Two agencies that play a central role in helping people finance homes said they will make it easier to do so without obtaining an in-person property appraisal.
Starting in early 2025, mortgage finance giants Freddie Mac and Fannie Mae say they will adjust the required loan-to-value ratio for an appraisal waiver from 80% to 90%. That will enable more buyers to qualify for the waiver with a lower down payment. Instead of having a licensed appraiser come to a house in person to ensure its actual value is in line with the sales price, a bank or mortgage lender can use Fannie or Freddie’s automated underwriting systems for the same purpose.
The typical cost of an in-person appraisal is $500, according to a 2023 survey from the National Association of Realtors. The appraisal can also add to the time it takes to close on a sale.
Freddie and Fannie are private companies that are controlled by the federal government. They buy loans from lenders, making it easier for them to issue mortgages to more customers. Freddie Mac said in a recent report it financed about 1 million mortgages in 2023, helping 375,000 first-time buyers. A similar report by Fannie Mae said the company supported more than 380,000 first-time buyers last year, or 45% of the single-family mortgages it acquired.
“Despite the very challenging housing environment, for the past six consecutive quarters more than half of the loans Freddie Mac purchased have been to first-time homebuyers," said Sonu Mittal, senior vice president at Freddie Mac, in a statement. "The innovations we are announcing today are vital to building on this record and helping remove obstacles facing prospective homebuyers.”
Fannie senior vice president Jake Williamson said in a separate statement that allowing more customers to use its automated underwriting tool will make the homebuying process more effective, efficient and impartial for lenders, appraisers and secondary mortgage market participants.
Fannie offered appraisal waivers for the first time in 2016 and Freddie followed in 2017. By using an automated system, Freddie has saved borrowers more than $1.63 billion in appraisal fees to date, according to the agency’s statement.
The decision whether to offer an appraisal waiver is up to the lender that may consider a buyer’s credit score and other factors in addition to the down payment amount, according to a Bankrate.com report. Another consideration is whether there are comparable properties nearby that have recently sold. Relying on an automated system creates some risk of a home being overvalued, the report said.