When purchasing a property with a mortgage, you’ll need to have an appraisal completed before escrow can close and the keys can be exchanged. If you’re refinancing, banks will likely want an appraisal done before they allow you to withdraw any cash, although there are some properties and circumstances that make it possible to waive an appraisal when refinancing. An appraisal waiver is just as it sounds—a decision to waive or forgo the home appraisal for your transaction. As a buyer in a hot real estate market, you may be tempted to waive the home appraisal to make your offer look appealing to the seller. In the case of refinancing, the bank may opt to skip a home appraisal for a few reasons. For example, if you’re refinancing simply to change the rate or term of the loan and don’t intend to withdraw equity, the bank may opt to waive the appraisal. In addition, a lender may waive the requirement for a refinance appraisal if you have a Federal Housing Administration (FHA), Department of Veterans Affairs (VA), or U.S. Department of Agriculture (USDA) loan.
How Appraisal Waivers Work
Let’s say you purchased a home 10 years ago. It was your first property and your credit was good, but not excellent, due to some credit card debt you’d acquired. Since then, you’ve paid off that debt, making your score jump by more than 100 points. Interest rates for home mortgages also dropped from the time you bought, so you began looking into refinancing. You don’t want to pull out any of the equity that has accrued; you’re simply looking to lower your rate. After a phone call with your mortgage lender, they agree that no-cash-out refinancing could be a good option for you. They also agree to waive the home appraisal because your current loan-to-value (LTV) ratio is lower than their threshold of 90%.
What It Means for You as a Homebuyer
There are two distinct times when you’ll encounter an appraisal waiver. As mentioned, one occurs when you are able to coordinate with your bank during refinancing to have the home appraisal requirement waived. You also may choose to opt for an appraisal waiver when you seek to put in an offer on a house. As mentioned, a home appraisal helps determine the risk that the bank is taking on when granting you a mortgage. However, if you’re funding the purchase of the property—say, with an all-cash offer—you have the ability to waive as many contingencies as you like. This includes a home appraisal waiver, as well as a home inspection waiver. This can be an especially powerful tool to wield when the market is hot, as it can make your offer stand out. Beware, however, of the danger of waiving a home appraisal when purchasing a property. Without having one completed, you won’t know the true value of the house you’re purchasing, and you may end up underwater as soon as escrow closes.
