December 16, 2011
One of the most commonly asked questions about FHA loans concerns appraisals and inspections. What’s the difference between the two?
An appraisal is a mandatory part of the FHA loan process. Without an appraisal, there can be no FHA home loan because there’s no way to establish the fair market value of the property in the eyes of the FHA. In some rare cases an appraisal may not be required because a previous FHA appraisal has not expired yet, but borrowers should expect and budget for an appraisal in most cases.
The FHA appraisal is not a comprehensive, top-to-bottom review of a home to discover any/all defects or issues with the home. The FHA appraisal does not guarantee the home is free from defects or other problems.
An FHA appraiser is not an expert in all areas–especially where highly specialized training is required. For example, an appraiser may not be trained in Radon or lead issues, or be an expert on foundations. The appraiser’s job is to review the property, note any obvious defects or conditions found, and assign a fair market value to the home. No promises or guarantees are implied even when the home passes an FHA appraisal.
An FHA appraisal is paid for by the borrower, but the appraiser is selected according to FHA rules.
A home inspection is a different story. This is something also paid for by the borrower, but the inspector is not chosen for you as the FHA appraiser is. It’s the borrower’s responsibility to locate and hire a home inspector.
The inspector gives a much more comprehensive look at the home to find defects or other issues, and borrowers should not commit to an FHA mortgage without the benefit of a home inspection. Borrowers are urged to add a clause into any commitment made in writing on a home that said commitment is dependent on the results of the home inspection.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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