What’s the Difference? (Part 3)

(Part 3 of 3 posts on terminology that can often create confusion)

What’s the difference between an “inspection” and an “appraisal”?

These terms can often get confused because they happen relatively close together in the loan process and because, at first glance, they seem to cover the same thing.  Obviously they are different (or this wouldn’t have been a topic of a blog) in what the purpose of each one is and even in when each is used.

An inspection is used for a home purchase and usually takes place shortly after the purchase agreement has been signed.  The intent is to allow the buyer to closely ‘inspect’ all areas of the home for quality and/or potential problems.  In many cases your purchase offer can be dependant upon your satisfaction with the results of the inspection.  Therefore, an inspection is usually required to happen within 7-10 days of the purchase offer being accepted by the seller.

A state licensed inspector will carefully review all areas of your home including the plumbing, electrical and heating/cooling systems; roof, windows and foundation; drainage of the property; and even potential pest problems.    Even though you will be issued a complete written report of the findings, it is a good idea to tag along and learn the in and outs of your new home.  While not required, home inspections are now strongly recommended.  (A side note here.  Despite inspections not being mandatory, make sure that any inspector you do use is actually licensed by the state.  Oddly enough, not all of them are.)

An appraisal is a review of your home that analyzes the value of your home and property compared to surrounding homes of similar size and style that have sold in the past 6 months.  The end result is a dollar value used to determine your maximum home loan amount.  Appraisals are now completed on all home loan transactions including refinance loans.

So in review, an inspection critiques the quality and safety of your home; an appraisal judges the value of your home compared to those in the neighborhood.

Hopefully you found all three of these posts helpful to you.  In case you missed one, here they are again:

Part 1 – What’s the difference between a pre-qualification and a pre-approval?

Part 2 – What’s the difference between a closing cost and a prepaid expense?

If you have specific questions relating to home loans, the mortgage industry or maybe just a thought, leave us a comment.  We’d love to hear from you.

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