When Congress created the Federal Housing Administration, part of the mission was to ensure that Americans had access to safe housing. For this reason, any home purchased using an FHA loan must meet minimum property standards. FHA appraisers check that a property meets these standards when performing their appraisal. An inspection performed by a home inspector is quite different. It is a complete inspection of the home, followed by a detailed report of the home’s current condition.
A licensed appraiser approved by the FHA performs FHA appraisals. The primary purpose of an appraisal is to establish the fair market value of a home so that the lender knows the home is worth at least the purchase price. An appraiser does not look at the home from top to bottom. He does a general inspection only, but mainly focuses on the size of the home and the purchase price of comparable homes in the area which have sold within the prior six months. His secondary concern is the condition of the home in reference to very specific issues.
FHA-insured properties must be safe, sanitary and structurally sound to meet minimum property standards set out in FHA guidelines. If a home does not meet FHA minimum property standards, the FHA will not supply mortgage insurance for the loan. Since the loan is contingent on the FHA supplying insurance, the lender will not approve the mortgage until the seller brings the home up to FHA standards, the appraiser re-inspects it and it passes. Unless a home has a major issue that makes it unsafe, unsound or unsanitary, the FHA is unconcerned with the condition of the house.
A home inspector has an obligation to inform his customer, the potential buyer, everything about the condition of the home, from simple things like ripped carpet or leaky faucets to major roofing or plumbing issues. Just because minor issues may not affect the safety of a home it does not mean they are not costly to repair. A potential buyer could find out from an inspection report that the home is not in the condition she believed it was in, and she may change her mind about continuing with the purchase. For this reason, many home purchase contracts contain special language that makes the contract contingent on the findings of a home inspection and allow for negotiation of repair costs or purchase price.
A home inspector also inspects major systems like heating and air systems or hot water heaters and appliances for their condition, and tries to determine the useful life remaining in them. To do this, a home inspector goes up on the roof, crawls through crawlspaces and goes into attic spaces. If an inspector finds that the roof of a home or an air compressor, while safe right now, will need replacement in a year or two at a cost of several thousand dollars, he informs the potential buyer of this fact in his report. At that point, the potential buyer could decide not to purchase the home at the negotiated price.