Home Inspections vs. Appraisals

TAGS: Mortgage CostsHomebuying
Home Inspections vs. Appraisals
Article Excerpt

Home inspections and appraisals serve separate purposes. See a real example of an inspection, and check out guidelines and tips.

First, let’s take a look at the definition of a home inspection: “a home inspection is a professional examination of a real estate property’s condition relating to the components affecting its safety and value.” Home inspectors examine every nook and cranny of the home. You may even be able to tag along during the inspection.

Now, let’s compare that to the definition of a home appraisal: “a home appraisal is a professional valuation of a property’s worth in the current marketplace."

Here’s a simple way to explain the difference between home appraisals and inspections: while an appraisal focuses mainly on the property’s money value, inspections dive deeper into the specific problems with the condition of the property. Neither an appraiser nor an inspector receive any commission from the sale of a property.

Is a home inspection required?

A home inspection is generally not required of any loan type. But, pretty much every lender will require an appraisal. Certain loan types like FHA and VA require the appraiser to do more than just determine its market value.

While a separate home inspection is not required for FHA borrowers, there is a special checklist that the appraiser must take a look at during their appraisal. This is sometimes called an “appraisal inspection” (which is admittedly a bit confusing!). There’s a very long list of property requirements that a home being purchased with the FHA program must meet. On page 184 in HUD’s Single-Family Housing Policy Handbook, you can see some of the items on the FHA appraiser’s checklist. Here’s a few specific items from that page:

  • A supply of safe water under adequate pressure
  • Sanitary facilities and a safe method of sewage disposal
  • Adequate space for healthful and comfortable living conditions
  • Heating
  • Hot water
  • Electricity adequate for lighting and cooking

So why is a home inspection important? Do you need it? If you plan on living in the home, or having others live in it, a home inspection is necessary to be confident on the condition of every little detail. This is especially true if you’re using a conventional loan, since you’ll learn very little about the condition of the property with its appraisal alone. You don’t want any surprises when it comes to the roof, foundation, electrical, or plumbing.

Home inspections go beyond safety components, too. Check out this example of a home inspection with pictures (sensitive information has been redacted). It includes cosmetic defects, and it also lists issues that may become worse in the future, even if they’re not problems at the time of inspection.

Should you get an appraisal or inspection first?

If you can help it, try to get an inspection first. If some major problems come back from the inspection, you’ll know to move on to the next house and you won’t waste additional time or effort on the property. If there are any deal breakers in regards to repairs, you’ll want to know before going to any more trouble.

After the inspection is complete, it’s often a good idea to send in specific specialists to give bids on the repair work. For example, if the inspector finds problems with the operation of the air conditioner, you’ll want to have an HVAC repairman come out to quote the cost for repairs. Then you can use that quote to negotiate the sales price or to have the sellers pay for the repairs out of their own pocket.

What’s the next step after a home appraisal?

Assuming all went well with the appraisal, the next step is underwriting. They’ll do a final review of your file and give your loan officer the official green light to closing. From the completion of the appraisal to closing is usually one to four weeks if all goes smoothly in underwriting. Check out a more detailed view of each step in the complete homebuying process on our mortgage process page.

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