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Are Appraisals and Home Inspections the Same?
Contrary to popular belief, home appraisals and home inspections are not the same thing.
An appraisal is a property valuation conducted by a licensed appraiser and is required as part of the USDA approval process. To be approved for a USDA loan, a property cannot have an appraised value less than the selling price. USDA-approved appraisers will consider multiple factors to determine the market value of a property and ensure that it meets all safety, livability, and structural standards.
On the other hand, a home inspection is a more detailed and comprehensive evaluation of a home's condition conducted by a professional inspector to assess its structural integrity, safety, and overall functionality. Home inspections are not required by the USDA for loan approval.
USDA Appraisal vs. Home Inspection
| USDA Appraisal | Home Inspection |
|---|---|
| Required | Not Required |
| Conducted by a USDA-approved appraiser | Conducted by any licensed home inspector |
| Determines market value of property and USDA property eligibility | Determines overall condition of the property including potential safety concerns |
| Assessment of the property according to USDA minimum property requirements | Comprehensive, in-depth report according to inspector guidelines |
Is a Home Inspection Required for a USDA loan?
The USDA does not require home inspections for loan approval. Still, they are highly recommended to provide buyers with peace of mind about their investment, prevent costly repairs, and assist in seller negotiations.
What does a USDA Appraiser Look For?
To ensure the home meets basic USDA requirements, an appraiser will check that:
- The property is located in a USDA-eligible rural area
- The land's value is not more than 30% of the home's value
- The property does not have income-producing land or buildings such as barns, silos, greenhouses, livestock facilities, etc.
- The property has functional heating and cooling systems
- There is no evidence of termite or wood damage
- The property is accessible from a street, road, or driveway
- Utilities are adequate
- There is a functional plumbing and waste removal system
- Well and septic tanks are located at least 100 feet from the house
- The home is compliant with applicable zoning restrictions
- The electrical and wiring systems are healthy, with no visible or frayed wiring
- The property is compliant with all local and state guidelines and codes
USDA Home Appraisal FAQs
How Long is a USDA Appraisal Good For?
USDA appraisals are valid for 150 days after the appraisal is conducted. Lenders can extend this date by an additional 90 days by submitting a one-time "Appraisal Update Report."
What is a USDA Home Appraisal Update?
An appraisal update ensures the property value has not declined since the original appraisal was conducted. It is important to note that an appraisal update cannot be used to support a higher property value. If you want a home reassessed for value, a new appraisal must be conducted.
What if my USDA Appraisal is too low?
If the property appraises for lower than the asking cost, there are several solutions you can pursue:
- Negotiate with the seller to lower the purchase price to the appraised value. Home inspections can come in handy here.
- Appeal the appraised value. This process provides an opportunity to review the appraisal, ask questions, and provide evidence to support a higher loan value.
- Amend your purchase agreement to pay the difference between the appraised value and the asking cost as a down payment.
Who pays for USDA Appraisal Costs?
A USDA home appraisal usually costs around $600 to $750. The burden of cost for a USDA appraisal varies by lender. However, the USDA program allows lenders to collect the appraisal fee at closing, which is typically the case.
