Appraisal vs Inspection, what is the difference?
An appraisal is completed by a certified property appraiser. It determine’s the value of the property. It isn’t always required however it is the lenders choice. Appraisals are usually required when there is more than 20% down payment thus avoiding the insurance premium. It provides the lender the assurance that the covenant they are financing has the value required for their security.
Often, I am asked why a home that is financed with less than 20% down payment doesn’t require an appraisal? This is because the insurer’s whether Sagen, CMHC or CG guarantee the mortgage loan to the lender therefore giving the lender less risk in financing the property.
An inspection isn’t required when purchasing a home however, it gives the buyer an opportunity to identify what condition the home is in. It can identify if there will be any potential issues such as roofing, windows, flooring, furnace, or hot water tanks.
An inspection is for a buyer not the lender. Lenders typically do not request to view an inspection unless the property is in rough condition or there is a substantial change in the purchase price from the initial offer. This would trigger the lender to ask why such a large change in price from the initial offer.
When buying a home, there is costs involved, such as appraisal fees, inspection fees, property tax adjustments and legal fees. When a lender requests to verify that you have enough closing costs, this is to ensure you are financially prepared to close on the property.
The cost of an appraisal can range anywhere from $300 – 750.00 depending on the home and location. The cost of a home inspection typically runs around 400-550 depending on the size.
Purchasing a home is an exciting process, let the Mortgage Tailors make sure you’re prepared for the journey. Part of our process is helping you understand the difference between appraisal vs inspection.