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Home Appraisal vs. Home Inspection

Home appraisal vs. home inspection: what’s the difference and why you need both.

It’s easy to confuse a home appraisal with a home inspection, or think they’re the same thing. In both cases, a professional comes to the home, surveys it, and draws up a final report, but there’s more to it than that. Both reports should inform the buyer and help them make an educated decision as to whether they should purchase the home. However, they serve fundamentally different functions when it comes to the home buying and selling process. In short, a home appraisal determines the value of the home while a home inspection determines the condition of the home.

In short, a home appraisal determines the value of the home while a home inspection determines the condition of the home.

The Appraisal Process

Home appraisers take a variety of different factors into consideration when valuing your home. Things like location, school district, lot size, access to public facilities, condition, and recent sale prices of comparable properties all play a role in how much your home is worth. Appraisers don’t necessarily care if your home is clean or not. But they will notice signs of neglect like cracked walls and chipped paint.

School District Impact on Property Values and Home Prices

It’s important to remember that home appraisals primarily benefit the lender. Yes, buyers and sellers can glean valuable information from an appraiser. However, their primary function is to protect a lender’s investment. That’s why the appraisal takes place before final approval of the loan. It’s also important to note that if the buyer is applying for an FHA loan, the appraiser must survey the physical condition of the home and disclose potential issues to the buyer. This obligation doesn’t exist for non-FHA mortgages.

So what happens if a home receives an appraisal lower than the purchase price? The purchase can still go through a few different ways. The seller can reduce the purchase price, the buyer could make a bigger down payment, or if the home needs repairs, a separate escrow account can be set up to pay for those.

The Inspection Process

If you think about an appraisal as a practice run or a walkthrough, the home inspection is the real game. An inspector’s checklist is usually a lot longer than an appraiser’s. It could also take hours to complete depending on the size of the property. An inspector will inspect crawl spaces, attics, water heaters, furnaces, foundations, land grading, and a lot more. Unlike appraisals where buyers and sellers don’t participate, many inspectors will encourage potential buyers to join them when they go to inspect a home to discuss issues as they’re discovered.

While appraisers are legally obligated to perform their job as an unbiased third-party, a home inspector is hired by a prospective buyer to protect their own interests. The inspector works for the buyer and is obligated to provide feedback on the home and any potential issues that may arise from its condition. As a buyer, of course, you want to protect your investment. That’s what makes an inspector a valuable asset to have working with you.

The Same, But Different

Despite their different functions, appraisers and inspectors still share a few commonalities. Both are professionals that you can expect to do their jobs impartially. Neither appraisers nor inspectors get paid a commission on the sale of the home. That means they have nothing to gain or lose whether or not the sale goes through. Knowing this, you should feel confident that you’ll get a fair valuation from your appraiser and a neutral report from your inspector.

As you can see, both the appraiser and inspector play important roles in the home buying process. And when they’re done doing their jobs, they give buyers added confidence to make the decision to buy or walk away from a home.

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Buying Your First Rental Property? Here’s What You Need to Know

Like any investment, buying your first rental property entails some risk. But, the rewards can be pretty sweet, too. Ready to become a real estate mogul—or, at least, the proud owner of your first investment property? Let’s get into the pros and cons.

The pros of buying your first rental property.

  • No private mortgage insurance required
  • Tax benefits
  • Rental income
  • Diversifies your assets

1. No private mortgage insurance required

Most loans for a primary residence (the house you live in most of the time) will require you to pay some kind of mortgage insurance. This is insurance that protects your lender if you default on your payments. You won’t have to pay private mortgage insurance on your rental property, so that’s one less monthly fee to worry about. You may still want to invest in landlord insurance, though.

2. Tax benefits

Remember how your home loan for your primary residence qualified you for write-offs? There’s more where that came from. Buying a rental property could qualify you for tax deductions like:

  • Mortgage interest: Mortgage interest is considered a business expense for your rental property, so you can deduct it using your Form 1098. You should receive this from your lender at the beginning of the year.
  • Property taxes: The property taxes for your rental property will depend on its location and how much the home is worth. To deduct property taxes, you’ll use Schedule E (Form 1040).
  • Depreciation: Like a car or computer, your rental property loses value each year as it accumulates more wear, tear, and general aging. This could actually work to your advantage, though, because you can deduct that depreciation on your tax return. You’ll use Form 4562 for this deduction.

