The appraisal waiver: What home buyers should know

When you're buying a home with a mortgage, your lender typically requires an appraisal to ensure the property is worth enough to justify the loan. The buyer foots the bill and pays, on average, $300 to $600. A home appraisal waiver allows qualified buyers to skip this step, saving them money and time. Learn more about appraisal waivers, when you can request one, and the pros and cons.

What is an appraisal waiver?

Lenders may consider waiving appraisal requirements for qualified buyers when there's sufficient data for an automated underwriting system to determine the home's value. This data may include prices from recent sales of comparable homes in the area and past sales data for the property.

An appraisal waiver saves buyers the cost of the service and the time required to schedule an in-person assessment and wait for the result.

Not all borrowers and homes will qualify for an appraisal waiver, and lenders are under no obligation to provide one. For example, a lender can deny a request for an appraisal waiver if they have any reason to believe an in-person appraisal is needed. This gives mortgage lenders significant discretion in determining who qualifies for an appraisal waiver.

3 reasons a lender might waive an appraisal

Lenders appraise a home to be sure they can sell the property for enough money to cover their losses if the borrower defaults. But there are situations in which waiving an appraisal is acceptable.

1. The home was recently appraised

Sometimes a lender determines an in-person appraisal is unnecessary if a home was recently appraised and the loan option (a 30-year fixed conventional loan, for example) will allow qualification with that appraisal. Suppose a buyer purchased a home last year but now needs to sell it. A lender might waive a new in-person appraisal because the home's fair market value was calculated so recently.

The same can be said for refinancing a home. If not much time has passed since the original appraisal, a lender may waive the in-person appraisal for a cash-out refinance or another type of refinancing.

2. The lender wants to increase efficiency

If a loan option allows for it, waiving an in-person appraisal can make the underwriting process more efficient for both the borrower and the lender. During underwriting, the lender verifies that you can afford the loan and the monthly mortgage payment. If you’re buying a home that costs much less than your maximum approval amount, there’s a better chance of qualifying for an appraisal waiver.

Underwriting can take a few days to a few weeks. Eliminating an in-person appraisal when it's not needed can speed up this process and get the parties closing on a house sooner.

3. There’s enough local data

A lender might approve an appraisal waiver if many comparable homes – commonly called comps – have sold recently in the area. Comps give a lender a good idea of the local real estate market, so they'll have a better sense of the home's value.

How to get an appraisal waiver

Again, not all home buyers or properties qualify for an appraisal waiver.

To start, you’ll need to apply for a mortgage with a lender that uses the automated underwriting system run by government-sponsored enterprise Fannie Mae or Freddie Mac. The good news is that most lenders use these systems.

Appraisal waiver requirements

To qualify for an appraisal waiver, you’ll typically need to meet stricter criteria than for a standard loan. Here are some common lender requirements:

• A minimum credit score in the high 600s
• A low debt-to-income (DTI) ratio
• Stable income and employment history
• A conventional conforming loan
• One-unit property, such as a single-family home or condo
• A substantial down payment, usually 20% or more
• Strong comparable sales data
• No unusual property features that may affect the appraisal

There are exceptions. In some high-needs rural areas, buyers can qualify with as little as 3% down, but they still may need a home inspection or property review. To learn more about this requirement and which parts of the country are considered high-needs rural areas, visit the Federal Housing Finance Agency’s interactive map.

Benefits of waiving an appraisal

Appraisal waivers are rare, but they can offer benefits to buyers. Here are a few common ones.

You can save money

The costs of in-person home appraisal visits vary, but they typically range from $300 to more than $600. Getting an appraisal waiver could save you a substantial amount of money. Any savings, however, should be weighed against the potential risk of not getting an appraisal.

You may be able to close sooner

An appraisal waiver can reduce the amount of time it takes to close on a home. With an appraisal waiver, your closing won’t be delayed while you wait for an appraiser to schedule a visit to the home you’re buying.

Your deal has one less hurdle to clear

An appraisal waiver makes it more likely that your deal will go through because there’s little chance of funding falling through after a low appraisal. Remember, a big reason for the appraisal is to assure the lender that the home is worth the sales price.

Risks of using an appraisal waiver

Appraisal waivers also carry significant risks for buyers. Perhaps the biggest one is that without an in-person home appraisal, a buyer might overpay for a home. Overpaying is hardly the only risk associated with skipping an appraisal, though. Forgoing an appraisal could also have the effects discussed below.

It could result in failure to identify issues with the home

An in-person appraiser can spot problems with a home that an automated appraisal might miss. Because of this, an in-person appraisal might more accurately value a home.

It could affect selling in the future

Paying more for a home than it’s worth is always a bad deal. Later, when you sell the home, you might struggle to make a profit because the buyer will get the home appraised after they make an offer.

When an appraiser determines a home is worth less than its agreed-upon sales price, many buyers walk away. Others will request that the seller reduce their asking price to the appraised value. A seller who still owes a lot on their mortgage might then take a loss on the sale.

It could affect refinancing

Paying more than what a home is worth can also cause problems if you want to refinance your mortgage. Lenders typically require a homeowner to have at least 20% home equity before refinancing. A buyer who overpaid for their home or hasn't made enough monthly mortgage payments to significantly pay down their loan balance could have less than 20% equity.

Usually, lenders require an appraisal to approve a refinance. However, sometimes they will offer a no-appraisal refinance to homeownerswith a VA Streamline, FHA Streamline, or USDA Streamline refinance.

The bottom line: A real estate appraisal waiver can be beneficial, but tread cautiously

If you’re looking to save money or speed up the home buying process, an appraisal waiver could be useful. It can simplify your transaction and reduce delays. However, skipping an in-person appraisal comes with risks. Without one, you might not know the home’s true fair market value. That could pose problems when and if you decide to sell or refinance in the future. For these reasons, seeking an appraisal waiver should be considered carefully.

When you’re ready to buy your new home, Rocket Mortgage makes applying for a mortgage fast and easy.