Appraisal Requirements for Conforming Conventional Loans Due to the Corona Virus Situation

Home For Sale?
Home For Sale?

Effective 03/24/2020 and lasting through May 17, 2020, Fannie Mae and Freddie Mac are allowing temporary changes to its appraisal inspection and reporting requirements.

Specifically, they allow either a desktop appraisal or an exterior-only inspection appraisal in place of the traditional interior and exterior inspection appraisal.

If traditional appraisals cannot be performed and there is not enough information on the internet and MLS for appraisers to complete a drive-by (exterior only) or desktop appraisal, Fannie Mae and Freddie Mac will not accept the loan application.

The traditional appraisal remains their preferred preferred appraisal, followed by desktop and exterior only for some loans, traditional followed by exterior only for other types.

Below is Fannie Mae’s preferences by loan traits:

Loan purposeLTV ratioOccupancyOwnership of loan being refinancedPermissible appraisals
(in order of preference)
Purchase*Per Eligibility MatrixPrincipal residenceN/ATraditional appraisal Desktop appraisal Exterior-only appraisal
≤ 85%Second home InvestmentTraditional appraisal Desktop appraisal Exterior-only appraisal
85%Second homeTraditional appraisal
Limited cash-out refinancePer Eligibility MatrixAllFannie Mae-ownedTraditional appraisal Exterior-only appraisal
Not Fannie Mae-ownedTraditional appraisal
Cash-out refinanceFannie Mae or not Fannie Mae-ownedTraditional appraisal

Freddie Mac has similar, though not identical, requirements. (FHA, VA, USDA still require traditional appraisals.)

What Does This Mean For Borrowers and Home Sellers?

The answer is, it depends on how much recent information is available on MLS and other reliable wesbistes.

If you are buying a home that has not been offered for sale in 25 years and/or your county does not have information about that property on its website(s), your options are:

1. Do not buy the house .
2. Get a loan from a portfolio lender (lender that does not sell the loans it makes).
3. Get a private loan.
4. Pay all cash.

The 2nd option is best. Portfolio lenders have their own rules for how they underwrite loans and prefer to lend in their area.

Possible Problems When There Is Sufficient Data Available

Desktop and exterior-only appraisals present a problem for refinancing.

Home owners make changes to their homes. But there’s no website that appraisers and Fannie Mae / Freddie Mac considers reliable where they list the changes and upload new images, images that reflect the new kitchen cabinets or bathroom tiles, for instance.

That means that there’s a good possibility that refinance appraisals are going to come lower than they should.