THE MORTGAGE BROTHERS SHOW
No Appraisal Needed! — What is an Appraisal Waiver?
If you are getting a conventional loan on a refinance or purchase, you might not need to get an appraisal done on your home. About 20% of loans today are receiving appraisal waivers in the underwriting process. Below we discuss what an appraisal waiver is, how it works in the mortgage process, and the benefits to consumers.
*The following transcript has been edited for clarity.
Eddie Knoell — I’m Eddie Knoell.
Tom Knoell — And I’m Tom Knoell.
Eddie — Welcome everyone. This is The Mortgage Brothers Show right here in Phoenix. Hello, everyone. And today, we are talking about appraisal waivers.
Tom — Holy cow! Does it get any better than appraisal waivers?
Eddie — And what is an appraisal waiver? I mean, really. There are people today, realtors in the business, especially a lot of professionals in the business, who really don’t know what an appraisal waiver is. Or when they hear it, there’s some misunderstandings about what an appraisal waiver is.
Tom — Right.
Eddie — I mean, if you’re a borrower who’s actually been wondering what it is because maybe your lender said “We could have an appraisal waiver on your property.”
Tom — Right.
Eddie — We’re going to answer this.
Tom — You know? And then for those that really need it to be simplified… Because I remember a couple of years ago hearing the word “waiver.” What does “waiver” mean? Is that like a wafer? Is that like a waiver like you have it? Like does that mean you need it? No, the waiver means it waves you by. You don’t need it. So A.K.A. appraisal waiver means you don’t need it.
Eddie — That’s so right. I mean, in the mortgage business, there are so many terms we use. Some people have different understandings of what a waiver is. But it is.
Tom — But for the very basic term, it just means you don’t need it.
Eddie — Yeah.
Tom — So that’s the fun part. So when are appraisals not needed?
Eddie — Okay. Again, so remember people. I mean, appraisals are documenting for the bank what the collateral is worth, the home. What is the home worth? So this waiver is basically saying, the bank is saying “You know what? We’re not going to have an appraisal done. We’re going to accept the value as you have put it into that application.” Because we put a value into the application.
Tom — Right. So between borrower and loan officer, we’re actually working. That’s part of our job is to make sure that everything in the application that’s not factual is going to be within the realm of, I guess, reality.
So you have all the questions that are just factual based. But then you have estimates, which is what do you think your home is valued? You know? But when we put the application together, we don’t have an appraised value. So it’s really important to be able to establish a reasonable value. Because if you don’t, you’re definitely not going to get that appraisal waiver. So that is one of the reasons why you’d like to call a very experienced group, and someone that knows the Valley well. Because we’ve coached borrowers every day and have told them that their home is maybe not worth as much as they think, or it’s worth a little bit more than they think. And we’re able to secure those appraisal waivers.
Eddie — So we have the conversation with the borrower. We take the application. We figure out what the value might be. Actually, all this is done and submitted online to an underwriting engine. And the only programs that accept, basically allow these waivers, are conventional loan programs. So if you’re getting a jumble loan, you’ll never get a waiver on a jumble loan, a VA loan, an FHA loan. It’s conventional financing.
Tom — Just conventional financing. And that’s very important because I don’t even think that there’s some loan officers out there that know that. You know? I mean, I know that there was a point in time where I didn’t realize. I thought that there were appraisal waivers on the FHA product. But there’s not. So if you’re a borrower and you’re curious, or you’re an agent and you’re wondering when are we going to get an appraisal waiver, don’t even think about it on an FHA or VA basis. I don’t exactly have a good reason why that is the case.
Eddie — Well, right now, the big distinction is between the FHA and VA are really more the government insurance. The HUD is ensuring the FHA loans, and then the VA is guaranteeing the VA’s. I think, number one, because of that high insurance… that basically requires that person to go to that house, because the loan… borrowers with those programs are generally putting so little down, I think it’s just that extra step that makes the collateral secure.
Tom — So a slightly higher risk would require that there’d be a little bit extra due diligence on the file. And that’s just making sure that the appraisal’s done.
