Do lenders require a home inspection for mortgage approval?
“Do lenders require a home inspection for mortgage approval?”
My short answer is that the lender doesn’t really need a home inspection because they get the information they need from the appraisal.
The home inspection, however, is important when it comes to the borrower securing homeowner’s insurance for their home, and often the inspection can determine the cost of the insurance premium per month. It also affects the borrower’s ability to even get insurance. Today though, we’re going to go into why the lender in particular does not need the borrower to give them home inspection documentation as a condition to be met on the file.
Securing home financing can feel overwhelming. Lenders ask for a lot of information not only about you, but the property as well. It’s their job to make sure the collateral is worth what you’re paying so they don’t get in over their heads if you default.
One question that comes up often is whether lenders require a home inspection.
The answer is, ‘they don’t.’ Here’s why.
Why Lenders Don’t Require a Home Inspection
Lenders usually don’t require a home inspection because the home appraisal tells them what they need to know. The appraisal tells the lender a home’s market value. In other words, if they had to take possession of the home and sell it because you stopped making your payments, would they make enough money?
That’s what lenders care about.
This, however, doesn’t mean you shouldn’t get an inspection.
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Reasons you Should Consider a Home Inspection
You might think since lenders don’t require a home inspection that you should skip it. Don’t!
Yes, it’s another expense, but $300 – $500 is a lot better than losing hundreds of thousands of dollars if you find out AFTER you buy the home that it has major issues.
Here are some key reasons to consider a home inspection.
Get a good perspective on the home’s condition – An appraisal looks at the ‘big stuff’ but doesn’t get down to the small details. An inspector will tell you what’s wrong with the home and what its effects could be.
Learn about mold problems early – Mold can be detrimental to your home and your health. If it’s hidden, it won’t get exposed until you own the home and its growth causes issues. An inspector, however, will catch it right away and advise you on how to proceed.
Know everything that’s wrong with the home – Sometimes we don’t want to hear the negatives, but knowing a home’s roof only has a couple of years or the electrical is out of code is something you’d likely want to know before buying a home. It will completely be worth your time and pain to know these things up front rather than later!
A home inspection isn’t meant to turn you away from a home. It’s meant to empower your decision. Don’t delay the inevitable. What if there are issues you don’t want to deal with, such as mold growth or an electrical problem?
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The lengthy inspection report you get can seem overwhelming, but it will come in handy, not only to help in your purchase decision, but also if/when you own the home. You can refer back to the report, seeing what was wrong when you bought it to give you insight into what maintenance or repairs the home may need sooner rather than later.
Final Thoughts
Most lenders (me included) strongly recommend a home inspection. Consider it an investment, rather than an expense. After all, you’re investing in the financial future of owning the home. If it’s a bad financial decision, you’ll know right away and you’ll only be out $300 – $500 instead of hundreds of thousands of dollars!