Yes, Your Prospective New Home Needs Both an Appraisal and an Inspection. Here’s Why

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Buying a house requires having a lot of third parties traipse through the home in question. Read on to learn why you need an appraisal and a home inspection. 

There are a lot of steps to buying a home. Even before you formally begin the process, you’re likely focused on tasks like saving a down payment and improving your credit score. Once you find a real estate agent and get pre-approved by mortgage lenders to see what kind of deal you can get, you’ll no longer be shouldering the work by yourself, and you’ll soon find yourself in a sea of various professionals weighing in and completing certain tasks.

Two big items on the home-buying checklist are getting a home appraisal and a home inspection. But what do these entail, and do you really need both? Let’s find out.

What’s a home appraisal?

If you’re buying a home with a mortgage loan (as is overwhelmingly likely to be the case), you’ll be required to get the home you want to buy appraised after your offer is accepted by the seller. A seller may also get a home appraisal ahead of listing a property, or you may need one if you want to refinance your mortgage. A home appraisal involves a professional home appraiser visiting the property and spending some time considering the condition of the home (inside and out), its size, the amenities it comes with, and more. The appraiser may also consider recent sales of similar properties in your area.

All of this information is used to figure out how much the home is worth in dollar figures. This is important because your lender will not give you more than the home is worth to purchase it. Ideally, your appraisal will find that the house is worth more than what you’ve offered. If the home turns out to be worth less, you’ll need to either negotiate with the seller for a lower price (and in this seller-friendly market, good luck) or come up with a larger down payment to make up the difference.

What’s a home inspection?

A home inspection is technically optional (unless you are buying with a government-backed mortgage loan such as an FHA or VA loan), but it’s strongly recommended when you’re buying. I personally recommend that you treat it as a requirement, because it can help you avoid a world of hurt as a buyer. A home inspection involves an in-depth look at a home’s physical condition, including the plumbing and electrical systems, the foundation, and the roof. If an initial overview inspection reveals potential issues with a certain part of the home, you may want to bring in a more specialized inspector.

You’ll get a report from the home inspector detailing the good, the bad, and the ugly with the house. If you have an inspection contingency in your offer (gosh, I hope so), you can then use this information to cancel your contract if the home requires too much work and the seller isn’t willing to lower the purchase price or fix the problems. Or, you can also elect to buy the home anyway, but it’s good to know in advance if you’re buying a money pit so you can adjust your expectations and budget accordingly.

Why do you need both?

As we’ve already seen, a home appraisal and a home inspection both involve taking an in-depth look at a property you’re hoping to buy. But each task exists for a different reason. If you’re buying with a mortgage loan, your lender needs to know for sure that it’s not lending you more than the home is worth. And even if you’re buying with a conventional mortgage loan and no inspection is necessary for it to go through, you’ll still want to know in advance about any potential problems with your dream house. In real estate, as in all things, knowledge is power.

As a home buyer, you’ll pay for the appraisal as a part of your closing costs, and will generally pay for a home inspection separately from all the bits and bobs that make up closing costs. While you may want to save as much money as you can on your home purchase, consider both an appraisal and an inspection to be necessary expenses.

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