Lenders Announce Appraisal-Free Loans to Encourage Homeownership

Posted by Casey Losh on Tuesday, October 10th, 2017 at 4:11pm.

If you've been in the home-buying market in recent months, you're well aware of how competitive it is in Seattle right now. Homes are selling fast, often for above asking price. The average homeowner and would-be buyer can face struggles trying to buy. International investors have been scooping up as much real estate as possible, making it harder for owner-occupants to complete a purchase.

Investors often have several advantages coming to the table. One of the biggest is the potential to purchase a home via a cash offer. There are no contingencies, such as appraisals and inspections. For sellers, that can make working with an investor more attractive. After all, the concern of the sale falling through due to appraisal or inspection issues becomes moot. In order to help Seattle residents purchase homes, area lenders are offering appraisal-free loans in the hope that more locals will be able to purchase a house.

Fannie Mae and Freddie Mac Approve of This Idea

Lenders typically want their mortgages to meet the criteria created by Fannie Mae and Freddie Mac. That allows lenders and banks to sell their mortgages after closing and move on to financing new sales. In order for a home purchase to proceed without appraisals, individual home sales must meet certain automated valuation standards. If the previous appraisal and local market data support the loan amount, approval of an appraisal-free sale is likely.

On the positive side of things, buyers don't have to do anything to have an appraisal-free closing take place. The whole process occurs between their lender and one of the two government programs. So long as underwriting decides that there is enough data available to approve the home value, you have the right to waive an appraisal. Not only can this speed up the process, it can also save you hundreds of dollars off of your closing costs.

The negative side of this approach is that homeowners could miss out on critical information about issues with a property. Appraisals and inspections can help find hidden or hard-to-spot issues that can become very expensive to address. Buyers could end up in a home with a huge mortgage and a huge amount of repair needed. It's also possible that digital records for your home aren't sufficient to get approval for an appraisal-free closing. That could end up costing you the home.

Understanding Requirements for No Appraisal Loans

Fannie Mae will allow no-appraisal loans on single-family homes, second homes and condominium homes. In order to qualify for the program, you will need at least a 20 percent down payment on the home.

For Freddie Mac, qualifying is slightly harder. The program only works with single-family houses with a single unit. It must be the borrower's primary residence. If the home value is over $1 million, it won't qualify. You will still need that 20 percent down payment. If the home has notes indicating problematic physical property conditions or has gone through a foreclosure, it won't qualify.

Is a No-Appraisal Loan Right for You?

If you're looking to buy a home in solid physical condition and an appraisal on record from the most recent sale, a no-appraisal loan could be a great option. You will need to have a substantial down payment amount, but if you and the home qualify for these programs, it could make you more competitive on the very hot and fast moving real estate market these days. Being able to make an offer that isn't contingent on an appraisal can make your offer more attractive to sellers.

The person selling the home wants the best price with the least hassle. However, they also probably want their home to go to a family and not a faceless international landlord. By making an offer for a no-appraisal home purchase, you could increase the chances of a seller accepting the offer you make on a property.

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