Things to Consider When Scheduling an Appraisal: Additional Tests or Inspections
For a majority of borrowers that complete a refinance transaction, the appraisal is the only type of property report required. However, in some instances, additional tests or inspections may be required, either by the lender or by the loan program itself, before the loan process can be completed. These additional reports are typically geared towards ensuring that the property is safe or structurally sound and are designed to protect the interests of all parties involved. As a general rule of thumb, a borrower is less likely to encounter additional required inspections when obtaining a conventional loan.
This is in opposition of government loans, in which appraisers are required to ensure a property’s compliance with state and local regulations in a more thorough appraisal process. For instance, if your state requires a home to have a carbon monoxide detector, a government appraisal will require compliance with that regulation, while a conventional appraisal will not.
The most common type of additional inspection that may be encountered is a completion report. An appraiser may require a completion report if a property has significant deferred maintenance or structural damage. Specific to government appraisals, homes constructed prior to 1978 that exhibit chipped or peeling paint must be addressed (due to the possibility of lead based paint being present). If an appraiser observes a potential issue on which they are not qualified to render an opinion, the appraiser may require an inspection from a licensed professional.
Examples may include a roof inspection for a sagging roof or a plumbing inspection for a leaking sink. At this point, the lender will rely on the recommendation of the trained professional when making a lending decision. If the inspector suggests that the issue be addressed, this work will likely need to be verified as completed before a lender will approve the loan.
If a borrower chooses to opt for a government loan program, water tests and termite inspections may be required. Specific to a VA loan, termite inspections are required for most borrowers, with some exceptions being made in places generally too cold for termites (e.g. Minnesota and Wisconsin). If termites are or have been a problem at your property, the best practice would be to get it treated (regardless of loan type), especially if applying for a VA loan.
For both FHA and VA loans, a water test will be required if the home’s water source is a private well. The water test is to ensure that the water quality meets the requirements of the health authority with jurisdiction. Most county health departments will supply an at-home test kit, in which the homeowner can collect samples and send them back to the department for testing. The common bacteria tested for are E. coli, nitrates and nitrites. If your home has a private water supply, it is recommended to get the ball rolling on a water test early in the loan process in order to prevent any unnecessary delays.
Written By: Neil Daily, Underwriter at Royal United Mortgage LLC