If you’ve been considering buying a home in the Seattle area, you’re probably well aware of how competitive things currently are. Homes sell in days, often for well over the asking price. International investors are quick to swoop in and snap up properties in the most popular neighborhoods. The level of competition on the buyer’s side of things can make purchasing a home seem too difficult or even impossible.
Unfortunately, the housing market shows no signs of slowing down in upcoming months. Home prices and demand have continued to climb in 2017, making it harder than ever to transition from renting to owning a home in Seattle. Lenders have taken note of the influx of investment purchases and have created new programs in the hope of enticing more owner-occupants into the Seattle housing market. The biggest and most potentially impactful of these programs is the no-appraisal loan.
Lenders Offering No-Appraisal Loans to Encourage Homeowners
One of the reasons that investors can make such enticing offers is because they often purchase homes without traditional financing. A cash offer on a home may not be for more money, but it carries far less risk of complications preventing the completion of the sale. When a financed buyer comes to the table, the property typically needs to pass an inspection and undergo an appraisal to ensure the amount financed is justified. Issues with either could result in the sale falling through and delays for the seller.
By waiving the requirement for appraisals on certain purchases, lenders are able to help potential owner-occupants make more attractive offers during a very competitive sellers’ market. Most sellers would prefer that their homes go to a family or an individual who will love and maintain the home for years. Investors won’t care about the home so much as the revenue it generates. An offer including a no-appraisal loan can help improve the odds of a seller selecting your offer.
How the No-Appraisal Loan System Works
In general, most lenders want to be able to sell their mortgages on to a third party after closing. Most of the time, your mortgage will get sold to Fannie Mae or Freddie Mac. These government-run programs were created specifically to purchase mortgages and keep lenders lending to new buyers. All of this is done with the intention of promoting home ownership among Americans. Because investors are pushing buyers out in major markets, programs are changing to better help people become homeowners.
You won’t have to do anything special to qualify for a no-appraisal loan. Your lender will work with either Fannie Mae or Freddie Mac to see if your property can qualify. Both organizations have their own internal system which looks at documentation, including past appraisals and current market prices in your area, to determine if both you as a buyer and the home you’re buying qualifies.
Program Requirements for No-Appraisal Mortgages
Freddie Mac and Fannie Mae have their own unique requirements. Freddie Mac is slightly more restrictive. In order for your lender to approve you for a no-appraisal loan, you need to come to the table with a down payment of at least 20 percent. The home must be a single-unit dwelling and also a single-family residence that acts as the borrower’s primary residence.
For Fannie Mae, no-appraisal homes may be available on a broader range of properties. They also require that the borrower have at least 20 percent equity via a down payment. The home itself can be a single-family home or a condominium unit. Both primary residences and second homes may qualify.
Provided that there are not major physical issues with the home and that the borrower meets requirements, the potential for a no-appraisal mortgage is there. For potential buyers, this system could help more of them become homeowners in the near future by making their offers more competitive.