Groundbreaking new policy changes by two of the largest sources of home financing — Fannie Mae and Freddie Mac -- have led to an appraisal-free home purchase. Both government-chartered companies now are willing to waive their decades-old appraisal mandates for certain home purchases, provided their automated valuation models — loaded with previous appraisal and current market data — flash a green light.
The complete process will be handled between the mortgage lender and either Fannie or Freddie. Lenders will submit the loan file for underwriting analysis by the company's' proprietary online systems with a property value estimate but no appraisal. If an underwriting model determines that there is sufficient information available on the house, the buyer will get a choice: Do a traditional appraisal, at the cost of the buyer, or go with Fannie's or Freddie's in-house valuation, which will cost nothing?
Eligible properties for Fannie Mae's version of the program include single-family homes, second homes and condos. Cooperatives, multiunit and manufactured homes aren't allowed. The buyer will need to have at least 20 percent equity going in — so this is not an option for people buying with skimpy down payments.
Freddie Mac’s program is has a few more restrictions. It is limited to single-family, single-unit houses that are used as the borrower's principal residence, no second homes can use this program. Houses valued at more than $1 million are not eligible. It requires a 20 percent equity stake. Freddie won't go appraisal-free if the lender knows of "adverse physical property conditions," whether noted in the sales contract, an inspection or the seller's disclosures. Foreclosed homes are barred as well.
One of the mortgage industry's most prominent leaders supports the company's' new tech-driven initiatives, but has some words of caution for homebuyers. David Stevens, president and CEO of the Mortgage Bankers Association, says automated valuations might satisfy a lender's purposes but they "may not necessarily be the best assessment" of "the right price to pay for a property."
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