Why is the inspection period prior to lender approval?
All of my sellers are advised to structure their contracts such that due diligence (section 6 of the purchase contract) begins upon mutual acceptance between the buyer and the seller rather than waiting until the lender issues an approval for a short payoff.
Why? Because the seller wants not only an able and willing buyer, but a buyer who's serious about purchasing the home and isn't out shopping around for other properties. Asking my seller to remove their home from the market to begin the arduous task of negotiating a settlement for a buyer who is wishy washy and unwilling to wait for an approval isn't in the seller's best interest. We are ensuring that the buyer is on board, that they have some skin in the game, and that they'll be there for the long haul.
Having your buyer complete the inspection up front will give them an opportunity to move on to other options right away if they don't like what they see. Since they're going to have an inspection opportunity anyway, we like to get it out of the way.
It's also common for lenders to issue approvals that don't give buyers enough time to complete inspections later in the process. By inspecting up front, we alleviate that problem and make closing a much faster process.