The appraisal process is one of the most tedious aspects of real estate transactions, one that realtors have had to deal with for years. However, improvements and technology have led to the phenomenon of appraisal-free mortgages, which make real estate transactions much easier than in the past. Below is what you need to know.
How Mortgages Without Appraisals Came About
Neither Fannie Mae or Freddie Mac are requiring appraisals for many types of loans, which will in all likelihood increase competition to close mortgages faster while saving borrowers tremendous amounts of money on appraisal costs. Such mortgages went into effect starting September 1st, and are great news for the real estate industry as it means buying a home will be simpler and more affordable.
In the past, most realtors felt that appraisals were a hassle but necessary. They are notorious for delaying closings, can add hundreds of even thousands of dollars to closing costs, and in the worst case scenario can lead to the termination of deals when they are lower than the asking price. In many real estate markets there has been a shortage of appraisers which has led to further delays.
Why These Types of Mortgages Are So Popular
Mortgages which are appraisal free are the result of a number of developments. Freddie, Fannie, and other smaller mortgage lenders have been bolstered by state of the art tools that allow huge amounts of data to be processed within a short period of time. This means that the long delays which have been a staple of real estate transactions for decades are quickly becoming a thing of the past.
There are restrictions that Freddie and Fannie have on refinancing or buying mortgages without appraisals. The new policies waive appraisals for certain types of home, including single family properties, mortgages which are beneath $1 million and secondary and primary residences where the buyer will put down a minimum of twenty percent. Properties which will not have appraisals waived include those in disaster zones, any loans involving renovation and construction, investment real estate and leasehold estate.
Fannie Versus Freddie Appraisal Policies
Overall, Fannie’s appraisal policies are far more liberal than is the case with Freddie, particularly when it comes to acquiring loans for refinancing certain property types. While Fannie will waive any appraisals involving the acquisition of a condominium, Freddie won’t. Lenders for their part are not required to follow the GSE when it comes to waiving appraisals, and mortgage insurers have the option of requesting them.
However, the demand to complete mortgage transactions faster and save borrowers money is expected to encourage the majority of lenders to begin waiving appraisals. The advent of these policies demonstrates the impact that technology is having on the real estate industry and how it will lead to significant cost savings and greater homeownership in the future.