Homebuyers are often boggled by what a home inspection has to do with getting a home loan. The truth of the matter is that many mortgage lenders require a professional appraisal to be done but not necessarily mandate that a home inspection is completed. The condition of the property does play a significant role in any transaction and especially when it comes to certain kinds of loans. The Veterans Administration (VA) and Federal Housing Administration (FHA) loans have tougher guidelines than other loans.
For FHA loans the appraiser must confirm that the property is up to par with set FHA standards. If any defects are noted on the FHA appraisal report, then they must be repaired before the FHA loan is issued. The minimum property standards required by FHA protects the lender as the property serves as collateral and must try to recoup money should the borrower default on the loan. Three primary minimum property standards are set forth according to the U.S. Department of Housing and Urban Development (HUD) that FHA requires for financing, and they are:
Safety- “The home should protect the health and safety of the occupants.”
Security- “The home should protect the security of the property.”
Soundness- “The property should not have physical deficiencies or conditions affecting its structural integrity.”
In the case of a single-family detached home the appraiser will use the Uniform Residential Appraisal Report which requires the appraiser to describe the condition of the property (including repairs needed, remodeling/ renovations, and any deterioration). Should a home not meet the FHA standards homebuyers have other options such as a FHA 203(k) loan (we’ll go over this in a future blog post).
Just because the lender does not require a home inspection per say, it doesn’t mean that a home inspection isn’t warranted. Lenders just have different items that they look at to make sure that the property is worthy of lending money on. Home inspections are always a good idea when purchasing a home and a very low cost service that can save a lot of money in the long run should a property be purchased without a home inspection and costly repairs be warranted.