What You Should Know About a PIW Mortgage
A property inspection waiver (PIW) mortgage is a type of home loan that doesn’t require an appraisal for approval. Instead of getting a full home appraisal report, Fannie Mae and Freddie Mac — two government-sponsored entities that back mortgages — let lenders use existing property data. This data is processed through an automated underwriting system to get a green light for the loan without input from a real estate appraiser.
- PIW mortgages let you bypass the traditional home appraisal process by using existing property data instead.
- You’ll need significant equity to qualify — for home purchases, you’ll need at least a 10% down payment, while refinancing requires 10% to 40% equity depending on the loan and property type.
- If you have a VA, FHA or USDA mortgage, you can often refinance through streamlined programs that don’t require an appraisal or income verification.
How does an appraisal waiver work?
Home appraisals are usually a required part of qualifying for a mortgage, but appraisal waivers give you the ability to skip over this step. This can potentially save you time and money: Home appraisals typically cost $300 to $500 for a full report.
Appraisal waivers are also known as “value acceptance” because the underwriting system provides a home value to the lender; the lender then accepts it without needing to confirm it with an appraisal. Usually, this option is only available if there’s already a prior appraisal for that home in the underwriting system.
If there isn’t, a lender may require a combination of an appraisal waiver and an alternative valuation method.
Alternatives to an appraisal
A home appraisal was the standard method to evaluate a home’s fair market value for many years, but the rules for conventional loans have recently changed to allow for some new options. A conventional PIW mortgage can now use:
- Value acceptance plus property data. This option doesn’t require an appraisal or appraiser, but it isn’t as simple as a straight-ahead value acceptance. It depends on property data collected by a third-party professional who is trained to assess a home’s interior and exterior — however, this person doesn’t have to be a real estate appraiser.
- Hybrid appraisal. A hybrid appraisal is a valuation method that involves collaboration between an appraiser and a property data collector, but may only be allowed in special cases.
Just because you qualify for an appraisal waiver doesn’t mean you have to take it. If you’re worried about whether you’re paying too much for the house, it might be worth spending the extra money on a full appraisal for peace of mind. And remember: No matter what you decide about the appraisal, you should always get a home inspection. That’s your chance to get a thorough look at everything from the roof to the foundation, so you know exactly what condition the house is in.
A home appraisal tells you what your house is actually worth. A licensed appraiser visits your home and checks everything from its condition to any special design features. Then they compare it to similar homes that have sold recently in your neighborhood to come up with a fair market value.
When you’re buying a home, your lender uses the appraisal to make sure you’re not overpaying and to figure out how much they’re willing to lend you. You might also need one if you’re refinancing your mortgage, so the lender can confirm your home’s value is high enough to replace the old loan.
If you do get an appraisal, your lender has to give you a copy at least three days before closing, according to the Consumer Financial Protection Bureau (CFPB). And here’s the good news: They can’t charge you extra just for asking for your copy of the report.
How to qualify for a PIW mortgage
Appraisal waivers are only offered on conventional mortgages, and only if you’re buying or refinancing a home. (There are some government refinance programs that don’t require appraisals, but we’ll cover those later.)
The loan-to-value (LTV) ratio is a measure of how much of your home’s value you’re borrowing, and it’s the most important factor when qualifying for an appraisal waiver. You’ll see the maximum LTV ratio allowed for each type of appraisal waiver listed in the table below.
Home types eligible for an appraisal waiver
| Eligibility factor | Acceptable property and residency characteristics | Maximum LTV ratio | Minimum equity requirement |
|---|---|---|---|
| Home purchases | Primary residences Second homes | 90% | 10% |
| Home refinance type | Limited cash-out refinances for:
| 75% to 90% depending on residency type:
| 10% to 25% |
Cash-out refinances for:
| 60% to 70% depending on residency type:
| 30% to 40% |
Takeaways: For a shot at a PIW mortgage, you’ll either need to make a down payment of at least 10% on a home purchase or have at least 10% equity in your home on a limited cash-out refinance. Borrowers who want to get extra money above what they currently owe with a cash-out refinance will need even more equity for an appraisal waiver.
Regardless of whether you’re refinancing or purchasing a new home, to be eligible for a PIW mortgage, the home must be either a one-unit property or a condominium — multifamily homes aren’t eligible for a PIW mortgage.
Fannie Mae also offers a special PIW mortgage for properties in high-needs rural locations, identified by the Federal Housing Finance Agency (FHFA). The property must be a principal residence with a maximum 97% LTV ratio. Some lower-income borrowers may be eligible for a PIW mortgage up to a 105% combined LTV ratio, provided they meet lending requirements.
Check the map to see if you’re eligible.
Appraisal waiver pros and cons
Pros
- You’ll save money on appraisal costs
- You won’t have to wait for the appraisal to be completed
- You won’t have to spruce up the house for an interior evaluation if you’re refinancing
- You can close on a purchase or refinance loan much faster
Cons
- You won’t have a third-party opinion of your home’s value
- You’ll be relying on data pulled from previous appraisers that may not be accurate now
- You could end up borrowing money on a house that’s priced too high
- You won’t have an up-to-date assessment on your home’s condition
Government refinance programs that let you skip the appraisal
If your loan is backed by the U.S. Department of Veterans Affairs (VA), Federal Housing Administration (FHA) or U.S. Department of Agriculture (USDA), you can often refinance without the hassle of getting your home appraised. Most of these programs don’t ask you to prove your income either, making the whole process much simpler.
- VA IRRRL. Short for “interest rate reduction refinance loan,” the VA IRRRL allows military borrowers with a current VA loan to improve the terms of their loan and roll in the costs.
- FHA streamline. If you’ve paid your current FHA mortgage on time, you may qualify to lower your rate with the FHA streamline program. However, make sure you budget for your closing costs — you can’t add them to your loan amount unless you ask your lender to pay them in exchange for a higher mortgage rate.
- USDA streamlined assist. Low- to moderate-income rural homeowners with a USDA loan may qualify for a streamlined assist refinance to snag a lower payment or improve their loan terms.
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