REAL ESTATE REPORT:
Last year, federally backed Fannie Mae and Freddie Mac began accepting home-purchase loans that carry no formal property appraisal. Since this announcement, only about 5 percent of Fannie’s 1.2 million home mortgages (approx. 60,000) have qualified, according to a recent Washington Post report. It was also reported that Freddie Mac estimates that eventually “no-appraisal” mortgages will account for up to 15 percent of its new loans.
How is it possible to borrow money without a formal evaluation on the property value? Well, both government-chartered companies are using their automated valuation models, which are loaded with previous appraisal and current market data. If there is sufficient information available on a property, the buyer gets a choice of moving forward with a traditional appraisal (at a cost of approx.. $400-600) or go with Fannie and Freddie’s in house valuation (at no cost).
“It can save buyers money, but it can potentially lead to them overpaying if they don’t have that second opinion in the appraisal,” says Danielle Hale, realtor.com®’s chief economist. For example, if the appraisal comes in lower than a buyer’s offer, the buyer may be able to renegotiate. “But many markets are so hot right now that buyers may not be able to negotiate the price anyway, even if an appraisal came back too low.”
There are restrictions on the types of properties that qualify for this new “no appraisal” approach. For Fannie Mae, single-family homes, second homes and condos are eligible, but cooperatives, multiunit and manufactured homes are not. Buyers also need 20 percent equity going in, so low money down loans such as FHA or USDA do not qualify.
Freddie Mac’s program limits properties to single-family, single-unit houses that are used as the borrower’s principal residence — no second homes. Houses valued at more than $1 million are not eligible, and their program also requires 20 percent down. Foreclosed homes are barred as well.
Lauren Bunting is a licensed Associate Broker with Bunting Realty, Inc. in Berlin, MD
Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
