Appraisal or Home Inspection?

People sometimes confuse a home inspection and an appraisal when they are in the process of buying a home.

Most mortgage applications involve an appraisal, which can be a physical inspection of the property plus a written analysis of similar homes that have recently sold in the area. An appraisal can also be what is known as a "valuation" and can be the result of pulling data from a database that compares home sales in the area, tax records and other information that will give the lender a range of value.

Since the true value of a home is what a willing buyer and a seller who is not in distress will agree on, the lender is typically just looking for verification that the sales prices can be supported by neighborhood data and the loan risk is minimized.

A Home Inspection, however, can be done at any time, but is especially helpful at the time of purchase to discover defects. The mechanical systems of the home (heating, plumbing, electrical, roof, etc.) are reviewed to see if they merit further investigation. Each area of the home is checked against standard forms and guidelines to see what problems might need correction.

Home Inspectors can be a trained professional, licensed to perform true, in-depth inspections, or they can be the assistant to someone who went to class and got "certified" and bought an ad in the phone book. Get several recommendations or work with a name brand service so you have somewhere to go with a complaint.

There is the chance that your realtor or your lender will advise you not to bother. Why? Because when you see the 25+ page form filled with notes about a cracked sidewalk or a 10 year old heat exchanger or a broken window with some moisture nearby, you might kill the deal. First time homebuyers are especially nervous about everything and will use any excuseto act on their buyer's remorse.

FHA, however, recommends a Home Inspection on every purchase and you have to sign a form stating that someone told you that. Their reasoning is that the Appraiser will never catch everything that's wrong with a house and they don't want the liability or hassle from you later.

What should you do? Get the inspection. Have a trusted family friend or parent who understands your temperment and who has owned a home go over it with you. Let them tell you which items will cause you real grief and which things are just minor annoyances.

The realtor and the lender both have commissions or fees riding on your deal. There may even be deals stacked around this one as the seller buys a house and that seller buys another house, etc. You need someone who knows you and is not easily frightened to look over the report and tell you the truth.

Judi Moore authors Ask The Underwriter at 2rHouse.org and personally answers questions from readers about FHA mortgages and mortgage advice in general.