Five important takeaways from this article:
- Home inspections usually aren’t required for a mortgage loan.
- They’re optional, meaning it’s up to the buyer to request one (and pay for it).
- Home appraisals, however, are required for nearly all mortgage loans.
- FHA and VA appraisals include a basic property review, making them unique.
- Contingencies allow buyers to back out, based on the inspector’s findings.
“Is a home inspection required when using a mortgage loan to buy a house?”
This is a common question among first-time and repeat buyers alike. We’ve already covered the short answer above. Generally speaking, home inspections are optional. They’re typically not required for mortgage loans. That means buyers can choose whether or not they want to request one.
FHA and VA loans are a little different. Technically speaking, neither the FHA or VA requires a standard home inspection. But they both require a home appraisal, and there’s a basic property-inspection component “built into” the appraisal. So the government-backed mortgage programs work differently.
Home Inspections Not Required for Most Mortgages
When buying a house, you will have an opportunity to have the home thoroughly inspected before proceeding with the transaction. This inspection is entirely for the buyer’s benefit. It is designed to give you a clearer and more detailed picture of the property’s condition, including any items that might need repair down the road.
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 process that you can decide on for yourself, as the buyer. Reading the rest of this article will help you make an informed decision.
FHA and VA Loan Process Is a Little Different
The home appraisal process for FHA and VA loans is a little different, when compared to a conventional or “regular” mortgage loan. The Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA) do not require borrowers to have a home inspection. But they do require appraisals.
With a regular mortgage loan — i.e., one that is not backed by the government — the home appraisal determines the current market value of the property. That is its sole purpose.
But with a government-backed mortgage program, like FHA and VA, the appraiser must also review the property to ensure it meets the agency’s minimum property requirements. So it’s sort of like an appraisal and a “mini” home inspection, all rolled into one.
Here’s how the Department of Veterans Affairs explains the difference, in VA Pamphlet 26-7:
“While VA-assigned fee appraisers must note any readily apparent repairs that are needed, it is important to distinguish the differences between a real estate appraisal and a home inspection report. The fee appraiser will not perform operational checks of mechanical systems or appliances.”
Bottom line: A standard home inspection is not required for FHA or VA mortgage loans. But both agencies do require an appraisal to determine the market value, and there’s a basic property review built into that process.
What the Inspector Does, and Why It’s Important
A home inspection is not intended to “make or break” the real estate transaction. Instead, it’s designed to inform the potential buyer about any property defects, problems, or issues that might not be obvious at first glance.
A good home inspector will thoroughly examine the property, from top to bottom. In many cases, this means climbing up on a ladder, crawling into the crawlspace, testing the installed systems, etc.
According to the California Real Estate Inspection Association:
“A complete inspection includes a visual examination of the building from top to bottom. The inspector evaluates and reports the condition of the structure, roof, foundation, drainage, plumbing, heating system, central air-conditioning system, visible insulation, walls, windows, and doors.”
After reading this, you can probably see the value of this process. While a home inspection might not be required for your mortgage program, it’s still a wise (and relatively small) investment. It gives you a clearer picture of the property’s true condition.
Bottom line: Nearly every buyer can benefit from having a complete home inspection, even though they’re typically optional.
Pros and Cons of Waiving the Home Inspection
Some buyers choose to waive (or skip) the inspection altogether, in order to make their purchase offers more attractive to the seller.
This is a common strategy in a hot real estate market, where house hunters have to compete fiercely for limited inventory. In a highly competitive housing market, buyers will sometimes waive the inspection. They might also waive other contract contingencies, such as the appraisal or financing contingency.
Waiving a home inspection (or other contingencies) might strengthen your offer in the eyes of the seller. But it brings some potential downsides for you, as the buyer.
If you discover a serious problem with the house after you’ve closed on it, you’re stuck with it. In contrast, if you’d had the home inspected before closing, you probably would’ve known about the issue — and had a chance to back out of the transaction.
Good Reasons to Have the Home Inspected
While a home inspection is typically not required, it does offer a number of important benefits for the buyer. Here are some of the reasons why you might want to consider having a property inspected, prior to purchasing it:
- Identifying problems. A home inspection can help you identify serious problems with the property, including structural problems, electrical issues, potential hazards, plumbing problems, and much more. These are obviously things you want to know about before buying a house.
- Peace of mind. When you have a house thoroughly inspected, you can proceed with the sale knowing there probably won’t be any unpleasant surprises after you close. And you can’t put a price on that kind of peace of mind.
- Bargaining power. If the home inspector identifies serious issues with the property you’re considering, you might be able to negotiate a reduction in the sale price, or have the seller repair the problem.
- Maintenance planning. An inspection could help you plan for future maintenance or repairs, allowing you to budget accordingly and address issues before they become major problems.
When you weigh all of these benefits against the relatively modest price of a home inspection, you can see the value of having one — even if it’s not actually required.
Using a Contingency to Back Out of the Deal
Let’s assume that you choose to have a home inspection, even though it’s not required by your mortgage lender. Let’s further assume that the inspector discovers a serious issue you’re not comfortable taking on (like asbestos of structural issues).
What are your options then? Can you back out of the deal?
If you include an “inspection contingency” within your purchase contract, you should have the option to back out of the sale based on the inspector’s findings. Just make sure you understand the wording of the contingency clause, along with the timeframe it specifies.
According to the legal advice website NOLO.com:
“One of the best things about the home inspection contingency in a purchase contract is that, in most contracts, it is a highly subjective contingency. In other words, the buyer most likely has the option to back out of the contract prior to the inspection deadline for nearly any reason: the house smells funny, it turns out that there isn’t a sprinkler system, or the buyer just feels the house has bad juju.”
But you’ll only gain this kind of protection if you (A) have the home inspected and (B) add a contingency to your purchase agreement. This is why many buyers have an inspection performed soon after the seller accepts their offer.
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 the property will probably have to be appraised, before the mortgage lender will fund the loan.
Here’s how an appraisal differs from an inspection:
- A home inspector will mainly focus on the condition of the property and all of the installed systems. He or she will also keep an eye out for any potential health and safety issues. The inspector will compile all of these findings in an inspection report and go over it with the buyer.
- A home appraiser, on the other hand, 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. These findings will be delivered back to the lender.
Mortgage lenders require a home appraisal to ensure the property is worth the amount you have agreed to pay for it. Remember, the property is used as collateral for the loan. So the market value is important.
Recap: Is a home inspection required for getting a mortgage loan? The short answer is no. They’re usually optional, and it’s up to the buyer to request one. But mortgage lenders almost always require an appraisal to be done, before they will approve a home loan and release funding.
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author