Homebuyers and homeowners stand to benefit
In yet another sign that the nation’s home lending market has returned to normal, mortgage investors Fannie Mae and Freddie Mac announced this week that they would no longer require appraisals for some home purchase loans and refinance loans. The new guidelines will save homebuyers and homeowners who are refinancing approximately $500 per transaction and could accelerate the processing time of their loans by up to two weeks.
While Fannie Mae and Freddie Mac still require a traditional appraisal for the majority of their loan purchase programs, under the new rules homebuyers who make a down payment greater than 20% of the sales price and have good credit will no longer have to pay for an appraisal, which could save them more than $500 in closing costs.
Similarly, for those homeowners who are looking to refinance, Fannie Mae and Freddie Mac will not require an appraisal for a cash-out refinance if the new loan amount is less than 70% of the original appraised amount. For limited cash-out refinances, the appraisal exemption applies to loans up to 90% of the original appraised value.
The new rules go into effect immediately for Fannie Mae loan programs and September 1, 2017 for Freddie Mac.
An additional benefit of the new rules will be quicker processing times for mortgage customers. As the number of licensed appraisers has declined over the past 10 years, the waiting period for an appraisal has grown, in some cases by as much as 1-2 weeks. For homebuyers who qualify under the new rules, the new appraisal exemption will eliminate the waiting period altogether, making it more likely that a lender can close your loan in just a couple of weeks.
Initially, the decision by Fannie Mae and Freddie Mac to relax their appraisal requirements caused a few critics to wonder if Fannie Mae and Freddie Mac might be repeating the lending mistakes of the past. However, most housing experts disagree, citing the fact that the new rules are very conservative and apply only to very low-risk customers. In addition, a major difference between then and now is that Fannie and Freddie have accumulated huge databases of appraisals over the years and have created large automated appraisal systems which can track appraisal trends by property address, subdivision and appraiser. As a result, Fannie Mae and Freddie Mac can more easily validate the accuracy of their appraisal data and make more informed decisions when revising their loan guidelines.
As Fannie Mae and Freddie Mac continue to perfect their automated appraisal systems, the possibility exists that they may consider relaxing their appraisal guidelines even more. “Never say never,” said Andy Higginbotham, Freddie Mac Senior VP of Strategic Delivery and Operations, “but I think what we want to do is evaluate what we have over the next few months and make sure that we’re comfortable with the results that we’re getting back and that the process works really well for the lender and the borrower.”
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