People buying real property, especially those purchasing their first-ever home, often have sticker shock when they receive their settlement documents. They usually need to come to the table with thousands of dollars more than the final sale price for the property.
Closing costs are the reason for the discrepancy between what they offer and what they actually pay. Buyers have to pay for licensed professionals to look at the property before the transaction. Those making cash purchases can waive those extra services, but those financing purchases cannot.
Why do mortgage lenders require an inspection and an appraisal?
Inspections and appraisals offer different insight
On the surface, an appraisal and an inspection may seem like very similar processes. After all, they both involve a professional looking over the property carefully. However, an inspector has a completely different perspective than an appraiser.
Inspectors have training on the various systems that make a home livable. Their report can give the buyer and lender information about whether proceeding with the transaction is a good decision.
An appraiser, on the other hand, tries to objectively evaluate what the home is worth. They look at not just the overall condition of the property but also the sale price of comparable homes on the local market in recent months.
Both services are important for lenders. Mortgage companies want to ensure that they do not finance the purchase of a poor-quality property or allow a buyer to pay more for a property than the lender can recoup if they must foreclose.
Understanding why different services are necessary during a residential real estate transaction can help buyers more readily accept the cost they have to cover. Appraisals and inspections are both important steps in the home-buying process.