In 2020, I talked about appraisal waivers and automated underwriting systems, covering what they are and how they work in regards to home buyers. We were granted appraisal waivers on 20% of our purchase transactions in 2021. That’s 20% of transactions that didn’t need an appraisal report of any kind!
Check out this video to find out how you can increase your chances of an appraisal waiver on your next transaction.
*** VIDEO TRANSCRIPT ***
Hi! It’s Emily Ingram with New American Funding – Port Townsend. And I wanted to take a second to talk about appraisal waivers. My team received appraisal waivers on 20% of our purchase transactions last year. That’s 20% of purchases that didn’t require an appraisal at all. And I think we’re going to see those numbers increase in 2021.
Why? In late 2016 and 2017, Fannie Mae and Freddie Mac instituted automated underwriting for appraisals. So, just like we use automated underwriting systems to evaluate the buyer—to analyze their income, assets, and credit history—now we use automated underwriting systems to evaluate appraisals.
The computer compares the appraiser’s estimate of value to public records and comparable sales, and spits out a score that tells us whether or not the computer agrees with the appraiser’s estimate of value.
The other thing the computer does is that is stores that appraisal in its little computer brain, so the next time someone goes to finance that particular property with that particular investor, either Fannie Mae or Freddie Mac, it’s likely they won’t need an appraisal at all.
The computer knows that it saw an appraisal some number of years ago. The computer knows that the current estimated value is in line with rates of appreciation in the area. And it will decide we don’t need a new appraisal report.
So, how do you maximize your chances of getting an appraisal waiver?
1. Your buyer has to be getting a conventional mortgage loan through either Fannie Mae or Freddie Mac. Government loans and Jumbo loans are not eligible for appraisal waivers.
2. You have to work with a lender who can choose either Fannie or Freddie. Not every lender originates both Fannie and Freddie loans. Some are Fannie only shops. Some are Freddie only shops. And Fannie and Freddie’s appraisal underwriting systems don’t talk to each other. If your seller refinanced last year and got a Fannie Mae loan, the person who now wants to buy their house will be more likely to get an appraisal waiver if they’re also getting a Fannie Mae loan.
3. It helps to work with a loan officer who is adept at playing with Fannie and Freddie’s systems. We have to enter the property address correctly. If I enter “street” instead of “avenue,” the computer won’t know it’s the same property. There’s also other identifying information we can include, like the census tract, that supposedly increases our chances of getting an appraisal waiver.
My team also runs every transaction through Fannie and Freddie’s automated underwriting systems. Sometimes Fannie gives the waiver, sometimes Freddie gives it, so you have to try both.
Appraisal waivers are only allowed on one-unit properties, including condos, and the buyer has to make a down payment of at least 20%. You won’t see an appraisal waiver on 2-4 unit properties, or manufactured homes, or on an investment property where rental income from the subject property is being used to qualify.
I think as properties are refinanced, and financed and resold, we’re going to see more and more appraisal waivers in the future. I would not be surprised if over the next decade, appraisal waivers become the norm and an actual physical appraisal report will become very, very rare.
If you’d like more information about appraisal waivers and automated underwriting systems, just click the blue link below. Thanks for listening!
