Appraisals help ensure you’re not overpaying when purchasing a home, although they come with a cost and delay to closing.
If youre interested in a conventional loan with no appraisal needed, you might be in luck: Fannie Mae and Freddie Mac both offer appraisal waivers on purchase and refinance loans in certain situations.
Conventional loans are a popular mortgage option for many homebuyers. They offer more flexible qualifying guidelines than government-backed loans like FHA and VA loans. But like all mortgage loans, conventional loans have requirements for both the borrower and the property. One key requirement is that the property must undergo an appraisal.
Why Conventional Loans Require Appraisals
There are a few key reasons why conventional mortgages require an appraisal
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To determine the property’s market value: The appraisal provides an independent, professional opinion on what the home is truly worth based on its location, condition, features, and comparable sales in the neighborhood. This protects both the lender and borrower from overpaying.
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To assess the property’s condition While not a thorough inspection, the appraiser will note any deficiencies, damage, or major repairs needed This gives the lender confidence they are lending on a solid property
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To ensure the home meets basic requirements: The appraisal provides assurance the home is structurally sound, safe, meets local building codes, and has adequate utilities.
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To mitigate risk The appraisal reduces the lender’s risk by ensuring the loan amount does not exceed the value of the home This protects the lender in case they have to foreclose
Appraisal vs. Inspection for Conventional Loans
It’s important to understand the difference between a home appraisal and a home inspection when seeking a conventional loan:
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Appraisal: Values the home, assesses basic condition, ensures property meets eligibility standards. Does not scrutinize systems or structure in detail.
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Inspection: Thorough review of all home systems and structure by a licensed inspector. Looks for defects, malfunctions, code violations, safety issues.
While inspections are not required, they are highly recommended for buyers to understand the true condition of the home. Appraisals give lenders adequate assurance to approve a loan, but inspections protect the buyer.
Conventional Loan Appraisal Process
When applying for a conventional mortgage, here is what you can expect with the appraisal process:
- The lender will order the appraisal after you apply and pay the appraisal fee
- An appraiser will visit the home, inspect the interior and exterior
- They will take photos, measure the home, and document their observations
- The appraiser will analyze recent comparable sales in the area
- An appraisal report will be submitted to the lender with the appraiser’s professional opinion of value
- The lender reviews the appraisal to ensure no major issues or deficiencies
- Appraised value must be equal to or higher than the purchase price/loan amount
- Any required repairs must be completed before closing
As the borrower, you will have an opportunity to review the appraisal as well. If you or the lender disagree with the appraisal value or findings, a second appraisal may be ordered.
Conventional Loan Appraiser Qualifications
Conventional loans do not require appraisers to be on an FHA-approved list like government loans. However, conventional appraisers must still meet the following minimum qualifications:
- Hold an active appraisal license in the state where the property is located
- Have sufficient education, training, and experience in home appraising
- Hold Errors and Omissions insurance
- Meet any additional qualifications set by the lender
Many conventional lenders prefer appraisers who hold the MAI (Member of the Appraisal Institute) designation, which signifies advanced training and expertise in real estate valuation.
Are Any Properties Exempt from Appraisal?
In certain scenarios, a conventional lender may waive the appraisal requirement:
- If the loan is being refinanced with the same lender and they already have sufficient value data on the property
- If there is a short supply of appraisers in the local area and the lender cannot find one in a timely manner
- If an approved appraisal management company can provide adequate automated valuation data to verify the value
However, the vast majority of conventional purchase loans will require a full appraisal by a licensed professional before closing.
Alternatives if Your Home Won’t Appraise
If the appraisal comes back at a value lower than your contract price, there are a few options:
- Renegotiate with the seller: Ask them to lower the price to match the appraisal.
- Bring more money to closing: You may need to cover the gap between contract price and appraised value with a larger down payment.
- Appeal the appraisal: You or your lender can dispute the appraisal for a possible reevaluation.
- Switch lenders: The same home may appraise for a higher value with another lender.
- Consider an FHA loan: FHA has an appraisal repair escrow option that may be more flexible.
As a buyer, a low appraisal is frustrating. But along with an inspection, it also protects you from overpaying. Be prepared for either outcome before making an offer on a home you love.
Takeaway on Conventional Loan Appraisals
The vast majority of conventional mortgages will require an appraisal by a licensed, professional appraiser. This protects lenders and buyers alike by ensuring the loan-to-value ratio on the home supports the financing. While appraisals should not be confused with inspections, both are vital to making an informed home buying decision with a conventional loan.
Different Types of Appraisals
Conventional lenders address appraisals in one of three ways:
- Traditional Appraisal – A traditional appraisal involves a licensed or certified property appraiser visiting the home and inspecting its interior and exterior. The appraiser then researches recent local property sales to estimate a fair market value for the home.
- Desktop Appraisal – Desktop appraisals are also completed by a licensed or certified property appraiser. But instead of requiring an in-person home inspection, the appraiser conducts their research online based on publicly available and alternative data sources.
- Appraisal Waiver – Fannie Mae or Freddie Mac’s computerized underwriting system determines that an appraisal is not required. This is sometimes called a property inspection waiver, or PIW.
During the COVID-19 pandemic, conventional lenders allowed appraisers to do “drive-by” appraisals, which did not include an in-person inspection of the homes interior. As of July 2022, Fannie Mae no longer accepted these exterior-only inspections.
Freddie Mac guidelines still allow for exterior-only appraisals in certain situations, although many lenders may opt for a traditional inspection instead.
Who Is Eligible for a No-Appraisal Conventional Mortgage?
When it comes to conventional loans, the lenders automated underwriting system determines what type – if any – of appraisal is required.
There are numerous factors that the system evaluates, including details about your credit profile and financial qualifications, as well as the specifics of the property itself.
The transactions most likely to receive a waiver include borrowers with high credit scores, a substantial down payment (or existing equity for refinances), additional assets, and other factors indicating a low-risk loan.
The system also has access to a database of past appraisals. If the property has received a valuation in the past few years, the system might waive the need for a new appraisal.
You are, however, less likely to be able to waive an appraisal in rural areas or places where homes vary in size and age due to less reliable property data.
What is the difference between a VA, an FHA and a Conventional Appraisal?
FAQ
Does appraisal matter with a conventional loan?
Can a loan be approved without an appraisal?
What type of inspection is required for a conventional loan?
What fails a conventional appraisal?
Do conventional loans require a home appraisal?
Yes, conventional loans usually require a home appraisal to calculate the value of the property being bought or refinanced. The appraisal is a separate assessment of the property’s value by a professional appraiser, who takes into account factors such as the property’s location, size, condition, and similar sales in the area.
What is the difference between FHA & conventional appraisals?
FHA is more specific about property requirements. For FHA loans, homes must adhere to Minimum Property Requirements (MPRs) set by the Department of Housing and Urban Development, or HUD. FHA appraisers are trained to spot MPR deficiencies. Conventional loan appraisers do not have to hold a property to HUD’s exact standards.
What is a conventional mortgage appraisal?
Mortgage loans that do not have the backing of the federal government, also known as conventional loans, generally follow the guidelines established by Fannie Mae and Freddie Mac. Fannie Mae requires an appraisal dated no more than twelve months before closing. For a conventional appraisal, an appraiser will look at four factors:
Do you need an appraisal for a home loan?
While a recent appraisal is required for nearly every home purchase involving a mortgage lender, an inspection is not typically required for conventional loans and certain other types of loans.