16

I am refinancing my first mortgage (no cash out). The new loan amount is about 58% of my purchase price (purchased 14 years ago). The loan amount is also about 52% of an appraisal I paid for 5 years ago and 44% of a more recent property tax valuation. And, get this: The loan amount is only 96% of the tax valuation of the land.

However, the bank will not waive an appraisal. (In fact, the bank wants to sell the loan through Fannie Mae, and I think it's really Fannie Mae who won't waive the appraisal.)

I understand that a bank (and whoever buys a mortgage) has many forms of risks when it loans money. One of those is the risk that the house is not really worth enough to serve as collateral for the loan. So appraisers serve a valuable function. But anyone (like a bank mortgage officer) who can see the 5 dollar figures that I used to calculate percentages above can immediately see that the bank's risk, in the value of the home, is zero. Under these circumstances, paying more than $500 for an appraisal is nothing more than throwing money away.

Is there any way to get the bank, or Fannie Mae, to see reason on this?

Parting thoughts:

If the government is anywhere close to correct on this valuation, I could close on this loan, cancel my insurance and burn my house down, and the bank would still be able to recoup most of its money from the land. (This is a hypothetical, to argue a point. No arson planned.)

You might want to say that I shouldn't worry about this, because it's a tiny part of a large transaction. You're right. But nobody wants to throw $500 away. And it bothers me to pay for an appraisal when an appraisal is so nonsensical.

20
  • 2
    Just an observation: I've bought two houses over the years, the first around 80% LTV and the second at a mere 20% LTV--and they were just as picky on the second as the first. New construction in both cases, long before the meltdown. – Loren Pechtel Sep 5 '20 at 3:17
  • 6
    The red flag for the bank is "the figures YOU used to calculate the percentages." If you don't have any hard evidence to back those up, they are just your personal opinion, and worthless. – alephzero Sep 5 '20 at 18:26
  • 2
    @alephzero a property tax valuation seems like solid backing to me. – Kat Sep 5 '20 at 18:40
  • 3
    Rather than fixate on ways to avoid the home appraisal process (and attendant fees) entirely, I'd ask the bank if they do business with a number of home appraisal firms and, if so, which one is the cheapest. Home appraisal fees can vary wildly. Now, your bank generally has no incentive to "shop around" for you in order to locate the cheapest supplier. But even if the bank is lazy and doesn't appear to perform any shopping around, you can still ask the bank to give you a list of 3 or 5 home appraisal firms they're willing to deal with. Then, do the shopping around yourself. – Mico Sep 6 '20 at 5:58
  • 3
    The value of the property, or even of the land, may have dropped since the last appraisal, because some external element has changed. Think re-evaluation of earthquake risk, of flooding risk, think construction of a new road or railway through your garden, think discovery of structural issues in the building... Whatever the property was worth 5 years ago may be very different from what it's worth today. It's a rare occurence, but not rare enough that they can completely ignore it. – jcaron Sep 6 '20 at 14:49
7

I just refinanced with a much higher LTV than yours (75%) and no appraisal was done. Anecdotal for sure, but obviously it's possible. Furthermore, your Loan Officer should have the ability to cover some of your fees at their discretion (mine covered 100% of the fees so the refi was free.) I wouldn't be surprised if given your low LTV, that when presented with the potential loss of a sale, that the LO will either eat the appraisal fee for you, or convince the bank that an appraisal isn't necessary in the first place.

As a side note, my bank did require me to continually provide updated paystubs to prove I was still employed. I had to provide them 3 times over the course of the 2 months process.

Update: I was notified yesterday that my loan was purchased by Freddie Mac, so at least we know with certainty that they don't have a recent appraisal requirement under certain conditions.

4
  • 2
    This is the best answer. There is virtually no chance of having an appraisal not been done; but who pays for it is always subject to negotiation. – tbrookside Sep 7 '20 at 12:32
  • 2
    @tbrookside I think it is bank dependent, and you may be right that once they have the rule they probably won't change it, though IMHO they should change it as it's just throwing money away in obvious cases.They could try to force the customer to pay it, but if it were me, I'd walk away and find another lender that won't charge me $500. – TTT Sep 7 '20 at 23:39
  • 1
    @TTT: I accepted this answer because I agree with tbrookside's comment here. The other possibility is is to follow the advice in Grade'Eh'Bacon and mhoran_psprep's answers to shop around. But as mhoran_psprep points out, I would almost certainly have to find a lender that holds the loan in portfolio, and (as I mention in my comment to their answer), almost nobody does that any more because of interest rate risk. – Nathan Reading Sep 9 '20 at 15:11
  • 1
    I have now asked my bank to do this. As I expected, they said "no", but I still think that in this kind of situation, asking them to pay was my best shot. They are a CU and they say they can't make exceptions for individual members. So I guess I either suck it up and accept the terms or shop around to find a bank that will pay the appraisal. – Nathan Reading Sep 9 '20 at 15:13
22

I suggest you seek out other financing options and use that possibility either to get a better deal entirely, or else to convince your current bank that you will go elsewhere if not satisfied.

If your current mortgage prevents you from doing so without paying some type of penalty, you would need to weigh the penalty against reduced interest costs & cost of appraisal.