Now, there are cases where we get all excited. We call up Sally, we call up Bob and say, “Listen, we were able to secure you an appraisal waiver. So not only do you not have to worry about the value of it, we don’t even have to pay…”
Eddie — You mean, so if Bob or Sally are getting a conventional loan. We call them and say, “Hey, we have a waiver.”
Tom — “We have a waiver.” And then we describe what a waiver is, it’s like not only do we have to argue with the bank about the value of the home because they’ve accepted it, but also you now get to save that money. And we get all excited about telling them, and then all of sudden they’re like “Well, wait a minute. We still want an appraisal.”
Eddie — Yes.
Tom — So there are cases where even when we get the waiver, if you are on the purchasing side, you may very well want to get the appraisal, which is great.You’re completely allowed to get those. I, personally, would want an appraisal on my home just to see what the value is, especially if I were purchasing. But there are some people that take their realtor’s word for it, take their gut, and they don’t need it.
Eddie — Because what a waiver, what’s happening behind the scenes, everybody, is… Think of Zillow. Think of all these websites out there like Realtor.com. Now, all these companies have these algorithms that estimate value. They’re looking at your neighborhood, comparable sales, and they’re showing value. Well, with conventional loans, the underwriting systems behind conventional loans, they have their own algorithm just like those other systems and they’re trying to figure out what those values are. And they’re pretty confident in some homes’ value. And so, anyway, however, when you’re actually buying a house and you think that the seller’s asking too much for that home, you think an appraisal will actually show that the value is less. You don’t want a wavier on that house. You would probably say “Let’s get an appraisal. I want to see the appraiser possibly come in lower than the contract price.” Then you guys can negotiate.
Tom —All right. So let’s just dive into how and when appraisals are typically given. I mean, do we have a gut as to when an appraisal waiver might be given? And then if we don’t have a gut, how should we explain to our audience when it is typical that a waiver could be given?
Eddie — Yeah, I think that what I generally am looking for, where I think that we can get an appraisal waiver are for borrowers, number one, they have great credit.
Tom — Awesome, awesome credit. 760 and above.
Eddie — Yeah, because for borrows with excellent credit, we’re seeing waivers with the home, they have to have at least really 15% equity to start seeing these waivers show up.
Tom — I know that you’ve bragged recently about having some of the LTVs come in pretty high, which is impressive. But…
Eddie — I had some waivers with just 15% equity.
Tom — Yeah.
Eddie — And that’s been good.
Tom — And I think I’ve had a couple at that 20 range, but number 15.
Eddie — So they can go higher. They’re just a little more rare. But assets. Okay? So if someone has a lot more money than another borrower, but everything else is the same, the chances of a waiver go up. And then I would also tell people, this is what I do tell them, is that are you in a normal, standard subdivision? Is your home like your neighbor’s house? Square footage?If you’re in Paradise Valley, forget it, right? If you’re in a custom home, subdivision, where one home’s 1,500 square feet, the other’s 5,000 you have a lot of these different sizes and ages, the algorithm will basically know. “Hold on. We need someone in the house, on the street verifying that all these comps are real comparables.” But if they’re all very similar sizes, similar age, build and all that, it increases the chance waivers are going to come in.
Tom — So the actual kind of general area where you are, and the likelihood that there are going to be good comps in that reasonable area, we use the word “triangulate” a lot. There’s different data points that these lenders will use, and based upon age of the home, location of the home, pieces of the borrower and whatnot, all that works together. And remember, the actual appraisal waiver issuing engine, which adds a lot of… We talked about it before, people don’t know who Freddie and Fannie are, but they’re basically the ones that are going to be securitizing these loans.
Eddie — These conventional loans, right.
Tom — So they’re the ones that are actually issuing it. And so how many loans do they actually get involved with? I mean, thousands, and thousands, and thousands. So when you enter your property address, they have a whole chest full of different comps. And as they…
Eddie — Yeah, they just bought a loan. You know? Your neighbor just got a conventional loan.
Tom — Right.
Eddie — A lot of your neighbors got a conventional loan. 70% of your neighbors. Everybody in the Valley here, 70% of you got a conventional loan.
