Do Lenders Require a Home Inspection?
Mortgages are becoming one of the most popular ways to finance a new home. So much so that Bankrate figures suggest over 1.52 million households took a residential loan in the last quarter of 2022.
And for obvious reasons as lenders have of late introduced quite rewarding terms.
But if there’s one question both new and repeat homebuyers ask, it is, ‘Do lenders require a home loan?’
A short answer to this question is no, your typical lender will not require you to get your home inspected before issuing a mortgage.
Nevertheless, they may still suggest you conduct a complete home inspection. Also, meeting some of the mortgage conditions might call for an inspection.
Here’s more to mortgage home inspections.
What exactly is a home inspection for mortgage loan?
Before we get into the details of whether or not do lenders require a home inspection, let’s see what a home inspection is all about.
A mortgage inspection, like any regular home inspection, involves a visual analysis of the building from the inside out by a licensed inspector. And this includes some of the most critical areas of the home such as structure and foundation.
You see, home inspectors like myself are trained and certified to spot even the smallest of problems, including the ones that are hidden under the surface.
For instance, the roofing, plumbing, or electrical systems might have some underlying problems that you can’t see. However, my training and skills allow me to detect these problems and flag them in the inspection report.
Now, when it comes to home loans, or even buying a home in general, an inspection can help you fully understand the existing condition of the property. And with a complete picture, you can make the right purchase decisions.
If you’re wondering what’s more to a home inspection, you can go through our blog – What Is A Home Inspection?
Bonus: A lender inspection is different from regular home inspections
When we talk about a home inspection before loan approval, it is common to come across questions like, ‘What is a lender inspection?’
However, it’s essential for you to know that a lender inspection is entirely different from a pre-mortgage home inspection.
For starters, a lender inspection is typically conducted by the lender in multi-family buildings such as apartments during and after construction. And unlike a complete home inspection that involves detailed examination, lender inspections only cover the basics.
For instance, lender inspections look at the project’s speed, fund utilization, safety compliance, potential damage, home systems and appliances, etc. This is usually done in the form of a walkthrough and may not cover the areas that are looked at during complete home inspections.
So don’t be confused by the term lender inspection as it isn’t the same as a home inspection.
Do lenders require a home inspection or not?
Like we discussed earlier, a lender will never ask you to conduct a home inspection as a condition for loan approval. Meaning it is possible to get a home loan without inspection.
But the lenders may suggest you conduct a home inspection. And despite the fact that the cost of an inspection can run into hundreds of dollars, it makes complete sense to get one.
Why should you get a home inspection before loan approval?
To start with, lenders do have some mortgage conditions that have to do with the overall condition of the property.
Take Fannie Mae’s loan requirements, for instance, which needs a qualifying score of at least 620 for loan approval. And your property should be up to mark in terms of safety and code compliance to reach that score.
Now, a home inspection can not only determine if the property is meeting Fannie Mae’s requirements but also assure you about your investment.
Furthermore, a home appraisal is required by lenders before they approve your home loan. And although the scope of an appraisal is to establish the market value of a property, the appraiser might spot issues and list them.
As such, the lender may ask you to address the identified issues and have the property appraised again as a condition for loan approval. After all, the lenders want to ensure their investment is safe by all measures.
Is a home inspection required for a government-backed loan?
Apart from private lenders like banks, government-backed loans are also quite popular among new homebuyers. And rightly so, as they carry some amazing benefits including easy credit qualification, low down payments and interests, reduced closing costs, etc.
So you might find yourself asking, ‘Is a home inspection required for a mortgage that’s government-backed?’
However, the answer to this question is a bit complicated.
You see, there are two most popular government-backed mortgage schemes, namely the Federal Housing Administration’s FHA loans and the Department of Veterans Affairs’ VA loans. And the mortgage requirements for both these schemes are similar to private lenders in the sense that they don’t mandate home inspections but call for a home appraisal.
But there is a catch here.
While the sole purpose of appraisal for private lenders is to know the property’s real market value, government loan appraisers also review the property’s condition. In fact, these appraisers are needed to check if the property meets the minimum requirements of the lending agency.
