A home inspection is not always necessary in order to purchase homeowners insurance. That requirement is left to insurance companies to decide. If your house is more than 25 years old, and it hasn't been inspected recently, your insurer might require a 4-point inspection to qualify for a standard policy. If your home is currently under construction, other insurance policies exist to cover you during that phase.
Is a Home Inspection Required to Get Insurance?
Whether an inspection is required to purchase a homeowners insurance policy is left to the insurance company's discretion. If your home is old or hasn't been inspected in a decade, the insurer may want to determine how much risk they're assuming before they insure your property. Allstate, for example, didn’t require an inspection to insure a standard and recently renovated house in New Jersey when we got a sample quote.
Additionally, lenders will often recommend you have a home inspector evaluate a house before you buy it. While an inspection will cost you a few hundred dollars, it could reveal potential risks in the house that might cost thousands of dollars to repair. So it's in your best interest to have one done before buying. However, home inspections are not federally required when purchasing a home, and many banks don't require you to have an inspection done in order to get a mortgage.
If you are selling a home, however, an appraisal to determine its value is typically required. Many people confuse appraisals and inspections, due to the similarities between the two. However, each serves a different purpose.
Can I Use an Appraisal to Get Home Insurance?
Your home insurance company may accept an appraisal when preparing your policy. However, this is entirely up to their discretion. Appraisals are not always as thorough as inspections, so if your house is old, an inspection may be required.
Appraisals are typically required when selling your home or applying for a mortgage or HELOC, and sometimes when refinancing your mortgage. Since any flaws in your house, such as structural damage or mold, will adversely affect your home's value, your appraiser will evaluate some of the same areas as an inspector. However, an appraiser's goal isn't to inspect the safety of your home, but to determine its value.
Inspections, on the other hand, are often paid for by a potential buyer of a home, in order to determine if a house has any substantial flaws. If your contract with a seller includes a home inspection as a contingency, you have the legal right to back out of the purchase if your inspection reveals substantial damage the seller did not disclose. Additionally, if a mortgage lender or insurance provider requires a home inspection, they may request certain renovations be done before they offer you a loan or insurance coverage. However, some insurers may accept a recent appraisal in lieu of a home inspection.
One exception to this comparison is an FHA appraisal. If you're purchasing your home with a Federal Housing Administration loan, the appraiser will perform "double duty," both estimating the home's value and evaluating the house to make sure it meets the Department of Housing and Urban Development's standards for health and safety.
What is a 4-Point Home Inspection?
A 4-point inspection is a brief inspection that is often required when purchasing homeowners insurance—especially on a house that is more than 25 years old. This inspection allows insurers to determine how much risk they would be taking on if they offer you a home insurance policy, and how much they should charge you to cover that risk. For example, an inspector might notice that your plumbing system is old, but in decent working order. They may factor the age of your system into their rates when they write you a policy. Alternatively, the inspector might find a plumbing leak that is causing significant water damage to the ceiling of your basement. In this case, they may determine that repairs need to be made before they can approve you for a homeowners insurance policy.
4-point inspections focus on these four parts of the house:
These elements of a house have a finite lifespan, and for an older home that hasn't been obviously renovated or upgraded, an insurance company will want to determine the risk that a claim might be filed in the near future. The inspector will inspect each of the above household elements and determine their condition--whether old, new, professionally repaired, or currently damaged. A typical home inspector who conducts a 4-point inspection would not be qualified to provide a detailed assessment of any repairs that appear to be needed. For example, if an inspection were to determine that improvements appear to be needed to your aging HVAC system, an HVAC specialist would be required to identify the exact repairs or upgrades that are necessary. If your home fails to pass the 4-point inspection, you might not be able to purchase standard homeowners insurance until the necessary remedies are made.
A 4-point inspection is not in-depth enough to evaluate all possible risks associated with a home, so it should not be relied upon when deciding whether to purchase a house.
What Else Might Be Covered in a Home Inspection?
Potential buyers typically pay for a substantial inspection, sometimes referred to as a "whole home inspection," which examines an entire house to ensure all aspects of the home are up-to-code. These inspections often last a few hours, and cover a comprehensive list of possible issues. However, like a 4-point inspection, a whole home inspection may lead to additional investigation by a specialist. Areas potentially covered by home inspections include:
- Electrical Systems: Is there any damage, such as fraying wires? If wiring is old, does it satisfy current safety codes?
- Plumbing System: Does your septic system have any drainage problems? Is there the right amount of water pressure?
- HVAC System: Does the furnace contain any cracks? Is the air conditioning system efficient?
- Chimney: Does the chimney have any loose bricks or cracks that allow moisture to enter the house?
- Roof: Is the roof built to sufficiently handle the weight of snow, and are any shingles damaged?
- Water and Mold Damage: Is there any sign of black mold anywhere in the house? Is the basement excessively damp, and likely to suffer from flooding and mold damage after heavy rain or snowmelt? Are there any cracks in the foundation that will lead to leaks?
- Pests: Are there any signs of termites or a rodent infestation?
- Lead-based Paint and Asbestos: If there's any sign of either of these materials, a specialist may be called to investigate.
Can I Get Home Insurance if My House Fails an Inspection?
If you own a house that has failed a home inspection, and you're trying to purchase homeowners insurance, you might not be approved for a policy until you fix the relevant problems. Alternatively, you might receive a policy that stipulates that certain repairs must be made within a limited time frame (usually 30 days) in order for your policy to remain valid.
A house might fail a 4-point inspection for a number of defects, such as leaking pipes or a damaged roof that's not structurally sound. If you're not interested in making the repairs yourself, perhaps in return for a reduced sale price, you can request that the current owner fix the issues as a negotiating point.
If your home doesn't qualify for a homeowners insurance policy because renovations are required, you still have one insurance option. A surplus lines policy, also known as builder's risk insurance or vacant property insurance, is a policy written specifically for property that's under construction, and for risks that are not covered by standard insurance carriers. While this form of insurance is typically more expensive than a normal insurance policy, it may provide necessary coverage while you renovate your home.