Appraisal Waiver

[pianoman9701]

Hi Gang. When taking out a mortgage, one of the only out-of-pocket expenses is the appraisal. They can cost $1,000 or more. I've seen appraisals for jumbo loans as high as $3,000.

I've been able to get waivers in about half of my loans. Although it's never a guarantee until underwriting approves the waiver, here are some things that will help you get one. Get your credit score above 700. Your loan to value should be lower than 80%. Your debt to income ratio should be 40% or lower (to determine DTI, divide minimum monthly payments/gross monthly income). Make all payments on time for a year and never default on Federal loans (student loans, VA or FHA, etc.). Keep credit card balances as low as possible. Don't have bankruptcies in the last 7 years. And work in the same position or occupation for more than a year.

Some of these are also requirements to get a mortgage in the first place. But having a low LTV and DTI are 2 keys to having the best chance at obtaining a waiver. It's good to remember that an FHA streamline or VA IRRRL (Interest Rate Reduction Refinance Loan) never require an appraisal.

[Twispriver]

I'm not sure that I understand the cost vs. benefit of an appraisal waiver. We very recently purchased a house with our son in Montana and when we made the offer we made it contingent on the home appraising at or above what we offered. Not being in the real estate business I wanted to be sure that we were not paying more than the home was worth. We were paying a large percentage down so the lender wasn't concerned about the appraisal but I was uncomfortable signing my name without third party input. It turned out in our favor but really I had no way of knowing that without hiring an apppraiser. Please explain what I'm missing here. Thanks

[Iveexcaped3]

I'm not sure that I understand the cost vs. benefit of an appraisal waiver. We very recently purchased a house with our son in Montana and when we made the offer we made it contingent on the home appraising at or above what we offered. Not being in the real estate business I wanted to be sure that we were not paying more than the home was worth. We were paying a large percentage down so the lender wasn't concerned about the appraisal but I was uncomfortable signing my name without third party input. It turned out in our favor but really I had no way of knowing that without hiring an apppraiser. Please explain what I'm missing here. Thanks

There isn’t one other than to make your offer look more appealing to the sellers in a short inventory market. And to potentially but not guaranteed to speed up closing time.

[pianoman9701]

I'm not sure that I understand the cost vs. benefit of an appraisal waiver. We very recently purchased a house with our son in Montana and when we made the offer we made it contingent on the home appraising at or above what we offered. Not being in the real estate business I wanted to be sure that we were not paying more than the home was worth. We were paying a large percentage down so the lender wasn't concerned about the appraisal but I was uncomfortable signing my name without third party input. It turned out in our favor but really I had no way of knowing that without hiring an apppraiser. Please explain what I'm missing here. Thanks

There are several potential benefits. In a purchase, you either get the appraisal waived or you pay for it out of pocket, unless the seller gives a concession to pay it for you. The benefit is saving the amount of the appraisal, which again can be over $1,000. On refinances, there are no seller concessions. You either get a waiver or you pay for the appraisal. The other benefit, and this is a big one, if you have to have an appraisal and the value of the property comes in under the estimated value, it could change the rate, you might have to pay PMI if the loan to value ratio is now higher than 80%, or in some cases, it derails the loan altogether.

[Twispriver]

Thank you

[Stein]

If you look at what happened in 2008, I wouldn't put much, if any, value on a report generated by someone on a bank approved appraiser list.

If you are working with a realtor, they could and should be able to pull comps for you to get an idea where you are.  In today's market, if there are multiple offers, by definition that's what the house is worth.

If I was going to pay for one, I would stay away from any recommendations from the bank, realtor, or anyone else with a financial interest in the sale closing and try to get as objective of an opinion as possible understanding there are significant limitations on what they can do.

[pianoman9701]

If you look at what happened in 2008, I wouldn't put much, if any, value on a report generated by someone on a bank approved appraiser list.

If you are working with a realtor, they could and should be able to pull comps for you to get an idea where you are.  In today's market, if there are multiple offers, by definition that's what the house is worth.

