As of Sept. 1, Fannie Mae and Freddie Mac will no longer require appraisals on many of the loans that they buy. Because the two GSEs (government-sponsored enterprise) buy about half the mortgages originated in America, this is big news that will make buying a home easier and less expensive.
Many real estate agents consider appraisals to be necessary evils that delay closings, add about $500 to $700 to closing costs and kill deals when they come in lower than the sales price. Shortages of appraisers in busier markets and some rural markets have added to delays.
The adoption of appraisal-free mortgages for many types of mortgages will make a big dent in the number of delayed and terminated settlements.
These new policies on appraisals are made possible by the development and adaptation of new technologies and the massive amounts of data by Fannie, Freddie and mortgage lenders will also help more buyers and sellers close transactions successfully and on time.
Both Fannie and Freddie have restrictions on the purchase and refinancing mortgages they will buy without an appraisal. Under the new policies, both Fannie and Freddie will waive appraisals on purchase loans for:
- Single family homes
- Primary residences and secondary residences where buyers put down 20 percent or more
- Mortgages worth less than $1 million
Fannie and Freddie will not waive appraisals on purchase loans for:
- Properties in disaster areas
- Construction or renovation loans
- Investment properties such as single-family rentals
- Two- to four-unit properties
- Leasehold estates
- Co-op apartments and manufactured homes
- Properties with more than one unit
- Loans that require an appraisal for mortgage insurance (like FHA and other low-down payment loans)
- Loans for $1 million or more
Fannie Mae’s new policy on appraisals is more liberal than Freddie Mac’s in purchase loans for refinancing certain types of properties. Fannie Mae will waive appraisals on loans to purchase condominiums, but Freddie will not.
Lenders aren’t required to follow the lead of the GSEs on appraisal waivers, and mortgage insurers may continue to require appraisals.
Competitive pressure to process mortgages faster and save borrowers the cost of appraisals will undoubtedly motivate most lenders to waive appraisals to conform to the new policies.
As technology continues to improve, look for the GSEs and leading lenders to waive more appraisal requirements.