Tom — Right. So you may think that it’s a great, big mystery and that your home is unique. Which, to you, your home is very unique because you’re the one living in it. But Fannie knows your home. Fannie knows your neighbors’ homes. So they put all that together. And I thought that was just fascinating. Because it’s like they’re CSI. It’s like an investigative engine. There’s all this knowledge or information out there, and they’re just using it to analyze risk.
Eddie — Yeah. And you know? We’ve had these appraisal waivers that have come in much higher than Zillow. Or Realtor.com or Redfin. And it’s interesting. I’m not really sure. So I’ve been shocked on a lot of these waivers. I’m not sure if the trend is something that we’re going to… You know? They’re going to constantly tweak this algorithm. We don’t know what goes into it. But it is shocking. So if you think your value is something, it may be very different. The conventional financing, when we run, it may determine you don’t need an appraisal.
Tom — Right. Okay. How about property types? Do they pertain to mobile homes and all that stuff? Or are they limited to property types?
Eddie — You know? Right now, I’m just aware of the single family.
Tom — Right. I think it’s single family and condo. There are waivers on condos. But manufactured homing or homes right now do not qualify. And in terms of occupancy class, so you’ve got your primary, second home, and investment. Typically, they are primary and for second homes.
Eddie — Right.
Tom — Investment, you know? They can be achieved. But I do know one of the qualifying factors is that the borrower’s not using any of the income being generated by the investment property. So that’s a little bit technical. But I would say, for the most part, primary, second homes are getting them. The investment classification, not so much, unless the LTV’s super low.
Eddie — Yeah. And something that I ran into recently with some banks, even though you may get a waiver, some banks will not accept an appraisal waiver if you’re buying a house from a relative. So if your dad’s selling you the home. That’s something that we’re going to have to look as if you’re buying it… We call it it’s a non-arms length transaction.
Tom — Right, yeah.
Eddie — Usually, family members are selling to each other, and some banks will not take the appraisal waiver.
Tom — Good point. I’m trying to think of any other, like a no-brainer situation that would basically require the lender to go against what Fannie and Freddie say, and I’m not able to think of it right now, but…
Eddie — Yeah. There’s so few problems I’ve had with these appraisal waivers. With that one exception, I can’t even remember a waiver that was overturned.
Tom — I think if there was something to do with the property regarding safety. I don’t know if there were recent improvements on a property, but there are things that can pop up during the loan application where a lender may end up seeing… You know? If something wasn’t permitted. There was something to do with potentially new construction or condition of the home. But I just can’t think of exactly what it is. But it is very, very rare. So okay. What else have we not talked about with this very exciting topic?
Eddie — I can’t think of any.
Tom — Okay. All right. Lastly, I guess I would say these appraisal waivers, the main purpose for them is that, believe it or not, Fannie and Freddie, the conventional loan industry, is trying to make it a little more streamlined for all the borrowers out there. And that’s to save time and save money, which is a very nice thing to hear. So the impetus for these, and we have heard as of the last probably year and a half, that there have been movements to try and push the frequency at which these waivers are given.
I even had an appraiser call me worried. He’s like, “Tom, tell me this is not going to take over.” And I said, “Leroy, don’t worry. It’s not going to take over. They’re making steps to make it a bit more available. But you will have a job for very long time.” So none of the appraisers need to worry. They’re just efforts that are very underlying that are trying to help out borrowers.
Eddie — Yeah. That’s right. I don’t think this will be something… People will argue about whether this is going to be mainstream. There will be appraisers who will need to be on the ground. And you know? Real estate can be way too complicated just to put it in an algorithm.
Tom — Right. Okay. Well, good, unless there’s anything else, I think we should call it a day.
Eddie — Let’s call it a day. Everyone have a good week.
Tom — Okay. Have good week, folks.
Eddie — Hey, guys. Thanks for listening to the Mortgage Brother’s show. Please let us know if you have any questions you’d like us to answer on this podcast. You can e-mail your questions to Tom@AZMortgageBrothers.com, or yours truly at Eddie@AZMortgageBrothers.com. And be sure to ask us for a free quote on your next mortgage. Tom and I will personally work with you and help you through the whole process.
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