Meaning whether or not you get an FHA or VA loan approved will depend on the overall condition of the home. So it’s a good idea to conduct a home inspection and have first-hand information about the property before applying for a government mortgage.
Do lenders require a home appraisal?
Yes, lenders do require a home appraisal before they approve a mortgage. And that’s because they want to make sure they’re not overpaying for the property’s actual worth.
You see, it’s commonplace for lenders to have a listing price that’s more than the real market value of the property. So a neutral third-party home appraisal is an important step in establishing the right listing price for the property based on factors such as location, existing condition, etc.
Home inspection vs. home appraisal: What’s the difference?
When we talk about a home mortgage inspection, it is common for homebuyers to confuse it with a home appraisal. And since an appraisal is required before mortgage approval, one might think of it as a mandatory inspection, which isn’t true.
So let’s understand the basic differences between a home inspection and an appraisal.
A home inspection looks at the overall condition of the property including its foundation, structure, roofing, walls, plumbing, etc.
Now, even though it’s in your best interest to get a home inspection, it is not mandatory at all.
A home appraisal, on the other hand, is necessary for mortgage approval and is meant to determine the exact value of the property. However, the appraisers while evaluating the market value might note some visible deficiencies, prompting the lenders to ask for an inspection.
You might also want to read – Is A Home Inspection Required For A Conventional Loan?
Home inspection before loan approval: FAQs
Do banks require home inspections before approving a loan?
No, they don’t.
Nonetheless, you will have to conduct a third-party home appraisal as the lenders want to verify the true market worth of the property. Also, if the appraisal report flags some concerns, the bank can ask you to get the property inspected.
That’s because the lenders want to make sure they pay for what the property is actually worth. And signs of potential problems mean a lower market value than the actual listing.
What does a home inspection for mortgage loan examine?
A mortgage inspection involves a complete examination of the property from the inside out. And this includes:
Interior elements namely:
- Basement
- Attic
- Plumbing
- HVAC
- Electrical system
- Home appliances
Exterior elements namely:
- Foundation
- Roofing
- Chimney
- Siding
- Garage
- Drainage
Is it a good idea to get a home loan without inspection?
Although it is possible to get a mortgage without having to spend extra bucks on inspection, it might not be the best option for you.
You see, oftentimes buyers resort to waiving the home inspection contingency in order to make their purchase offer more lucrative. But that also means there’s no chance they can know about some serious hidden problems before purchasing the property.
And for mortgage homebuyers, it’s a double whammy because apart from interest payments they also have to foot the bills for property repair and maintenance.
What are the advantages of a home inspection before loan approval?
There are numerous benefits of getting a third-party home inspection before you apply for a loan, including:
A. Complete identification of problems
Home inspection reports detail the potential problems and the implications they can have in the future.
For instance, when I spot a roofing leak while conducting an inspection, I list it in my report and also inform the homebuyer about its seriousness. This ensures the buyer makes an informed purchase decision.
B. Edge in negotiations
A thorough knowledge of the issues within a property means you can ask the seller to fix the problems before finalization of the deal. Also, you can renegotiate the deal and lower your purchase offer, which also means a lower mortgage and interest.
C. Appraisal qualification for government loan
As we discussed earlier, a government loan home appraisal also checks whether the property meets certain minimum requirements. In fact, the mortgage approval is based on the appraisal findings of the appraisal report.
So by having an inspection before a scheduled appraisal, you’ll know beforehand if the property qualifies for an FHA or VA mortgage.
You might also want to read – Third Party Inspection For New Home: A Complete Guide.
Get a Thorough Home Inspection Plan and an Estimated Project Cost for Free!
Conclusion
As you can see, whether or not do lenders require a home inspection has no direct answer. That’s because even though it isn’t mandatory to get an inspection, you might ultimately need to conduct one in order to meet mortgage requirements.
Moreover, if you’re applying for a government-backed loan, getting a home inspection means a supporting appraisal report and seamless mortgage qualification.
Looking for a thorough home mortgage inspection?
You can get in touch with us!
At Homestead PI, we’re a premier home inception team of seasoned inspectors with over a decade of extensive experience. Also, we provide customized inspections, which in turn ensures cost-efficient quotes.
Simply put, we’ve got all your inspection needs covered on a budget.
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