If you are buying a home or refinancing your existing mortgage, you know that the appraisal process can sometimes lead to complications.
Fannie Mae and Freddie Mac seem to be so confident in the housing market that they are willing to waive some of the appraisal requirements. Is this true? Let’s dive into it.
First of all, the process of ordering the appraisal can be time consuming. By the time the appraiser comes, does the appraisal and produces the report, several weeks may have passed. For people who need to get their refinance done quickly to get money for this or that, or to enjoy that lower rate, this can be a problem.
The good news for some of you is that if you have a Fannie Mae or Freddie Mac mortgage, you may be able to have the appraisal requirement waived in some cases for a purchase or refinance.
Freddie Mac began their program in the summer of 2017, and Fannie Mae started to offer some appraisal free mortgages at the beginning of 2017. However, not every property will qualify.
Some of the typical requirements to get an appraisal free purchase or refinance mortgage include the property having an 80% or less loan to value ratio; being a single family or condo property; primary occupancy, and only when Fannie or Freddie have a previous appraisal in electronic format that has been analyzed by an underwriter.
It is not expected that more than 5% of loans will be able to qualify for the Fannie and Freddie programs, but it is possible that the programs could be expanded to more borrowers later.
As you might expect, mortgage lenders are generally happy about the moves to offer some purchase and refinance loans without an appraisal. They say that leveraging modern technology to get a property valuation without an appraisal will provide many customers with more certainty about the status of their mortgage application at the beginning of the process. There is nothing worse than expecting to be able to refinance and to make financial plans, and then have the appraisal come in low and scuttle the deal.
On the other side, most appraisers are not happy about mortgage that may require no appraisal. Appraisers always argue that they have a continuing role in the mortgage process. They say there is no way that technology can substitute what they are bringing to the table, which is eyes, ears and noses and the expert ability to analyze a home, its neighborhood and market conditions and arrive at a precise value for the property. Computer programs have a lot of data, they say, but they do not know what improvements and damages have been done to a house that affect value.
According to one appraiser in Virginia, it is not unusual to walk into a five-year old home that is in such rough shape you would think it had not been maintained for 25 years. Another appraiser in Oklahoma says that the path that Fannie and Freddie are on is risky. The databases that the mortgage giants are relying on may have a lot of information about previous appraisals, but if new appraisals are not being done regularly, that property data will lose its accuracy over time.
Remember, if you want to try to qualify to have your appraisal requirement waived, you need to have a Fannie Mae or Freddie Mac mortgage with a loan to value ratio of no more than 80% if the purpose is to lower the rate. You also will need to have a 70% loan to value to get cash with a refinance.
The bottom line on this subject is that the ability to refinance or buy a home without an appraisal will probably only affect a small number of people. But you should be sure to talk to your mortgage lender to see if you can qualify. If so, you can save yourself a lot of time and at least $400.