While you might have heard of the infamous ‘appraisal waiver,’ most folks don’t understand the guidelines behind them and when you will be likely to receive one. It is a proprietary algorithm so what I’m sharing here is all information publicly available that Fanniemae has released on their ‘value acceptance’ program that allows you to forgo an appraisal. Freddiemac has their own system, with similarities and differences, and when we are writing loans, we always check both to see if either provider will allow an appraisal waiver.
If you look at the Fannie Mae Selling Guide there is a section the covers appraisal waivers, including an outline of eligible and ineligible transactions. It notes that in most cases a prior appraisal in the Collateral Underwriter System (CU) is required to receive an appraisal waiver. Collateral Underwriter was released in Jan of 2015 with a stated purpose of “identifying appraisal with heightened risk valuation, appraisal quality, and property eligibility and property compliance violations. Additionally, CU is a powerful source of information and analytics that can help the lender research and manage collateral risk.” This put a nationwide standard on the appraisal form that allowed CU to data-mine all appraisals done on conventional loans in an effort to prevent fraud and standardize the collateral valuation process. It also set the stage for appraisal waivers.
In December 2016, nearly 2 years after CU’s release, Fannie Mae rolled out appraisal waivers for refinance transactions and expanded it to purchase transactions in August of 2017. As time has progressed the guidelines on appraisal waivers have loosened and as of Jan. 2025 you can now get an appraisal waiver on a primary purchase or refinance transaction with a 3% down payment/equity position. The chart below shows eligible and ineligible transactions. Please note that you can get an appraisal waiver on investment properties and cashout transactions.
In addition to meeting the eligible property guidelines lenders typically advise that a borrower with stronger credit, lower debt to income ratio (DTI), larger equity position, and financial reserves is more likely to receive an appraisal waiver. While you can’t know if you will receive an appraisal waiver without running automated underwriting, you can know when you cannot (see guidelines above), and you can also know when you have the opportunity to. If conventional appraisal has been done on the property after 2015 and the value that you are looking for has appreciated similar to local trends, then you are much more likely to succeed (though this is not absolutely required).
In addition to conventional appraisal waivers there are also Home Equity Line of Credit (HELOC) programs that only require an automated valuation to lend. They use their own property algorithms. If you have any questions about appraisal waivers for conventional loans or HELOC’s don’t hesitate to contact me.
One Response