This entry is part of an ongoing series in which we answer frequently asked questions about FHA loans. Today’s question: Is a home inspection required when using an FHA mortgage loan?
The short answer is no. The Department of Housing and Urban Development, which manages the FHA loan program, does not require borrowers to have a home inspection. But they do strongly encourage it, and we will talk about the reasons why in a moment.
Difference Between Appraisals and Inspections
Before we go any further, I want to cover the difference between a home appraisal and an inspection. This is a source of confusion for a lot of homebuyers, so it’s important to keep the terminology straight.
Here’s the key difference:
- The primary purpose of a home inspection is to determine the overall condition of the property. It is designed to give the buyer more insight into the property condition, so they can make a more informed buying decision. Inspections are generally not required for getting a mortgage loan.
- The primary purpose of the home appraisal is to determine the market value of the house. The appraiser will accomplish this by looking at recent and comparable sales in the area, among other things. Most mortgage loans do require of property appraisal, and that includes the FHA loan program.
So while the Federal Housing Administration does not require home inspections for FHA loans, they do require a property appraisal.
FHA Loans Do Not Require an Inspection
All borrowers who use an FHA loan to purchase a home will receive a home inspection disclosure document from the Department of Housing and Urban Development. It is one of several documents lenders are required to give borrowers who use this particular program.
This document states that “a home inspection will only occur if you arrange for one. FHA does not perform a home inspection.”
Again, this quote comes from HUD, which is the federal department that oversees the Federal Housing Administration mortgage insurance program. They are the official source for all guidelines and requirements relating to this program. And their disclosure clearly states that a home inspection is not required when using an FHA loan.
This disclosure goes on to clarify the difference between appraisals and inspections, as we have already discussed above. It explains that “appraisals estimate the value of the property for lenders.”
But the Home Will Have to Be Appraised
While FHA does not specifically require a home inspection, the mandatory appraisal does include a basic assessment of the property.
An FHA-approved appraiser is primarily focused on determining the market value of the house. But he will also review the home to make sure that it meets HUD’s minimum property requirements. So there is sort of a “mini inspection” included within the FHA appraisal process. And this is another common source of confusion among both buyers and sellers.
Let’s recap some key points:
- A full home inspection is generally not required for FHA-insured mortgage loans.
- But the Department of Housing and Urban Development strongly encourages buyers to have a full property inspection, and they issue a written disclosure to this effect.
- FHA loans do require a property appraisal in order to determine the market value of the house, and to ensure that the property is marketable (in the event that resale becomes necessary).
- An FHA appraiser’s primary objective is to determine market value, but he will also evaluate the condition of the home to ensure the health and safety of the occupant.
This article answers the question: Is a home inspection required for FHA loans? The information provided above has been adapted from HUD Handbook 4000.1 (the Single Family Housing Policy Handbook), as well as other HUD disclosures and documents. We have provided our own comments to clarify official guidelines. If you would like to learn more about home inspections and FHA loans, please refer to the Department of Housing and Urban Development website, as they are the official source for such guidelines.