Fannie and Freddie extend appraisal waivers to even more homebuyers Loaner

Fannie Mae and Freddie Mac announced new, expanded assessment waivers to reduce costs and help more first-time home buyers purchase property.

Both companies already offer appraisal waivers on some of the loans they guarantee, but the loan-to-value (LTV) ratio is currently capped at 80%.

This means you must bring a deposit of at least 20% to avoid the cost and potential hassle of a traditional appraisal.

To further streamline this process and ease the burden on low-income borrowers, this figure will increase to 90% of LTV from the first quarter of 2025.

And it will be extended to program limits (e.g. 97% LTV) for their more robust exemptions to inspection-based assessments.

You May Not Need an Appraisal for Your Next Home Purchase

Although assessment waivers are not that new; They were introduced by Fannie Mae in 2016 for refinance transactions and then expanded to home purchases in 2017, but they are limited in scope.

In other words, many home buyers still have to pay for an appraisal when applying for a mortgage.

This incurs an additional cost, which can range from $400 to $1,000 or more. And a longer home loan process as the appraisal is ordered, completed and submitted.

This can also lead to uncertainty about the value of the collateral, potentially jeopardizing the loan at the end of the game if the human appraiser comes back with a value lower than the purchase price.

For these reasons, receiving an assessment waiver can be a blessing. What’s not to like? Faster, stress-free loan approval and lower borrowing costs.

But as we mentioned, these measures only applied to loans for which borrowers could provide a 20% down payment.

This clearly did not help those who needed it most, namely first-time home buyers and/or low-income borrowers who could only scrape together a 3-5% down payment.

Well, starting in Q1 2025, these money-saving waivers will be extended from a maximum LTV of 80% to 90% LTV/TLTV.

So if you come in with just 10% down on your home purchase, you may soon be able to skip the appraisal as well.

And the maximum LTV ratio for purchase loans eligible for inspection-based appraisal waivers will increase from 80% to 97%.

This means borrowers will be able to get a 3% Home Possible loan from Freddie Mac or a Fannie Mae HomeReady mortgage with no appraisal.

Understanding the different assessment waivers available today

First, I should note that these appraisal waivers apply to conventional loans, not government loans such as FHA or VA loans.

Therefore, only conforming loans guaranteed by Fannie Mae and Freddie Mac are eligible for appraisal relief.

Second, there are two different types of appraisal waivers. Let’s talk about direct waivers that rely solely on data and technology to accept the value provided by the lender.

• Fannie Mae is known as “Acceptance of value»
• Freddie Mac’s is known as Automated Collateral Valuation (A.S.).

These generally require that a prior appraisal carried out on the property in question be found in the database.

They are also limited to single-family properties (including condos) for primary and secondary residences.

Additionally, there is a maximum assessed value (or sale price) of $1 million for properties receiving the waiver.

The good news is that there is no fees to the borrower for these options, which could save them several hundred dollars or more.

There are also so-called inspection-based assessment waivers, which will see their maximum LTV increase from 80% to 97%.

These more robust appraisal alternatives require property information to be physically collected on-site by trained data collectors.

Similar to an appraisal, the originating lender arranges for the collection of data about the property, but the result should be reduced costs and faster turnaround times.

The cost of an inspection-based appraisal can be half the cost of a traditional appraisal, about $200 versus $400 or more.

Does this introduce additional risk for the real estate market?

While these changes will likely be welcomed with open arms by mortgage lenders (and less so by appraisers), there remains the issue of risk.

The collateral value of the property is an important part of the equation when underwriting and approving a loan.

If one forgoes home appraisals, one could argue that the loan is inherently riskier.

However, this is actually why Fannie Mae stopped using the term “appraisal waiver” and replaced it with Value Acceptance.

This change was implemented to better reflect the actual process, which relies on data collection and technology to accept the value provided by the lender.

This is no different than a human appraiser, who also uses data collection to come up with an appropriate value that supports the price entered.

But I suspect there will be some scrutiny, especially as the changes are being introduced at a time when housing affordability has rarely been worse.

Allowing a home buyer to forgo an appraisal when making only a 3% down payment seems a little scary when home prices are at or near record highs and have increased by about 50%. in recent years only.

This also widens the gap between conventional loans and government-backed loans, the latter of which are already known to be more difficult to obtain due to inspection/appraisal requirements.

(photo: M Kasahara)