When refinancing your home mortgage, you need to know whether some expenses, such as appraisal, inspections or title fees, can be eliminated. In preparation for a conversation with your lender, it will be helpful to understand the different types of inspections that might be involved based on your property and type of loan, as well as how inspections differ from an appraisal.
Function of Real Estate Inspections
There are several types of inspections that may be involved in a real estate transaction depending on the type of property and the region in which your home is located. For a home purchase, a lender may require a pest or termite inspection and in rural areas, it might require a structural analysis or a septic system test. When buying a home, your real estate agent will usually recommend a "home inspection" to determine the home's overall condition before you sign on the dotted line.
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Many homebuyers and borrowers confuse a home inspection with an appraisal. An appraisal is conducted to determine the value of the property based on many factors, including the real estate market and the home's layout, square footage, updates and quality of construction. An appraiser does not closely inspect the home for defects or structural problems, except in the case of a VA mortgage.
A home inspector is hired to determine the overall condition of a home, not its value. He looks for any problems in the home's construction, inspecting the foundation, roof, plumbing, electrical, heating and cooling systems, windows and doors. A home inspection can provide a bargaining chip for a homebuyer if problems are uncovered.
Mortgage Refinance Requirements
If your loan is underwritten by the Federal Housing Administration, a streamlined refinance may be possible that elimates steps and related fees. For a conventional mortgage, lenders will require many of the same items as they do to finance a new purchase, including an appraisal, title search, lender's title policy, plus the same termite, structural or septic inspections. However, since a true "home inspection" is initially conducted for your benefit as a buyer during the real estate transaction, it is not required by lenders for either a conventional or FHA mortgage refinance.
VA Mortgage Considerations
The Department of Veterans Affairs has guidelines for VA loans that differ from other mortgage types. Every new VA mortgage requires an appraisal conducted by a certified VA appraiser, and the VA appraisal does include a thorough home inspection.
If you want to refiinance your existing VA loan, a new VA appraisal (including the inspection portion) will be required if you request to take out part or all of the equity in your home. If you want to refinance just the balance of your loan through the VA's streamlined refinance option, a new VA appraisal is not necessary.
When refinancing an FHA or conventional home mortgage, a lender may require an appraisal and the same inspections as it does for financing a new home purchase. However, a "home inspection," similar to the inspection you obtained when you bought your home, is never required. In the case of a VA mortgage, a lender may require a new VA appraisal, including its inspection component, depending on whether you will be taking cash out.
- All Area Appraisal Affiliates Network: FAQ
- The Federal Reserve Board: A Consumer's Guide to Mortgages Refinancings
- U.S. Department of Veterans Affairs: Lenders Handbook (Chapter 6)
- U.S. Department of Housing: For Your Protection Get a Home Inspection
- Bankrate.com: What an Inspector Will and Won’t Check
- Bankrate.com: Will You Save by Refinancing Your Mortgage?