How a Home Inspection can Affect a Mortgage Approval

Why Buyers Delay Home Inspections

Most offers to purchase a home today are made with at least two conditions: mortgage financing and home inspection.

Applying for a mortgage does not typically cost any money yet a home inspection can cost $375 to $400. So buyers delay paying for an inspection until they have received approval of the mortgage. Sometimes the mortgage condition is removed from the offer and the buyer proceeds with the home inspection. Or if the conditions expire at the same time, the buyer will wait for the results of the home inspection before removing both conditions.

Discovering Deficiencies May Affect a Price Reduction

If the home inspection discovers deficiencies the buyer may ask for a price reduction. Seller agreement will be reflected in an amendment to the offer. Now the buyer or sales rep. have an obligation to provide a copy to the mortgage agent. In turn this is sent to the lender explaining why the price is reduced.

At this point, the Lender looks at their options.

  • They might be satisfied with the explanation for the reduction; however the mortgage amount will be reduced to reflect the new purchase price by way of an amendment and a new mortgage commitment.
  • If they haven’t already done so, they might ask for an appraisal to confirm whether the reason for the reduction affects the property’s value.

(Mortgage insurer CMHC uses an automated risk-assessment system that looks at all aspects of a mortgage application: the borrower, the property, the location and its market conditions and loan characteristics. If the application falls outside of their risk parameters, they may require an appraisal.)

  • They might require quotes on the cost of the repairs.
  • If the deficiency is more substantial, the lender might decide on a holdback of the funds needed to correct until the deficiencies are completed. Holdbacks can also arise if an appraisal is required beforehand and the appraiser notes a deficiency.

According to Betty Talbot and Gidia Molinaro of Centum Omni Mortgage Corp., they have yet to experience a circumstance in which the lender has withdrawn their commitment due to deficiencies found by a home inspector. They do recommend that a financing condition should not be removed from the Agreement of Purchase and Sale until any issues with the home inspection have been dealt with.

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