You probably don’t buy a house all that often. You probably have lots of questions. One common question that both first-time and experienced home buyers ask is whether a home inspection is required for a Mortgage?
A home inspection is NOT required for a Mortgage.
There will be many things a lender will ask when you apply for a mortgage, however having an inspection is not one of them.
So why do we have home inspections then? That’s a great question, too, and we will get to that. But first:
What is required for a Home Loan?
When buying a house mortgage lenders all have essentially the same questions. I learned this as the four C’s: capacity, capital, collateral, and credit.
- Capacity – Do you have the ability to pay the loan back. Do you have a job or other stable & reliable source of income?
- Captial – How much have you saved and are willing to use it for a down payment.
- Collateral – This is the house. You can’t use other assets for a mortgage loan.
- Credit – What’s your score? Do you have a good history of paying your bills on time?
Of these four items, only one might relate to a home inspection – Collateral. The lender wants to make sure that the house is worth what you are buying it for, and what the note is for. As a result, a home appraisal will be performed.
What is a Home Appraisal?
An appraisal is an opinion of the value of Real Estate. This is typically performed by a licensed appraiser who will give an unbiased value to the property. Usually, this is very close to the fair market value.
The appraiser will visit the home (which takes less than an hour), then return to their office to write up a report. This report will have the value of the home.
During the visit, the appraiser isn’t looking for problems. Instead, they are looking at things like the overall condition of the home, any features or upgrades it may have, as well as the location.
This value can be different from the offer or contract price, but that is a different article.
While it would seem like the appraiser would be looking for major issues with the home, that is the job of an inspector.
However, if the appraiser does find a defect or significant issues with the condition that could trigger the lender to ask for more information, which could require an inspection.
The lender wants to verify that the condition of the property is equal to what they are lending. In other words to make sure there are no significant problems that could affect the value.
What is a Home Inspection?
A home inspection is something your real estate agent will suggest YOU have done. Honesty is in your best interest to have this performed before your home purchase. This goes for both new homes as well as resale.
It is always a good idea to have a professional, licensed inspector (not just a friend or handyman) visit the house and look for potential problems.
Inspectors are licensed by the American Society of Home Inspectors and can usually access the home like your agent, but coordination with the sellers is required.
Usually, inspections happen quickly. They are scheduled and happen within a 1-2 day time period. The home inspection cost is around $500 (based on the size of the home) but the location and features may change that number.
Things a Home Inspector will Examine
The Home inspection process can happen quickly and a licensed inspector will look at a lot of different things. Commonly the areas inspected include (but are not limited to):
- Structural Systems
- Roofing Material
- Roof Structure / Attic
- Ceilings and Floors
- Fireplaces & Chimneys
- Porches, Balconies, Decks, and Carports
- Electrical Systems
- Service Entrance and Panels
- Branch Circuits
- Heating, Ventilation & Air Conditioning Systems
- Heat Exchanger
- Interior & Exterior Units
- Plumbing System
- Water Heater
- Water Damage
- Ranges Cooktops & Ovens
- Mechanical Exhaust Vents and Bathroom Heaters
- Garage Door Openers
- Additional inspections
- Sprinkler Systems
The process can take anywhere from 1-6 hours. It is encouraged for you, the buyer to attend the inspection.
Once the physical property inspection is complete, a home inspection report is generated showing the condition of the house.
A pest inspection is an add-on, and depending on your state, the inspector may need additional qualifications.
If your Real estate agent has negotiated a home inspection contingency, you may be able to leverage the findings to get a price reduction, repairs made, or if the issues are significant enough, to back out of the deal.
Some key things to look out for are safety issues, as well as significant expensive repairs. Depending on your market you may be able to negotiate some cosmetic repairs like paint and flooring, too.
But none of these things affects the appraisal in the home buying process.
What is the difference between an Appraisal and an Inspection?
An appraisal is very different from an inspection. An appraisal gives a dollar value to a home, while an inspection points out all the issues and flaws. While each is important to have, they are not connected.
Does a conventional loan require an inspection?
A conventional mortgage is one that conforms to Fannie Mae and/or Freddie Mac’s requirements. That means it is not backed by a government agency, but instead by private investors. They account for about 80% of all loans and DO NOT require an inspection.
Do FHA loans require an inspection?
FHA stands for Federal Housing Administration and is backed by the Federal Government. If your credit score won’t qualify you for a conventional loan, you may want an FHA loan. Additionally, if you don’t put down 20% an FHA loan may be for you.
FHA loans do require an appraisal, but do NOT require an inspection. You do need an approved FHA appraiser, but your bank can handle finding one for you.
However, the paperwork you receive will state “a home inspection will only occur if you arrange for one. FHA does not perform a home inspection”. But, (there’s always a but) – The FHA appraisal does have guidelines. They can be found in the FHA government document and some of the highlights are:
- All appliances must function properly.
- Electrical outlets and switches must function properly.
- Roofing cannot leak and must have at least two years of life remaining.
- No active termite infestation.
Now, while the appraiser isn’t looking for these things, if they find them, they may ask for an inspection to confirm the property can pass all the requirements and is in good condition.
Do USDA loans require an inspection?
A USDA (US Department of Agriculture) is a zero-down loan program, however, the house or property needs to be in a defined rural zone. NO inspection will be required however an appraisal is.
Do VA loans require an inspection?
VA loans do NOT require an inspection, however, they do need an appraisal
The short answer for Is a Home Inspection Required for a Mortgage is NO, however it is in your best interest to have one done. The small price of a home inspection is small compared to the overall price you will be paying. Remember, Caveat Emptor – buyer beware – Don’t just trust the sellers to tell you everything – do your homework and find out for yourself with a good inspector who will completely look over the current condition of the house.
If you are getting a new home I do recommend having both an appraisal as well as an inspection for your peace of mind.