You may not qualify for every possible write-off, but some other potential tax benefits include deductions for repairs, transportation expenses, and advertising costs. Filing can be a little more complicated than it would be for your primary residence, so it may be helpful to consult a tax professional rather than filing on your own.

3. Rental income

This perk is one of the obvious reasons that many homeowners decide to buy their first rental property. Rent is currently rising, which means you could enjoy a significant boost to that monthly rental income depending on where your property is located. Just don’t let all that power go to your head.

4. Diversifies your assets

Having a variety of assets to your name is a fundamental investment strategy, and buying your first rental property is a great way to diversify. Since you have more control over it, can sell it when you’re ready to move on, and its value rises with the market, a rental property can be one of the less risky ways to invest. Speaking of risk, let’s explore the cons of buying a rental property.

The cons of buying your first rental property.
  • Higher interest rates
  • Higher down payment
  • It can take a while to see a return
  • Risk of unreliable tenants
Higher interest rates

Because your lender is taking a bigger risk in financing your investment property than they would be for your primary residence, you can typically expect higher interest rates on your rental property’s mortgage.

Higher down payment

Depending on the type of loan you choose for your primary residence, you could put down as little as 3%. In fact, VA and USDA loans require no down payment at all. For investment properties, on the other hand, you’ll need to put down at least 15-20%.

It can take a while to see a return

If you’re looking to get rich quick, a rental property is not the way to do it. In addition to closing costs, you may also have to put in more money up front for home upgrades like fresh paint, new appliances, and updated landscaping to make your property appealing to renters. And, you may not fill your vacancy right away. It could be weeks or even months before you find tenants and start receiving steady rental income.

Risk of unreliable tenants

We believe everyone deserves a place to call home—but that doesn’t mean every tenant will make your job a breeze. If you’re not sure you can handle the awkwardness of following up on missing rent payments, addressing maintenance issues, and generally taking responsibility for the state of your rental property, being a landlord might not be for you. And before you get too frustrated with your renters, just keep in mind that we’ve all made a landlord’s life a little harder at some point.

What to look for in your first rental property and what to avoid.

Choosing the right rental home can make all the difference in the return you enjoy down the line. Here are some dos and don’ts to keep in mind when you start your investment home search.

Do:

  • Make location a priority. Are there restaurants and shops nearby? What’s the crime rate in the area? Make sure the property is in a location that will attract renters.
  • Avoid fixer-uppers. The more you have to fix, the longer you’ll have to wait to take on tenants and see a return on your investment.
  • Research the local housing market. To make sure you offer a fair rent and pay fair rates for your mortgage, do your research and know what to expect from the market. A real estate agent will know all the ins and outs of the local area, so you may want to consider working with one for your investment home purchase.

Don’t:

  • Start with a large property. Smaller residences like condos and single-family homes are less work and less risk for your first time around.
  • Invest without another source of income. It might take a while to profit from your rental property, and it’s true what they say: You have to spend money to make money. Be sure to have an adequate cash flow available before committing to that landlord life.
  • Try to do everything yourself. From your real estate agent to your tax consultant to your loan team (hey, we know a good one), there are a lot of specialized professions involved in buying a rental property. You could do it all by yourself, but you may miss out on opportunities to save or make money that an expert would catch.

So, now you know the basics of buying your first rental property. When you’re ready to get started, our team is here to help. In the meantime, happy house hunting.

This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before making the decision to buy or refinance a home.

Buying your first rental property can be complicated, but it’s a lot easier when you know what to look for. Hint: Location, location, location.

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8 Things Every First-Time Home Buyer Needs to Know

Eight things first-time home buyers need to know before they start shopping.

It’s about that time, isn’t it? Paying rent every month for an apartment you don’t own is finally getting to you. Or are your parents telling you it’s time to move out and get your own place? Do you need extra space for your dogs? No matter the reason, buying a home for the first time can be an overwhelming experience if you don’t know what you’re doing. That’s not you though. One way or another, your extensive research on the home buying process has brought you here, so you’re on the right path. You’ll be ready to make a final decision on a home in no time, but first, here are eight things every first-time home buyer need to know before they get started.