If I was going to pay for one, I would stay away from any recommendations from the bank, realtor, or anyone else with a financial interest in the sale closing and try to get as objective of an opinion as possible understanding there are significant limitations on what they can do.

Since 2008, laws regarding the relationships between a borrower, seller, realtor, lender, and broker and the appraiser have changed drastically, prohibiting any relationship between the appraiser and those above-mentioned entities and individuals. In most cases now, an Appraisal Management Company (AMC) is a middleman between the lender and the appraiser. They're an independent company which selects appraisers to do the job. The borrower, seller, lender, realtor, and broker are strictly forbidden to contact the appraiser directly and must go through the AMC with any questions at all regarding the appraisal.

[Stein]

Good to know, but the bank approves which AMCs they will work with, correct?  And then the AMC decides which appraisers to use? 

[pianoman9701]

Good to know, but the bank approves which AMCs they will work with, correct?  And then the AMC decides which appraisers to use?

Well yes, they choose their AMCs and most have several so that they can switch if one AMC can't find an appraiser for that area (this has been happening a lot in rural WA). The important part is that the lender can no longer exert influence on the appraiser to come back with a favorable result for them or the borrower.

[Stein]

The AMC is at risk of the bank dropping them from all future contracts and there will continue to be pressure to produce appraisals that enable loans.  The appraiser is at risk for the AMC to drop them from all future contracts as well.

My only point is that there is pressure for a bank directed appraisal to come in at or above contract price. 

I fully agree that getting the bank to waive the requirement is positive as I don't see value in the bank's appraisal.  Not to say I don't think appraisals may have value in some cases.  To me, it's similar to when a dealership provides a vehicle inspection on a used car they are selling.  I'm going to trust a truly independent mechanic way more as they have no pressure to avoid bad news.

If I'm going to pay for it, I would much rather have a true third party with no conflicts do the work.

Having the bank waive it is a great thing, then people have the choice of not paying for it or buying it from whomever they want.

[pianoman9701]

The AMC is at risk of the bank dropping them from all future contracts and there will continue to be pressure to produce appraisals that enable loans.  The appraiser is at risk for the AMC to drop them from all future contracts as well.

My only point is that there is pressure for a bank directed appraisal to come in at or above contract price. 

I fully agree that getting the bank to waive the requirement is positive as I don't see value in the bank's appraisal.  Not to say I don't think appraisals may have value in some cases.  To me, it's similar to when a dealership provides a vehicle inspection on a used car they are selling.  I'm going to trust a truly independent mechanic way more as they have no pressure to avoid bad news.

If I'm going to pay for it, I would much rather have a true third party with no conflicts do the work.

Having the bank waive it is a great thing, then people have the choice of not paying for it or buying it from whomever they want.

That's how the system is now set up - no coercion, no favoritism, no good buddy winks and nods. The lenders are the ones who waive or not waive. And that recommendation comes from the automatic underwriting systems of either Fannie Mae or Freddie Mac.

[pianoman9701]

The AMC is at risk of the bank dropping them from all future contracts and there will continue to be pressure to produce appraisals that enable loans.  The appraiser is at risk for the AMC to drop them from all future contracts as well.

My only point is that there is pressure for a bank directed appraisal to come in at or above contract price. 

I fully agree that getting the bank to waive the requirement is positive as I don't see value in the bank's appraisal.  Not to say I don't think appraisals may have value in some cases.  To me, it's similar to when a dealership provides a vehicle inspection on a used car they are selling.  I'm going to trust a truly independent mechanic way more as they have no pressure to avoid bad news.

If I'm going to pay for it, I would much rather have a true third party with no conflicts do the work.

Having the bank waive it is a great thing, then people have the choice of not paying for it or buying it from whomever they want.

Nope the borrowers don't get to choose anything. And the appraisal benefits the lender to confirm the LTV ratio. As I said before, the waiver is determined through the automatic underwriting system (AUS) of Fannie Mae or Freddie Mac. When the AUS says a waiver is approved, the lender does have the option of requiring it anyway. But, as a broker, I would tell my borrowers that we'll just use another lender to get you the waiver from them.