3
  • 2
    Appraisal waivers are generally provided by automated underwriting systems, and for conventional financing there really are only two such systems. If the AU system required an appraisal at Bank A; it's virtually certain that it will require it at Bank B as well. – tbrookside Sep 7 '20 at 12:31
  • Agree with @tbrookside Additionally, there are many factors that go into whether or not an appraisal is required beyond loan to value ratio – Kevin Sep 7 '20 at 13:47
  • Thanks for this answer. I think that shopping around is a good approach, although I fear that @tbrookside is right in his comment above. – Nathan Reading Sep 9 '20 at 15:00
17

The requirement for appraisal is to avoid some of the problems that existed in the housing bubble in the mid 2000's. Some companies took shortcuts or they approved mortgages without requiring people to document income. In other cases appraisals were inflated. The idea was that as prices continued to skyrocket, there was always somebody to to sell a risky mortgage to. Until there wasn't.

In your situation you believe the numbers are good. Keep in mind that in some places tax values are divorced from what the property can sell for. Also what it sold for or was appraised for X years ago is meaningless. They want the picture from today.

Your best hope of skipping the appraisal is to find a lender that doesn't sell their mortgages.

Here is what Fannie Mae says about appraisals for refinances:

Use of an Appraisal for a Subsequent Transaction

Fannie Mae will allow the use of an origination appraisal for a subsequent transaction if the following requirements are met:

  • The subsequent transaction may only be a Limited Cash-Out Refinance.

  • The appraisal report must not be more than 12 months old on the note date of the subsequent transaction. If the appraisal report is greater than 4 months old on the date of the note and mortgage, then an appraisal update is required. See preceding section, Age of Appraisal and Appraisal Update Requirements, for requirements for completing an appraisal update.

  • The lender must ensure that the property has not undergone any significant remodeling, renovation, or deterioration to the extent that the improvement or deterioration of the property would materially affect the market value of the subject property.

  • The borrower and the lender/client must be the same on the original and subsequent transaction.

That is their policy. They don't want an appraisal older than a year.

7
  • I feel like this can't possibly be true. Are you sure that applies to refis? – TTT Sep 4 '20 at 19:14
  • I think this is the more relevant link: selling-guide.fanniemae.com/1033003431 – TTT Sep 4 '20 at 19:21
  • 1
    But that link still gives a 4 month age before they require an update. – mhoran_psprep Sep 4 '20 at 19:49
  • I can only find the 4 month rule in your link. Are you saying my link has the 4 month rule also (I don't see one)? If it did the appraisal waiver would be pointless if it only lasted 4 months. – TTT Sep 4 '20 at 20:00
  • 2
    OK- I see what you're referring to: "the appraisal waiver offer is not more than four months old on the date of the note and the mortgage." I think that just means that you need to close the loan within 4 months of requesting the waiver. (It's not how long it's been since you had a real appraisal.) – TTT Sep 4 '20 at 20:33
12

There is no way the bank will see reason on this.

Have you ever made a special order at McDonald's, like, say, a Big Mac without pickles, and the cashier shoots you a dirty look? And you think, "What the heck? It should be easier to make a Big Mac without pickles than a Big Mac with pickles? You should give me a happy look and also you should charge me less!" But the cashier knows the normal process it to create a lot of Big Macs with the standard set of ingredients so they are available as soon as the customer orders them. A special order requires more attention from the McDonald's crew and you will wait longer to receive your order.

A $500 procedure to protect a 5 or 6 figure investment is almost always a good idea from the bank's perspective, and it is deeply entrenched in their normal operating procedure. A loan application without an appraisal, for whatever reason, will take a lot longer to process as each step in the loan processing workflow has to manually override their internal procedures and risk controls to push the application through. The hassle to the bank will be worth a lot more than $500 to them, so they will do what they can to avoid making an exception for you.

9
  • 3
    Nij where is "here" that McDonald's makes every burger fresh to order? – briantist Sep 7 '20 at 3:37
  • 6
    @Nij Fellow McEmployee here, I can assure you many sandwiches got thrown in the waste from people making the wrong special order because their muscle memory started making sandwiches - even with the little paper tags to sticker on the special orders. And if you're making all your sandwiches to order, it's probably not a busy store - pop in there at 12:30 on a Thursday and you'll see more than a couple double cheeseburgers, big macs, and quarter pounders in what they call "the buffer". – corsiKa Sep 7 '20 at 8:17
  • 10
    @nij The analogy helps to understand, because we understand what is meant by it even if some specific McDonalds somewhere doesn't do it in the way the answer describes. Every analogy will fall apart if you nitpick it in detail - that's why it is an analogy and not a direct explanation. Obligatory Xkcd. – JBentley Sep 7 '20 at 9:10
  • 3
    @Nij One of my local McDonalds establishments neglected to omit ketchup from my megamuffin about 75% of the time back when I was ordering them. As soon as they noticed their mistake, the sandwich made with the default ingredients would instantly go in the trash and they would start making another. "Fewer ingredients" does not equate to "easier" and in this case it often equated to wasted food. mob's analogy is just fine. – JLRishe Sep 7 '20 at 19:05
  • 2
    Nit picking over whether McDonalds in particular premakes burgers is pointless. The analogy is valid, simply substitute another fast food name. – barbecue Sep 7 '20 at 19:29
0

There are many factors that go into whether or not a bank will waive the appraisal beyond just the loan to value ratio. Some factors, such as if you live in a flood plain or if the loan is over a set amount, will necessitate an appraisal no matter what the LTV is.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.