It’s easy to confuse an appraisal with a home inspection. Though both involve a third-party assessment of a property, they each have a unique end-goal in mind. While the appraisal is meant to assess the home’s fair market value, the home inspection is designed to evaluate the property’s safety and condition for the buyer.
Appraisals for government-backed loans include a look at the property in light of broad health and safety guidelines. But this evaluation is not as in depth or extensive as a home inspection.
Though USDA loans only officially require an appraisal -- not an inspection -- USDA buyers should still consider seeking one. Home inspections help buyers better understand the property they’re planning to purchase and provide options in the event the home has problems or defects.
Benefits of a Home Inspection
Getting a USDA home inspection provides a buyer with numerous benefits -- both short- and long-term.
A USDA home inspection can:
- Provide peace of mind - The main goal of the inspection is to identify potential hazards on the property that might pose a safety issue or threaten the health of the buyer or their loved ones.
- Help with negotiations - If issues or repairs are found, the buyer can renegotiate to have the repairs made or the sales price adjusted to account for them.
- A better long-term investment - Buyers can ensure they’re purchasing a home that will hold its value and deliver returns in the long-run.
- Prevent costly repairs and maintenance issues - The inspection can help prevent any hidden issues from cropping up later, posing a financial burden.
USDA Home Inspection Requirements
Since home inspections aren’t technically required, there are no specific USDA inspection requirements to adhere to. Buyers are free to hire any home inspector, and real estate agents can often recommend one or more reputable companies in your area.
Home inspection fees can vary based on the property, where in the country you’re purchasing and more. Buyers may want to compare fees and customer reviews from several home inspectors before making a decision.
The USDA Appraisal
Appraisals are typically meant to assess the total value of a property -- essentially to ensure it’s worth the loan the lender is offering.
After a lender accepts an application on a USDA eligible property, they must order the appraisal within three days. The appraiser will visit the property in person to:
- Evaluate the value and worth of the home on the current market
- Ensure the property meets all requirements on the Uniform Standards of Professional Appraisal Practice
- Verify it meets state and local building codes
In addition, USDA appraisers evaluate the property to make sure it’s safe, sound and sanitary. Homes need to meet a broad set of Minimum Property Requirements to help ensure homes are move-in ready.
Depending on what the appraiser finds, there may be additional inspections or repairs required. For example, if the appraiser finds signs of termite damage, the lender may require a termite inspection before the loan proceeds. Similarly, signs of water damage could require a mold inspection.
Those kinds of issues may need to be repaired before the loan can close.
The bottom line is that appraisals and inspections are not the same thing. Appraisals are required for a USDA loan, and while home inspections aren’t mandatory, buyers in almost every instance should invest in one.