FHA Loan Rules: Appraisals and Inspections
Inspections vs. Appraisals
People in the mortgage industry tend to be a bit casual about “inspection” when they really mean “appraisal.” Don’t be fooled by the word “inspection” because an appraisal is NOT a home inspection no matter how often the lender calls it one.
How to remember the difference? The appraisal is mandatory, but the inspection is not.
However, it may as well be since you should NEVER buy a home without having arranged to have it inspected first. A common practice is to make an agreement to buy with the seller contingent on the home passing the inspection.
A seller may ask you to forego the inspection in a competitive housing market. This is a terrible idea, and no matter how badly you want the property, buying with an appraisal only and no inspection is a recipe for dissatisfaction once you close the loan and take the keys.
Some borrowers learn as early as one month into why it was a terrible idea to buy the home without having it inspected. Some don’t learn until much later when an issue such as mold, a leaking roof, or a compromised foundation becomes apparent.
Home Inspections vs. Pest Inspections
Here’s another important difference; a pest inspection may or may not be required for your home loan depending on circumstances.
A pest inspection may be required if there is ANY evidence of “wood-destroying pests” as HUD 4000.1 puts it. This may be uncovered during an appraisal process. But pest inspections are totally separate from home inspections both in procedure and cost.
Compliance Inspections vs. Appraisals and Home Inspections
A compliance inspection is sometimes required because the appraisal turned up issues that required corrections or repairs as a condition of loan approval.
In such cases, the borrower and seller aren’t left to decide how and when these repairs must happen; FHA loan guidelines in HUD 4000.1 specify the conditions under which a compliance inspection is required and how it should be done.
Loan approval will depend on the compliance inspection, a separate cost from the appraisal. It’s smart to save some money for this, just in case. Such unanticipated costs are commonplace for house hunters but some don’t learn this until it’s too late.
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