Home Appraisal vs. Home Inspection: What’s the Difference?
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When purchasing a home, homebuyers may wonder about the differences of a home inspection versus an appraisal during the homebuying process. Both options provide valuable information regarding the home that could affect your home purchase. In addition, one or both may be required by the lender before your mortgage loan can be approved. Therefore, it’s important to know what a home inspection and appraisal are and how they can aid you during closing.
Understanding the real estate appraisal process
A home appraisal is an estimate of a home’s fair market value. Licensed appraisers perform them and mortgage lenders often require an appraisal before mortgage approval.
The purpose of appraisal is to ensure the loan amount covers the cost of the home and that the home is worth enough to secure the loan. Future homeowners will generally need to pay for an appraisal of the property they plan to purchase. The home appraisal fee will vary, but it is typically as low as $300-$400. Your mortgage lender typically hires a home appraiser to conduct the real estate appraisal process.
Home appraisals also occur when someone is selling a house and wants to assign the correct listing price. This type of appraisal is also known as a pre-listing assessment. You’ll also likely get an appraisal when you’re applying for a home equity loan or refinancing, getting a divorce or filing for bankruptcy.
What does it mean to get a home inspection?
A home inspection is a thorough inspection of a property that determines the condition of the property and reveals any repairs that need to be made. The key difference between appraisal and inspection is the appraisal focuses on the home’s value, while the inspection focuses on the home’s condition. Unlike a home appraisal, a home inspection is usually optional. However, depending on your specific mortgage product, your lender may require a home inspection as part of your mortgage application.
Once a buyer has made an offer, they have the option to hire a home inspector to visit the home and perform an inspection. Since the home inspection is a tool that can protect the buyer, the results give the buyer the opportunity to decide if they want to walk away and find another home to purchase, buy the house as is or attempt to negotiate with the seller and hold them responsible for the repairs before the home is officially sold. Generally, the fee for a home inspection is between $300 and $500, and is based on a number of factors, including the home’s size and where it’s located.
Home inspection vs. appraisal
|Home Inspection||Home Appraisal|
|Evaluates value of home||√|
|Evaluates interior/exterior condition of home||√||√|
|Identifies items of home in need of repair||√|
|Required by mortgage lenders||√|
|Paid for by buyer||√||√|
Differences between an appraisal and inspection
Although home appraisals and home inspections are somewhat alike, there are a few key differences people should take note of if they plan to purchase a home.
- The purpose of appraisal is to determine the fair market value of the property, while an inspection determines the condition of the home and identifies any items in need of repair.
- While a home appraisal is required by mortgage lenders, a home inspection generally is not required.
- A home appraisal is performed by a home appraiser who evaluates the home’s value, while a home inspection is performed by a home inspector who evaluates the home’s condition.
Similarities between an appraisal and inspection
Home appraisals and home inspections have a few similarities, which is why people may not fully understand how the two differ.
- Both examine the interior and exterior condition of the home, but for different reasons.
- Both offer some sort of protection to the buyer. An appraisal ensures you get the proper loan amount and the house is worth enough to secure the loan. An inspection identifies any repairs that need to be made, giving the buyer the opportunity to walk away, buy the house as is or negotiate for the seller to make repairs.
- The buyer typically pays for both the appraisal and the inspection.
What to know about FHA and VA appraisal inspections
Home appraisals and home inspections are usually two different tools, but under certain circumstances they may be combined. The prime example: FHA and VA loans.
An FHA loan is a loan that is insured by the Federal Housing Administration and allows homebuyers to purchase a home with a down payment of 3.5% even without stellar credit.
When a homebuyer opts for this specific type of loan, a home appraisal is required; however, it is a bit more in-depth than the typical appraisal because the goal of a FHA appraisal is not only to determine the value of the home a borrower wishes to purchase, but also to ensure that the home is safe for the buyer to live in, structurally sound and can actually be used to secure the loan. Ultimately, what the appraiser finds during their visit to the home will help them determine if the property satisfies HUD’s minimum property requirements.
Similarly, a VA loan, which is backed by the U.S. Department of Veterans Affairs, goes a step further than a conventional home appraisal. A VA home appraisal seeks to prove the home is “safe, sound and sanitary.” The VA-approved appraiser will look to see if the home has adequate space for living, sleeping and cooking, as well as sanitary facilities. If the home is located in a rural area, the appraiser will look for private road access to the home. The appraisal also will document if the home’s drainage system adequately directs water away from the home. In addition, it will document if the home has access to safe drinking water provided by a local health authority.