June 29, 2017
What is an FHA loan inspection? That is a tricky question to answer because the very phrase “FHA home inspection” implies something that is not true; that the FHA puts a stamp of approval on homes promising the borrower that they are defect-free once “inspected”.
There is no such thing as an FHA home inspection. There IS, however, an FHA home APPRAISAL. But borrowers tend to mistakenly assume that the appraisal process is the same thing as a home inspection. These two things could not be further apart.
Home Inspections Are Optional, But Very Necessary
A home inspection (not an FHA appraisal) is an optional process the borrower is responsible for arranging and paying for and is not associated with the FHA appraisal in any way. The inspection should be carried out by a licensed or otherwise qualified professional, and will provide a very up-close look at the condition of the property. The home inspection is not required by your lender, the FHA, or the seller.
However, paying for the home inspection is really the only way a borrower can make a fully informed purchase.
The Inspection Is Not The Appraisal No Matter What Terminology Your Loan Officer Uses
A lot of people use “appraisal” and “inspection” interchangeably. However, when your lender discusses the required FHA appraisal, even if he or she uses the phrase “inspection”, the FHA appraisal will never be the same kind of up-close examination of the property. Nor is it intended to be.
FHA loan rules require the lender to get an appraisal to insure a property meets MINIMUM standards, and also to assess the fair market value of the home. The appraisal is for the lender, but an inspection is for the borrower. If you try to purchase a home with an FHA loan and rely on the appraisal alone to inform you as to the condition of the property, you’re doing the basic equivalent of purchasing an automobile without taking it out for even a single test drive.
Borrowers must pay the appraisal fee as part of the standard costs of getting a home loan. It’s tempting to neglect the home inspection because there is also a fee for this service, but there is no protection or recourse from the FHA for a borrower who buys a home without having it inspected first, relying on the appraisal alone as an FHA seal of approval.
The FHA Warns Borrowers Not To Rely On The Appraisal As A Stamp Of Approval
The FHA official site has a publication titled, “For Your Protection, Get A Home Inspection” which reiterates what we’ve said here-that the FHA appraisal process is not an inspection, is not intended to inform the borrower as to the complete condition of the home, etc. The FHA and HUD cannot reimburse or otherwise help a borrower who purchases a home with an FHA mortgage, does not choose to pay for a home inspection, and finds problems with the house later on.
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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