Appraisal waivers for refinance mortgages have been credited with helping push refinance activity higher, and providing US homeowners with the chance to make big savings on their mortgage payments. According to the Urban Institute, the use of appraisal waivers when it comes to home valuations has increased by 14 percentage points since the Federal Housing Finance Agency (FHFA) told government-sponsored enterprises Fannie Mae and Freddie Mac that they must encourage lenders to accept appraisal waivers when eligible.
As a result, the research reveals that 63% of refinance mortgage applications are now approved on the basis of an appraisal waiver, rather than an appraisal itself. And with homeowners keen to take advantage of the cheap home loans that have been available from the best refinance mortgage companies of late, their path to much lower mortgage payments has been undoubtedly been smoothed by the new appraisal waiver flexibilities.
What are appraisal waivers?
If a homeowner wants to refinance their mortgage, lenders always want to know all about the borrower - including their financial situation and credit score - and the home they’ll be borrowing against before deciding whether they will approve the mortgage you want and on what terms. As determining the value of your home is critical to this, an in-person home appraisal by a certified appraiser is typically required to assess how much your property is worth.
However, with such assessments posing a potential health risk amid the coronavirus pandemic, the FHFA has given its backing to appraisal waivers, which allow a mortgage applicant to forgo the traditional method of appraising a home and to determine the home’s value through automated underwriting instead.
Who are appraisal waivers benefiting?
Normally, appraisal waivers tend only to be offered to less risky low loan-to-value (LTV) refinance mortgage borrowers, who have have plenty of capital built up in their property, and for a small number of purchase mortgages, and cash-out refinances. However, in the five months since the FHFA announcement, appraisal waivers have increased by 14% overall, and have been used in over one-third of total mortgage originations.
At the same time, appraisal waiver use has increased across all LTV buckets and for all mortgage types, most commonly in the lowest LTV categories, but also extensively for high-LTV rate-term refinances.
How much can you save by refinancing?
The main aim behind the FHFA’s backing of appraisal waivers was to ensure homeowners retained the option to refinance their mortgage or tap into their home equity to bolster their financial situation at such uncertain times. And in tandem with the record low mortgage rates that have been available in recent months, refinancing has been offering sizable benefits to borrowers in the way of significantly reduced mortgage payment savings.
According to the Urban Institute, a 30-year mortgage with a balance of $200,000 in September 2017 with the average fixed interest rate at the time of 3.9% would have resulted in a monthly principal and interest payment of $1,085. However, fast forward three years, and on the assumption that all payments have been made on time, the balance would have dropped to $188,654. And when this amount is refinanced to the same 30-year term, but at the average fixed mortgage rate of 2.9% seen in late September 2020, the principal and interest payment drops to just $931, a saving of $154 per month, or almost $2,000 over the course of a year.
How to refinance your mortgage
The potential to make such significant savings has unsurprisingly led to a refinance mortgage rush in recent months. But how can you join in?
First you’ll need to make sure that refinancing will actually be of benefit to you, and this means finding the lowest mortgage rates that are available to you. If scouring the mortgage market for good deals is putting you off, using an online marketplace such as LendingTree can save you time, effort and likely money too, if it can flag up the very cheapest mortgage loan for you.
Once you’ve found the best mortgage lenders, and happy that the terms they’re offering are preferable to the deal you’re on now, you’ll need to apply. Here, preparation is key, so get all your current mortgage documents up straight, and gather together all the evidence you’ll need to prove your income, employment, and savings, and to confirm the debts that you might have on credit cards and personal loans. With lenders being slightly more cautious in who they lend to at present, you should also take a look at your credit score, and approach the best credit repair services if you think it can be improved.
And while the increased use of appraisal waivers might mean you avoid a home visit to assess the value of your home, it’s probably best to tidy up and make good on any repairs too, just in case an in-person appraisal is what your new lender still needs.