Last month, Fannie Mae and Freddie Mac introduced their appraisal free mortgage programs. For those first-time homebuyers unfamiliar with an appraisal, this is an estimate of the home’s market value. It basically ensures the lender that the amount of money requested by the borrower is fair and accurate. So why have Fannie Mae and Freddie Mac decided to introduce these new programs? According to both companies, it’s due to a shift in the market. With interest rates rising, the housing market has changed from a refinance to a purchase market. The program’s launch then allows the government-sponsored organizations to meet the changing demands of the industry.
Fannie Mae’s new program, known as the Property Inspection Waiver program (PIW), is particularly painless if you’re interested in obtaining an appraisal free mortgage. Its offers are issued through Desktop Underwriter® (DU®) using Fannie Mae’s database of more than 20 million appraisal reports combined with proprietary analytics from Collateral Underwriter® (CU™) to determine the minimum level of property valuation required for loans delivered to Fannie Mae. Through this system, Desktop Underwriter can compare the addresses for the subject property to the property addresses found in Collateral Underwriter. When a property address match is found, DU will compare both the first and last names of the borrowers on the loan casefile to the borrowers associated to the prior appraisal. Then, when a borrower name match is detected, DU will use the information from the prior appraisal to determine if the loan casefile is eligible for the PIW. In some cases, the prior appraisal may not be acceptable. For example, if a CU “Overvaluation Flag” was issued on the prior appraisal, or the appraisal could not be scored, that prior appraisal will not be used and a PIW will not be offered on the new loan casefile.
In addition to DU determining if the loan casefile is eligible for PIW, Fannie Mae will review the loan and determine whether the transactions are eligible. The following are some eligibility requirements for Fannie Mae’s program:
- One-unit property, including a condo
- Primary residence or second home up to 80 percent LTV/CLTV (first-time buyers: LTV is the amount of money you get for your loan compared to the overall value of your home. The lower this percentage is, the more equity you have in your home.)
- Loan with an approved/eligible recommendation
For limited cash-out refinance:
- Primary residence or second home up to 90 percent LTV/CLTV
- Investment property up to 75 percent LTV/CLTV
For cash-out refinance:
- Primary residence up to 70 percent LTV/CLTV
- Second home and investment property up to 60 percent LTV/CLTV
The data and loan eligibility must then coincide for a borrower to qualify for the PIW program. Although this process may sound tedious, it actually simplifies the application process for the borrower! Not only does it completely eliminate the time needed to request and review an appraisal, but also cancels any costs associated with the appraisal process. Borrowers have even reported a significant reduction in the amount of uncertainty they once had because with a PIW, the marketability of a home or investment property is no longer dependent on the lender to enforce.
For more information about Fannie Mae and Freddie Mac’s appraisal free mortgage programs, or to learn more about home financing, contact one of our mortgage specialists today or download The Ultimate Guide to Homebuying and Financing.