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Question:  If my lender requires me to pay for a property appraisal, do I still need to pay for a Home Inspection?

Answer:  Yes.

Actually the question is a very good one. Mostly because it highlights the confusion that still exists between the separate and vital roles that the Appraiser and Home Inspector play in the homebuying process.

The fundamental purpose of the appraisal is to determine the current market value of a property so that the lending institution (bank, mortgage broker, or government agency such as VA, FHA, etc.) can justify the loan amount requested by the borrower. Therefore, the appraiser's job is to protect the lender from making a bad investment should the borrower default on the loan.

Contrary to popular belief, the purpose of the property appraisal is not to predict or forecast the future market value of the property.  Also, many people make the mistake of assuming that since the appraisal makes a physical "inspection" of the property, the appraisal can take the place of a home inspection.  This quite simply is not the case. 

The fundamental purpose of the home inspection is to determine the current condition of a property so that a prospective homebuyer can make a more informed purchase decision.  Accordingly, the home inspector's report will go beyond the appraisal by evaluating the physical condition of the roofing, foundation, siding, electrical system, air conditioning and heating systems, plumbing, bathrooms, doors, windows, ceilings, walls, floors, and appliances.

With few exceptions, the home inspection is not a requirement of the lender.  It is entirely the homebuyer's decision to hire a home inspector.  (However, FHA now encourages homebuyers to hire an inspector by allowing them to finance up to $300 in inspection fees into their FHA loan).  As a result, government agencies like the Department of Housing and Urban Development (HUD), strongly encourage all homebuyers to educate themselves by having their home inspected in order to uncover problems that often go undetected by an appraisal.

It is common for homebuyers to confuse the role of the Home Inspector and the Appraiser, particularly on FHA or VA loans.  That is because lenders and real estate agents sometimes make the mistake of calling the VA appraiser an "Inspector."  Many homebuyers make the mistake of assuming that the VA appraiser is inspecting the home "for them," when in fact the VA appraiser is appraising the home for the Veterans Administration.  The home inspector is the only person who actually inspects the home for the homebuyer.

Related Articles:

  • HUD Cracking Down on Unreliable Appraisals:
    Because inspections are much more detailed than appraisals they can detect major problems not found by an appraisal, HUD will require appraisers to recommend to homebuyers that they get a full inspection of a home they are considering purchasing if the appraiser finds significant problems with the home. 

  • Home Inspection Fee Financed by HUD: HUD will allow homebuyers to finance up to $300 in home inspection costs through FHA mortgages - up from the current $200 figure, to account for inflationary increases in the costs of inspections. HUD also will allow and recommend that communities use funds from HUD's Community Development Block Grants and HOME program to pay for home inspections for low- and moderate-income homebuyers.

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