Buying a house represents a significant financial investment. The buyer wants to protect that investment. Guess what? So does the buyer’s mortgage lender. Enter the home inspection and appraisal. Though the two are similar in some ways, they are also quite a bit different. Knowing the details of each one is important, especially to first-time buyers.

The chances are pretty good that you would need both prior to closing on a new home. But even if one or both were not required, having them done is still a wise idea. Home inspections and appraisals are designed to protect everyone involved – and that includes you.

The Home Inspection Is for You

A home inspection is something you arrange prior to closing on a home. Your mortgage broker or real estate agent might be able to help you out with a recommendation, but ultimately you hire and pay the inspector. What do they do? A home inspector does a thorough inspection of the property to alert you to any deficiencies that could affect your decision to buy.

For instance, buyers often make offers contingent on a home passing the inspection. If a home inspection reveals issues you are concerned about, you can either withdraw your offer or insist that the current owner rectify them prior to closing. The idea is to protect you from buying a home and then being caught off guard by things that are not quite right.

A home inspector will typically look at structural and mechanical issues. Structural issues relate to things like the roof and foundation; things that directly impact the strength of the structure itself. Mechanical components deal with a home’s mechanics, which is to say plumbing, electrical, HVAC, and so forth.

The Appraisal Is for Your Lender

Where the home inspection is for you, an appraisal is for your mortgage lender. Your lender is loaning you tens of thousands of dollars – perhaps even hundreds of thousands – that it doesn’t want to lose. They are planning on you making all your payments until the loan is satisfied. But what if you don’t? They do not want to be stuck with a house that isn’t worth the amount remaining on the loan.\

An appraisal determines the current value of the property you are purchasing. Its value needs to be equal to, or greater than, the amount you are looking to borrow. If it’s not, you will not be approved for that amount.

Your mortgage broker or lender will arrange for the appraisal at their end. They will send an appraiser that they trust and have a relationship with. But here’s the thing: you still pay the appraisal fee. You are entitled to have your own appraisal done as well, but you would have to pay for that one, too.

As for what an appraiser looks at, he or she will start with the same things as the home inspector. But there will be more. An appraiser also looks at:

• total square footage.
• the home’s features.
• cosmetic condition.
• the neighborhood.
• local amenities.

An appraiser takes into account all these things, then compares the home to similar homes in the area that have recently sold. Why the comparison? Because it establishes what buyers are willing to pay for properties of similar style and in similar condition. Ultimately, that is what matters. A house is only as valuable as the price buyers are willing to pay.

And now you know the difference between an appraisal and home inspection. If your mortgage broker quizzes you, you will be all set!