Reader question: “We are preparing to buy our first home, and I was wondering if a home inspection is always required when using a mortgage loan to buy a house. Is it a requirement in all financing scenarios, or is it up to the buyers?”
Home inspections are a worthwhile investment when you are buying a home, because they give you a more accurate picture of the property’s condition. But inspections are usually not required for mortgage loans. Lenders generally require home appraisals before they will fund a loan, but that is different from an inspection. FHA loans are a unique situation, and we will discuss them in more detail below.
Are Home Inspections Required for a Mortgage Loan?
When buying a house, you will have an opportunity to have the home inspected before signing all of the paperwork at closing to take ownership of the property. This inspection is entirely for the home buyer’s benefit. It is designed to give you a clear picture of the property’s condition, including any items that might need repair.
Home inspections can also help you identify potential hazards, such as faulty wiring within an electrical panel and similar issues.
But home inspections usually are not required by mortgage lenders. It’s an optional procedure that you can decide on for yourself.
Why It’s a Good Idea
At the Home Buying Institute, we strongly encourage buyers to have inspections prior to purchasing a house.
Unless you work in the construction industry, you probably don’t have the knowledge or expertise to evaluate the condition of a home on your own. That’s where the inspector comes in. These individuals are trained to evaluate all aspects of a house, including the roof, foundation, electrical and plumbing system, and more.
And when you consider the fact that home inspections usually cost around $300 to $400, the decision becomes even easier. That’s a small price to pay for peace of mind. Buying a house is a huge investment, so you want to do some due diligence before sealing the deal. And that includes having the property thoroughly inspected both inside and out.
Your Lender Will Probably Require an Appraisal
As mentioned above, a home inspection is generally not required when using a mortgage loan to buy a house. But you will most likely need to have the home appraised, before the mortgage lender will fund the loan.
An appraisal is different from inspection:
- A home inspector will focus on the condition of the property and all of the installed systems. He will also keep an eye out for any potential health and safety issues.
- A home appraiser, however, is primarily focused on determining the current market value of the house. The appraiser will use recent sales data in the local area, along with other tools, to figure out how much the property is worth in the current market.
Mortgage lenders typically require a home appraisal because they want to make sure the property is worth the amount you have agreed to pay for it. Remember, the property is used as collateral for the loan.
FHA Inspection Process Is a Little Different
The home appraisal process for FHA loans is a little different, when compared to a conventional or “regular” mortgage loan. The Federal Housing Administration does not require FHA borrowers to have a home inspection. But they strongly encourage it, and they even recommended it in writing.
The FHA does require a property appraisal to be conducted for all FHA purchases.
Now here’s where things are a little different. In addition to determining the market value of the property, an FHA-approved home appraiser must also evaluate the condition of the house. So it’s sort of like an appraisal and an inspection rolled into one.
This is a source of confusion for many home buyers, so we have a separate article on this particular topic. Learn more about the FHA appraisal and inspection process here.
Recap: Is a home inspection required for getting a mortgage loan? The short answer is no, inspections are generally not required when using a mortgage loan to buy a house. But lenders almost always want to have an appraisal done before they will approve a home loan, in order to determine how much the house is worth.