What Is a Mortgage Inspection Report?
What Is a Mortgage Inspection Report For?
The mortgage inspection report (also known as mortgage inspection sketch, property survey, or mortgage survey) verifies that a house or property’s boundaries or descriptions are valid and accurate. It also checks if the property complies with all applicable local ordinances.
A mortgage inspection report gives lenders and title insurers essential information that purchasing property becomes unnecessarily risky without it. For instance, the new homeowner typically shoulders any legal problem arising from a land dispute, while the lender (who funded the mortgage) and the title insurer (who will pay for the claims against the house) may have to pay for losses out of their own pocket.
A surveyor (either alone or with a crew) performs a mortgage inspection, usually by personally visiting and checking the property, and generating a report based on their discoveries. A surveyor may start with the legal description written in the deed, but they can skip this step if the title company has already made a relevant title search.
With a mortgage inspection report, the surveyor does not stake all the corners in the field as they would a boundary survey. Instead, the surveyor will find one corner of the property and put together a drawing and statement indicating all the improvements on the property, and clarifying that it is not a boundary survey.
In any case, title companies employ land surveyors when performing a survey. Surveyors spot issues related to land boundaries that may not appear during title searches.
Homebuyers can hire surveyors themselves as well. That said, consumers must exercise care when hiring a surveyor. Land surveyors in the U.S. and its territories must be licensed to ply their trade. Therefore, asking for their credentials and license is a good idea when hiring surveyors outside of the title company.
Do All Mortgages Require a Mortgage Inspection Report?
The law does not always require a mortgage inspection report. Mortgage lenders sometimes only want to see title insurance before originating home loans.
However, whether required or not, a mortgage inspection is a less expensive alternative to a boundary survey and can be a more cost-effective way for lenders to confirm that a property was built at the size and location as expected, without paying the full cost of a boundary survey or ALTA survey.
What Does a Mortgage Inspection Report Include?
A mortgage inspection report typically includes a simple illustration of the property, showing the boundaries of the parcel with any improvements situated on it. This information may consist of the property’s legal description, landmarks in the area, and local regulations that apply (such as zoning).
The report may also note other relevant data, such as:
- Anything that crosses property lines (like trees, gardens, fences, walls, and sheds).
- Setback requirements.
- Errors in the description.
- Proximity to natural hazards (FEMA-mapped flood zones, land erosion, earth collapse, and more).
Is a Mortgage Inspection Report Accurate?
Surveyors utilize a lot of tools and know-how to provide accurate and comprehensive information in a mortgage inspection report. After all, mortgage loan originators and title insurance providers make big decisions based on their findings.
However, compared to the boundary survey, the mortgage inspection is not as precise and not as comprehensive. Still, it can be a less expensive way to ensure that everyone is on the same page about the transaction.
Mortgage Inspection Report Comparisons
A mortgage inspection report can be confused with similar terms or practices in real estate, particularly in loan origination.
Home Inspection vs. Mortgage Inspection
A home inspection assesses the condition of a house, while a mortgage inspection (even if it has the word “inspection” in its name) is actually a survey, which identifies property features and their location on the lot.
A home inspector carries out a home inspection, a process that determines the property’s health. For example, they examine the house’s systems and components to expose unknown damage or structural problems the seller may not have known about (or worse, they might be hiding). They will also note the house’s age since older structures tend to have costlier maintenance needs.
The opinion of a credible home inspector can help the buyer negotiate a better price with the seller. For example, if the home inspector has found a substantial number of repairs, the seller might agree to a discount on their asking price to account for the cost of these fixes.
Meanwhile, a mortgage or land surveyor primarily cares about how accurate the deed is in describing the property to be transferred. They do not have the necessary knowledge to ascertain a property’s physical condition.
Appraisal vs. Mortgage Inspection
The goal of an appraisal is to determine a house’s worth. Meanwhile, a mortgage survey only looks if the lot, parcel, or property is in the correct place and all its features are accounted for.
Generally, a lender needs an appraisal to know whether a listed property’s selling price reflects its actual market value. They do this so they can avoid over-financing an overvalued piece of property.
Appraisers bring to bear several strategies to estimate the value of a house correctly. They will consider size, design, condition, age, improvements, and nearby community features like schools, hospitals, and police stations. The area’s crime rate matters as well.
Furthermore, the appraiser will use comps as a point of reference for assessing the monetary value of a house. Most of the time, a house will cost more or less the same as similar houses in the area unless there is something extraordinary about it.
Finally, the local real estate market’s state can affect a property’s value. If there are more buyers than sellers in the area, then local home prices will be higher. But if it were the other way around, prices would drop since there is less demand and buyers have more leverage at the negotiating table.
On the other hand, a mortgage survey does not valuate anything. However, a buyer may use newfound information from a mortgage inspection report as a bargaining chip in the negotiation. For example, if the property’s lot is smaller than advertised, the buyer can ask the seller for a lower price.
- A mortgage inspection report helps mortgage lenders verify the size, shape, location and improvements situated on a property. It may also identify easements, encroachments, and to a lesser extent, natural hazards like flood zones.
- A licensed surveyor generates a mortgage inspection report. A title company may employ a surveyor when doing a title search, but home buyers can hire one themselves.
- Mortgage surveys, home inspections, and appraisals are all important to mortgage lenders, but these processes are fundamentally different from one another.
- Nolo. (2013.) Deeds FAQ. Retrieved from https://www.nolo.com/legal-encyclopedia/deeds-faq.html
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