Appraisals and Home Inspections: What’s the Difference?
A home is one of life's most important purchases. Yet because there is no money-back guarantee, it makes sense to learn as much as possible about any property you wish to acquire. Understanding the important differences between an appraisal and a home inspection will help you to obtain detailed information about the home's value and condition - information you need to make an informed decision.
An Appraisal
An appraisal allows the lending institution to determine if the land and building in question are suitable as security for a mortgage. For conventional mortgages, a lender will in most cases require that a professional third party appraise the property to ascertain its current market value. In the case of a "high-ratio" mortgage (with a down payment of less than 20 per cent), the mortgage insurer will go through its own internal appraisal process. In particular, lenders are concerned that the property (in terms of its age, condition, and remaining economic life) constitutes a good match with the borrower and their ability to repay the mortgage. An appraisal does not usually include a detailed property inspection.
A Home Inspection
A home inspection is not used to determine property value, but will provide an assessment of the physical condition of a property. A well-trained home inspector will perform a comprehensive visual inspection to determine the condition of the building and all of its major systems (for example the roof, structural, heating, plumbing and electrical systems). While an appraisal is intended to provide the lender with sufficient information to decide on mortgage financing, a home inspection will hopefully reveal to a potential homebuyer that the building and its systems are in sound working order. If there are outstanding issues, a good inspector will provide the potential purchaser with a schedule outlining the estimated cost of repairs and when they will need to be done.
Your Invis Mortgage Consultant and your local realtor can provide further advice about how home inspections and appraisals can help you make a wise purchase.
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Paula Siemens
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