What Happens After Home Inspection and Appraisal?

The period after a home inspection and appraisal is a key phase in the home-buying journey. These evaluations provide insights into the property’s condition and value, guiding subsequent steps. This phase focuses on addressing findings and preparing for the final stages of securing the property.

Reviewing the Home Inspection Report

Upon receiving the home inspection report, buyers should review its contents to identify significant findings. The report details the condition of various components, including structural elements, roofing, plumbing, electrical systems, and heating and cooling units. Buyers should differentiate between minor cosmetic issues and more substantial concerns, such as major structural defects, safety hazards, or significant repair needs that could impact the home’s habitability or long-term value.

The inspection contingency clause in the purchase agreement provides the buyer with specific rights and options based on the inspection’s findings. This clause allows a buyer to request repairs, negotiate a credit for repairs at closing, or seek a price reduction. For instance, if the report uncovers a faulty HVAC system, the buyer might request the seller repair it or offer a credit to cover future replacement costs.

If the inspection reveals severe issues, such as a compromised foundation or extensive mold, and the seller is unwilling to negotiate or address the concerns, the buyer may have the contractual right to withdraw from the purchase. Conversely, if the issues are minor or the buyer is comfortable with the property’s condition, they might choose to accept the home “as-is.” The negotiation period for inspection-related repairs or credits ranges from a few days to a week after the report’s delivery.

Understanding the Appraisal Outcome

The home appraisal serves a distinct purpose, primarily to assure the lender that the property’s value supports the loan amount being requested. An independent, licensed appraiser evaluates the home’s worth based on comparable sales in the area, its condition, and other relevant factors. The most favorable outcome is when the appraisal value meets or exceeds the agreed-upon purchase price, which allows the loan process to proceed without complications.

A more complex situation arises if the appraisal comes in lower than the purchase price, creating an “appraisal gap.” This means the lender will only finance up to the appraised value, leaving a shortfall between the appraised value and the sales price.

Several options exist to address a low appraisal, depending on the terms of the purchase agreement and the appraisal contingency. The buyer might choose to cover the difference in cash, if financially feasible. Alternatively, the buyer and seller could negotiate to split the difference, or the seller might agree to reduce the purchase price to match the appraised value. If no agreement can be reached and an appraisal contingency is in place, the buyer has the option to withdraw from the contract and recover their earnest money deposit. This contingency protects the buyer from overpaying for a property that does not appraise for the contracted price.

In some cases, the buyer may challenge the appraisal by providing the lender with additional comparable sales data or pointing out specific errors in the report.

Final Loan Underwriting and Approval

Once the inspection and appraisal contingencies are successfully addressed, the mortgage application moves into the final stages of underwriting. The underwriting team conducts a comprehensive review of all financial documentation submitted by the buyer, including income verification, asset statements, and credit history. This process ensures the buyer meets all lending criteria and that the property itself qualifies for the loan.

Underwriters examine bank statements to verify sufficient funds for the down payment and closing costs, often requesting explanations for large or unusual deposits. They also confirm employment stability and income consistency, sometimes requiring updated pay stubs or verbal verification of employment.

Upon satisfactory review, the lender issues a “clear to close” (CTC) notification, signifying that all conditions have been met and the loan is approved and ready for funding. This status indicates the final steps toward closing can commence. Even after CTC, lenders may still request last-minute documentation, such as updated bank statements or a final verification of employment, within a few days of closing.

Preparing for Closing Day

With final loan approval secured, buyers can focus on the logistical preparations for closing day. The final walkthrough is conducted within 24 to 48 hours before closing. This walkthrough confirms the property is in the agreed-upon condition, any negotiated repairs have been completed, and no new damage has occurred since the inspection.

Buyers will receive a Closing Disclosure (CD) at least three business days before the scheduled closing date. This document provides a detailed breakdown of all loan terms, estimated monthly payments, and an itemized list of closing costs, including lender fees, title insurance premiums, and property taxes. It is important to review the CD and compare it against the Loan Estimate to ensure accuracy and understand all financial obligations.

Securing homeowners insurance is a mandatory requirement before closing, as lenders require proof of coverage to protect their investment. Buyers should arrange for utilities, such as electricity, water, and gas, to be transferred into their name effective on the closing date or the day of possession. Finally, buyers will need to arrange for the transfer of their remaining down payment and closing costs, through a wire transfer or certified cashier’s check, to the title company or escrow agent.