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Are Appraisals and Home Inspections the Same?
Appraisals and home inspections are not the same.
An appraisal is a valuation of a property conducted by a licensed appraiser. Appraisers consider multiple factors to determine the market value of the home. USDA loan approval requires the property value to be no less than the purchase amount and for the home to meet all safety, livability, and structural standards set by the USDA.
A home inspection is conducted by a qualified inspector and provides a more comprehensive and detailed assessment of the home's condition. The USDA does not require property inspections to approve a home loan, but they are highly recommended. An inspection report offers valuable information about the property's condition and identifies potential safety hazards. Buyers can use a home inspection report to negotiate repairs, ensure peace of mind, or determine whether they want to proceed with the property purchase.
USDA Appraisal vs. Home Inspection
|USDA Appraisal||Home Inspection|
|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 repairs required for property to meet USDA minimum property requirements||Comprehensive, in-depth report of property condition|
Is a Home Inspection Required for a USDA loan?
The USDA does not require a home inspection for loan approval. Home inspections 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?
In general, a USDA appraiser will ensure the subject property meets basic USDA requirements:
- 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.
- Property has functional heating and cooling systems
- No evidence of termite or wood damage
- The property has direct access from a street, road, or driveway
- Utilities are adequate
- Functional plumbing and waste removal system
- Well and septic tanks must be located at least 100 feet from the house
- Compliant with applicable zoning restrictions
- Healthy electrical and wiring systems with no visible or frayed wiring
- 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 150 days from the effective appraisal date. Lenders can extend the effective date by 90 days–up to 240 days in total–with a one-time appraisal update report.
What is a USDA Home Appraisal Update?
An appraisal update ensures the property has not declined in value since the date the original appraisal was completed. An appraisal update cannot be used to support a higher property value. If you want a home reassessed for value, a new appraisal will be required.
What if my USDA Appraisal is too low?
If the subject property appraises for lower than the asking cost, there are solutions to move forward:
- You can negotiate with the seller to lower the purchase price to the appraised value. Home inspections sometimes come in handy here.
- Appeal the appraised value. This process provides one more opportunity to review the appraisal, ask questions, and provide evidence to support a higher loan value.
- You can amend your purchase agreement to bring the difference instead as a down payment.
Who pays for USDA Appraisal Costs?
The responsibility of paying for the appraisal varies by lender. However, the USDA program allows lenders to collect the appraisal fee at closing, which is typically the case. A USDA home appraisal usually costs around $600 to $750.