What’s a PIW Mortgage?
One of the 10 steps to buying a home is going through underwriting with your lender, and that usually includes ordering a home appraisal. Your mortgage company wants to make sure that the asset they’re financing is worth it.
But in some cases, there’s an option available to you if you’d rather sidestep the appraisal. While you’ll save a handful of hundreds, skipping out on an appraiser’s evaluation of your property means you’ll need to make a large down payment and meet some other requirements.
In this article, we’ll walk you through how to waive your appraisal and why you might want to do this.
Understanding mortgage appraisals
An appraisal determines how much your home is worth. It’s conducted by a licensed appraiser, who provides an unbiased assessment of a house’s value.
Appraisers review the interior and exterior of a home — evaluating its condition, design and features — to determine its likely sticker price. They also consider recent home sales in your area.
Home appraisals are typically part of the homebuying process, as lenders use them to make sure the purchase price checks out and to determine a borrower’s loan-to-value ratio. Homebuyers usually pay for an appraisal as part of their closing costs.
What’s a property inspection waiver mortgage?
A property inspection waiver (PIW) mortgage, also known as an appraisal waiver mortgage, is a home loan that is underwritten without an appraisal of the property.
For these mortgages, lenders may be able to use existing data about the estimated value of a given property to originate a mortgage instead of relying on the appraised value.
Both government-sponsored enterprises — Fannie Mae and Freddie Mac — say an appraisal waiver helps speed up the loan origination process and lower the associated costs.
In a 2017 statement announcing the appraisal alternative, Freddie Mac said that borrowers could save about $500 and shorten the time it takes to get to the closing table by seven to 10 days.
How to qualify for a PIW mortgage
In order to qualify for a mortgage with an appraisal waiver, homebuyers must meet several requirements. They must:
- Finance a one-unit property.
- Have a loan-to-value ratio that is equal to or less than 80%. Essentially, this means a 20% down payment. If the property is in a “high-needs” rural area as identified by the Federal Housing Finance Agency, the LTV max is 97%.
For homeowners looking to refinance, Fannie Mae specifically requires a maximum 90% loan-to-value ratio for limited cash-out refinances and a 70% LTV ratio for regular cash-out refinances. Freddie Mac, conversely, says that mortgage refinances must not take any cash out to be eligible for an appraisal waiver.
Seeking an appraisal waiver is likely not suitable for many homebuyers, as there’s a high bar to meet with the 20% down payment requirement. In fact, Fannie Mae said the majority of loan transactions wouldn’t receive an appraiser waiver.
But even if they’re granted a waiver, John Stearns, a senior mortgage banker with American Fidelity Mortgage Services in Milwaukee, still recommends that his clients get a home appraisal.
“It’s the only way to know if you’re overpaying for a house,” he said.
On the other hand, an appraisal waiver could be beneficial for existing homeowners who want to refinance their mortgage, Stearns added. They already know the condition of their home.
“It’s a nice little cost savings and you don’t have to have an appraiser going through your house,” he said.
Still, the Appraisal Institute, which is the professional association of real estate appraisers, isn’t a fan of the waivers.
“Reducing appraisal requirements sends the wrong signal to mortgage loan sellers about the importance of fundamental risk-management practices and the need to continue to employ strong underwriting guidelines to avoid the costly mistakes of the recent past,” the association said in a 2017 statement.
The bottom line
Deciding to pursue an appraisal waiver for your home purchase could potentially make the mortgage origination process more efficient, but keep in mind you’re trading an updated assessment of your home’s value for an estimate.
If you’re contributing a 20% down payment to your home purchase and meet the other requirements for an appraisal waiver, you’ll have to determine whether the few hundred dollars you’ll save from skipping your appraisal is worth it. Stearns isn’t sure it is, considering that a down payment of that size could be $40,000, $50,000 or more.
“You really think they’re going to say, ‘No, I don’t want to spend $300 on the appraisal; that’s a little too much.’ That doesn’t even make sense,” he said.