I’m sure you hear it all the time — “No appraisal is needed, we have a waiver.” Or maybe you don’t, and you are wondering why? Does the lender even know this is an option? Why do some clients get appraisal waivers while others don’t? It’s confusing and yes — even frustrating. We feel your frustration. As the lender, we don’t get to decide who receives a waiver either, but we can help you better understand appraisal waivers so you’re equipped to deal with them in the future. Here’s how it works.

What is an appraisal waiver?

An appraisal waiver — sometimes called a value acceptance — is the process by which Fannie Mae and Freddie Mac’s automated underwriting software determines that the value of the property entered is acceptable to secure the loan terms as entered and will not require any form of appraisal review to be completed.

Note that this is based on loan terms as entered — if any aspect of the borrower’s loan profile changes, it can potentially remove the waiver and will need an actual appraisal.

What determines when an appraisal waiver is received?

This one is harder to nail down, but there are three major criteria:

1. Minimum requirements: This includes maximum loan-to-value, property type, occupancy, and purpose. For instance, you will not receive a waiver on any 2-4 unit property, loans where a gift of equity is involved, or leasehold properties. But you could be eligible for one on a single-family purchase, putting 10% down.
2. Data: This includes how much data they have on the home itself (including whether it has been financed with a Fannie or Freddie loan in the past), the neighborhood, and similar comparable homes. The more data they have on the home and the surrounding area, the more opportunity there is to accept the value (provided the value is supported by the data).
3. The buyer/borrower profile: The stronger the loan profile, the less risk is involved and the more opportunity to provide that value acceptance. More down payment, strong credit score, and cash reserves can all be factors.

All being said, there is no magic formula, matrix, or scorecard you can use to predetermine the outcome. Each property and each loan needs to be evaluated on its own merits, and an outcome provided.

What we do know is that your Key Mortgage loan officer can work with you and your clients upfront during the offer process, as well as after acceptance, to determine if an appraisal waiver is received.

And remember, the borrower always has the option of requesting an appraisal. We always want to ensure the borrower has all options available to them to make the decision that they feel most comfortable with. Having that knowledgeable lending partner alongside you and the client during the offer process can be invaluable. This process is just one of the many that give you and your clients the advantage in a highly competitive market. Reach out to your Key Mortgage loan officer today to learn more about how we can help.