, debt requirements, and other application details.