There is a lot of confusion surrounding whether the FHA requires an inspection. The answer is no, the FHA does not require an inspection, but it does require an appraisal. It may sound like I just negated my answer because we use these words interchangeably in everyday speech, but to the FHA, an inspection and an appraisal are two very different things. While I wish the answer were more straightforward, the good news is that we are here to clear up the confusion.
Today we'll review the difference between an FHA Appraisal and an FHA Inspection and outline how each may affect your homebuying process.
Let's dive in!
FHA Inspection vs. FHA Appraisal
If you’re thinking about using the FHA loan program to buy a home, you might be wondering how an inspection or appraisal will come into play. First, let’s review the key differences between the two.
|FHA Inspection||FHA Appraisal|
|Not required by FHA||Required by FHA|
|Conducted by an independently qualified inspector||Conducted by an FHA-approved appraiser|
|Property evaluated using independent inspector guidelines||Property evaluated using Minimum Property Standards|
|Inspector provides an in-depth report that can assist buyers in negotiations and prevent costly repairs||Appraiser provides a report and assigns the market value of the property|
The FHA inspection and FHA appraisal also share several similarities:
- Both processes consider safety and security when assessing the home's systems.
- The appraisal and the inspection (if completed) contribute to the lender's decision-making process for approving the FHA loan.
- Borrowers are responsible for the costs of an FHA appraisal and an FHA inspection should they decide to get one.
FHA Inspection Requirements
You may wonder why you would order a home inspection when an appraisal is required as part of the FHA approval process. The truth is that home inspections are always highly recommended. The job of appraisers is to ensure that the home complies with FHA minimum property standards and determine the property's market value. This means that appraisers will not evaluate a home to the level an inspector will.
Appraisals and inspections can have a lot of overlap, so to give you an idea, here's a list of items an inspector will review in-depth:
- Home Construction: The inspector will perform a more thorough evaluation of the property's structural components, including foundation, framing, and overall stability. Inspectors may also evaluate unauthorized or poorly executed structural modifications, additions, or renovations that do not meet building codes and can lead to significant structural defects. This includes alterations that compromise load-bearing walls, introduce structural weaknesses, or lack proper engineering oversight.
- Electrical Systems: The inspector examines the electrical system in greater detail, testing outlets, verifying proper grounding, assessing the condition of the electrical panel, and checking for safety hazards like outdated wiring.
- Plumbing Inspection: The inspector assesses plumbing fixtures, pipes, and connections for leaks, checks water pressure, and inspects drainage systems, which may go beyond the scope of the appraisal.
- HVAC Evaluation: The inspector may thoroughly examine the heating, ventilation, and air conditioning systems, testing their efficiency, functionality, and potential maintenance needs.
- Roof and Attic Inspection: The inspector assesses the roof's condition, including checking for signs of leaks, damage, or inadequate ventilation. They will also evaluate the attic for insulation, ventilation, and potential issues, if applicable.
- Testing of Appliances: The inspector may test various appliances, such as the dishwasher, stove, or garbage disposal, to ensure they are in working order. If applicable, they may also evaluate additional systems, such as septic tanks, wells, or sprinkler systems.
- Cosmetic Issues and Materials: While cosmetic aspects generally don't impact the FHA appraisal, the inspector may note minor problems such as peeling paint, cracked tiles, or worn-out fixtures that could be helpful for the buyer's decision-making process.
It's important to understand that while a home inspection provides a more comprehensive evaluation of the property's condition, it is not a substitute for an FHA appraisal, which focuses on determining value and compliance with minimum property standards.
FHA 203k Inspection
An FHA 203(k) loan, also known as an FHA 203(k) Rehab loan, is a specialized type of FHA loan that allows borrowers to finance both the purchase or refinancing of a home and the cost of repairs, renovations, or improvements into a single mortgage loan.
So what is an FHA 203(k) inspection? The case is still true that the FHA does not require an inspection, even for the 203(k) loan. As with other FHA loan types, appraisals are required here. For more information, check out our comprehensive guide to the FHA appraisal.