Some lenders will be hesitant to finance a home that has not been inspected as they cannot be certain of the true value and state of the home.
Home inspections are a crucial step in the buying process as they allow all parties to clearly understand the state of the home and whether any repairs will be necessary, which is often a contingency of the offer. In seller-friendly markets, some buyers may offer to waive the home inspection contingency to present a more favorable offer that might close the deal more quickly. However, there are many considerations to make before doing this, and financing is a key aspect.
“We always encourage buyers to conduct a home inspection prior to closing on a home,” explained Adam Long, president of HomeTeam Inspection Service. “While it’s important to be fully aware of the current state of the home itself, completing an inspection is also required to receive financing in many cases.”
A Home Appraisal Is Not a Home Inspection
The appraisal and inspection processes are similar in that they work to uncover any details of the state of the home that could impact the value. However, a home
inspection may not always be required by lenders, even if the appraisal is required. Lenders use an appraisal to evaluate the value of the property as a whole and determine whether they are lending more money than the home itself is worth — a big business risk.
This is an important distinction to make, as having an appraisal completed does not negate the need for a home inspection. Certified home inspectors are educated to identify potential issues and provide a report that allows the buyer to fully understand the state of the home. Appraisals do not include potential issues with and a home inspection should always be performed during the home buying process even if the inspection contingency is waived within the real estate contract.
How a Home Inspection Can Impact Financing
Home inspections commonly result in negotiations between the buyer and seller. Sometimes, the buyer will ask for certain changes or repairs to be made prior to finalizing the purchase, but other negotiations end in a simple adjustment of the purchase price. By reducing the sale amount, the buyer has additional funds to address any repairs in the home after closing day, but this changes the terms of the purchase agreement. This, in turn, can change financing arrangements.
Though home inspections are not always mandatory for lenders to offer financing, there are some cases in which an inspection is required. With both an appraisal and inspection, the lender can have more confidence in the condition of the property and value of their collateral. If a required inspection reveals any major issues, the lender may not approve the loan before concerns are addressed, delaying the financing process as a whole. Similarly, some lenders will approve a loan contingent on the results of a home inspection. If the inspection report is less than satisfactory, the loan may not be approved or may be offered with different terms.
Oppositely, a positive inspection report could encourage a lender to offer better interest rates or other favorable terms, which can potentially reduce the total cost of the loan in the long run.
How to Prepare for the Buying Process
Because the potential impacts of a home inspection are varied and depend on multiple factors, considering potential financing options at the beginning of the process can be a helpful starting place. Understanding which lenders have favorable offerings and how the results of a home inspection could impact financing options prepares buyers to make a plan and navigate the process with clear expectations.
