Reader question: “When does the FHA inspection process takes place? Does it happen right after we make an offer on a house?”
This is a common question among borrowers who are considering the FHA mortgage insurance program. Here are three things you should know right off the bat:
- FHA does not require a full home inspection to be performed.
- But they do require an appraisal to be completed for all purchases.
- The appraisal serves two purposes: to determine value and property condition.
- It usually happens soon after the buyer and seller have signed the contract.
We’ll talk about all of these things and more throughout this article.
When Does the FHA Inspection Take Place?
The Department of Housing and Urban Development (HUD) manages the FHA mortgage insurance program and sets the minimum requirements for borrowers. HUD does not require borrowers using an FHA loan to have a home inspection. They encourage it — but it’s not mandatory.
They do, however, require a home appraisal for all Federal Housing Administration loans. The appraiser’s primary objectives are to:
- Determine how much the house is worth in the current market.
- Ensure the home meets all of HUD’s minimum property requirements.
But it’s not a “traditional” home inspection. It’s an appraisal with a basic property evaluation component built into it.
Borrowers who use the FHA loan program are required to sign and submit a home inspection disclosure document. It explains some of the points covered above. Here’s a relevant excerpt from that HUD document:
“An appraisal is different from a home inspection and does not replace a home inspection. Appraisals estimate the value of the property for lenders. An appraisal is required to ensure the property is marketable. Home inspections evaluate the condition of the home for buyers.”Source: Form HUD-92564-CN
That’s a key distinction, so it bears repeating. The appraisal is arranged by the lender and serves their business needs primarily. An inspection is arranged by the buyer and is designed to protect their interests, giving them better insight into the property’s conditions.
So, when does this FHA property inspection take place? It typically happens shortly after the buyer and seller have signed the contract, and prior to underwriting.
Seven Major Steps in the Purchase Process
To get a better sense of when the FHA inspection takes place, let’s step back and look at the broader home-buying process.
Note: This process can vary from one buyer to the next, for a variety of reasons. For example, some people might skip the pre-approval entirely and go right into the house-hunting process. But it usually follows the sequence shown below.
Step 1: Pre-approval. The home buyer gets pre-approved for a mortgage loan. During this process, the lender will review the borrower’s qualifications and request various documents.
Step 2: House hunting. The buyer shops for a home that meets their needs and falls within their budget.
Step 3: Offer and negotiation. The buyer finds a suitable property and makes an offer to buy it, using a standard purchase agreement. The seller then accepts the offer, perhaps after a bit of negotiating.
Step 4: FHA appraisal. The buyers give their mortgage lender a copy of the purchase agreement, allowing the loan process to move forward. The lender will order an FHA home appraisal to be completed (which includes the basic property inspection / evaluation mentioned earlier).
Step 5: Home inspection (optional). If the buyers choose, they can hire their own home inspector to perform a separate and more thorough inspection of the property. This is separate from the HUD-required appraisal mentioned in step 4 above.
Step 6: Underwriting and approval. The loan package will then move on to the underwriting department. The underwriter reviews all documentation to make sure it meets requirements.
Step 7: Closing. Once the underwriter gives a green light (commonly known as the “clear to close”), the home buyers can close on their new home.
Getting back to the question at hand. When does the FHA inspection take place?
- The required home appraisal usually happens after the buyer and seller sign the contract. The mortgage lender will order the appraisal shortly after the purchase agreement / contract has been signed by both parties.
- The optional home inspection, should you choose to have one, also happens at this time. It usually takes place shortly after the offer has been accepted. This gives the buyer time to review the report and request any repairs that are deemed necessary.
Smart Move: Hiring Your Own Inspector
As mentioned earlier, HUD does not require borrowers who use an FHA loan to have a full home inspection. But it’s still a worthwhile investment, in most cases.
You can expect to pay somewhere around $300 to $400 for an inspection — or more, if it’s a large house. And that’s a small price to pay for the peace of mind it gives you in return.
The appraisal is mainly used to determine the market value of the home being purchased, and to ensure it meets HUD’s basic requirements. A comprehensive home inspection (completed by a licensed inspector) will give you a much deeper insight into the home’s true condition. Remember, the appraiser works for the lender. A home inspector works for you.
As a buyer, you could also include an inspection contingency within your real estate contract / purchase agreement. This gives you a legal way to back out of the deal without sacrificing your earnest money, if the inspector finds a problem you’re unwilling to accept.
Learn more. This article answers the question: When does the FHA inspection take place? If you’d like to learn more about this program, visit our article library or view the related articles in the right-hand sidebar area.