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Home Loan Appraisal & Home Loan Inspection
Difference between a Home Loan Appraisal and a Home Loan Inspection

Getting caught up in the vocabulary surrounding home loans? Well, if this is your first home purchase, then you are not alone. Home loan terms are bandied around and misinterpreted and sometimes it is just plain confusing for the prospective home loan borrower.

Two of the terms that some people confuse as interchangeable are “appraisal” and “inspection”. They are however, two very distinct and different processes in the bigger home loan approval process and really have nothing to do with one another. One is based on purely a dollar figure amount while the other is based on worthiness or soundness of the home in question. Both, however, are necessities when applying for a home finance.

Home Appraisal as part of eligibility requirements for a home loan

A home appraisal is a valuation. It is the dollar amount determined by a qualified appraiser hired or contracted by the bank or home finance company. In the case of the bank, the appraiser may be an employee of the bank and in some instances, the appraisal may be free.

In the case of the home finance broker, the appraisal report is usually completed by an outside individual or company contracted by the home finance company and paid for by the potential borrower as part of his or her application for a home loan.

The main reason an appraisal is ordered when applying for a home loan is to attach a dollar value to the home comparing it to similar homes in its neighborhood. The bank needs to be assured the borrower has not inflated the home loan amount required and the home finance company needs to assure its private lenders, that the home loan warrants the amount being financed.

When the appraiser comes to view the home on which home finances will be secured, he may write his report based solely on the outside of the home while others will view the inside of the home as well. Some of the things an appraiser may document are:
• the size of the lot
• the square footage of the home
• the existence of outside buildings such as garages and stationary sheds
• the condition of the exterior and interior
• whether the basement is finished or not
• whether any of the home has been updated
• the age of the home and type of home

Lastly, if the appraisal is ordered as part of the application process for a home loan, in most instances, the appraiser or appraisal company will not give you a copy of the report. Even though you may have paid for the report to be completed as part of the home finance approval process, you are not considered the company’s client. The bank or the home finance company is the client and because of privacy laws, they receive the only copy of the report. If for some reason you feel justified in seeing the report, you will need to inquire through the bank or household finance company.

Home Inspection as part of eligibility requirements for a home loan

When requesting a home loan, a home inspection is usually always mandated by the bank, especially when the amount of the down payment is low and the home finance is a large percentage. The home inspection specifically addresses the worthiness of a home and the structural soundness. The inspector will ascertain whether the structure of the home is sound and whether the individual components such as plumbing, electrical and materials meet code.

An inspection for the purpose of obtaining a home loan is usually multi-facetted and may include the following:
• The outside of the building will be inspected for any deterioration of the walls, crumbling of the stairs and general condition of the foundation.
• The inspector will ask about the roof covering and if it has ever been replaced and when. He will look for adequate eaves trough and where the eaves are drained.
• The windows will be checked and again if new, when were they replaced
• The inspector will walk the perimeter of the property looking for any hazards or unsafe conditions. These might include gas meters that are too close to driveways, wells that are not capped and garages or outbuildings that appear unsafe.
• Inside the home, the inspector will inspect the basement for any cracks or leaks in the foundation. Pictures will be taken of problem areas.
• He will review whether the home uses circuit breakers or whether it is uses fuses. In most areas now, the circuit breakers are required as part of the electrical system.
• He will check the plumbing for old lead pipes, leaking of the pipes and substantial rust in the pipes.
• The furnace will be checked and usually the inspector will want to see the stamp from the last time the furnace was serviced. If the furnace is gas, it will need to be checked and stamped by a qualified technician for mono-dioxide leakage.
• Throughout the home, the inspector will look for any uncovered and open electrical hazards.
• Any updates to the house will be noted. Renovations such as the finishing of the basement, kitchen remodeling, walls that have been removed and added and bathroom updates will be inspected for safety.
• The inspector will look for cracks in the walls and any areas that seem to have deteriorated.
• The condition of the steps from the basement to the main floor as well as any stair cases leading to a second floor of the home.

In addition, some areas and states where termites and other wood-damaging insects are a problem, the home loan lender will expect the inspection to include inspecting for infestations and previous damage. There may be other inspections as well, that are mandated by the state or municipality as part of the home loan process such as inspecting cisterns and well water for contamination.

Ultimately, the home loan lender will want to know that the home in question is insurable and that the home is worth the money for which it is being purchased. Again, the home loan lender wants to engage in a deal that is as least risky as possible. Both of these benchmark tools, the appraisal and the inspection are pieces of the home loan application process. Either one of these reports can lead a home loan lender to approve a home finance application or contrarily, decline the home finance request. The appraisal and the inspection usually protect all parties in the home loan application process. The potential homeowner can rest assured he has chosen a sound and fit home while at the same time the home loan lender is happy because the home is worthy of the home loan investment.

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