1. Your credit score

This may sound like a no-brainer, but you’d be surprised at how many people don’t know their credit score or haven’t even thought to look at it. If you’re one of those people, stop reading, open up a new tab, and do some research on what goes into a credit score, what affects it, and how to obtain it before you read any further. Your credit score can make or break your chances of getting a mortgage depending on how high or low it is, but there are ways to improve it if you find your score needs some work. While there’s no set credit score that you need to buy a home, it’s better to be safe than sorry. Be sure to clear any inaccuracies or bad debt before you apply for a mortgage.

What Does My Credit Score Need to Be to Buy a House?

Your credit score can make or break your chances of getting a mortgage depending on how high or low it is, but there are ways to improve it if you find your score needs some work.

2. Your loan options

Once you know your credit score, you should have a much better idea of which loan options would be available to you. Most lenders will have a general overview of their loan products on their website with a target credit score. But depending on whom you choose, there could be some wiggle room there. Don’t stop at skimming through a website. Check out our blog for an in-depth rundown of the different types of mortgages and how they may fit your needs. If you’re serious about buying a house, get in touch with a loan originator and find out where you stand.

3. Location vs. space

As a first-time home buyer, there are a lot of options and factors you’ll have to weigh. Two of the most important are location and space. Depending on where you are in life, you may have different priorities where it concerns these two factors. If you’re single, you may want to prioritize location above everything else. If you’re moving with a family, space might be more important than being in a happening part of town. It’s important to have clear priorities so you don’t give up too much of what you’re looking for throughout the house-hunting process.

4. Saving for a down payment is a good investment

If you’re ever caught between saving for a down payment or putting those savings toward an investment opportunity, remember that you won’t lose money investing in your home. Many people choose loans that either don’t require money down or require a very low percentage. Then, they end up losing money by trying to invest in something other than their home. A substantial down payment goes a long way in minimizing risk and getting you started off on the right foot with some equity. Make sure to start saving as soon as possible to make a sizable dent in your total home cost.

A substantial down payment goes a long way in minimizing risk and getting you started off on the right foot with some equity.

5. A good real estate agent makes all the difference

If it’s your first time buying a home, you’re going to want some help. A great real estate agent can take a lot of pressure off you and really help streamline the process. Find someone who comes highly recommended, either from a friend, family member, neighbor, or co-worker, and let them work for you. The right agent should be experienced, skilled, motivated, and knowledgeable about the area in which you want to buy.

6. Schools matter

If you think you might have kids (or you already have some), it’s important to explore the schools in the vicinity of any home you plan to buy. Are the schools a good fit for you and your family? Do you have other options if the school you’re zoned for isn’t a great fit?

7. Don’t jump until you’re ready

Buying a home isn’t a process that should be rushed. It’s a huge commitment, more expensive than people realize, and not one that should be taken lightly. Before you buy a home, make sure you know exactly what you’re getting into so you can decide if you’re ready from a financial and personal standpoint. Find out how much you’ll be paying in addition to your monthly mortgage payment. That includes property taxes, homeowners insurance, HOA fees, and other monthly costs. Once you have all that settled, you’ll be in a good position to decide if you’re ready or not.

8. Stick to your budget

That’s what it’s for, right? Look for properties that cost less than the amount you were approved for initially. Even though you can technically afford your pre-approval amount, you should use that as a ceiling. That’s because it doesn’t account for the monthly expenses we listed earlier or any other repair costs that may arise during homeownership.

Home shopping with a firm budget in mind will also help you when it comes time to start making offers. In a competitive market, it can be tempting to make a high-priced offer on a home you love. But it’s important not to let your emotions get the best of you. Shopping under your pre-approval amount will allow for some wiggle room for bidding and will help you avoid a mortgage payment you can’t afford.

Think you’re ready to take the leap and become a homeowner? Call us today and let’s get you started.

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Should You Buy or Sell First?

So you’re ready to move, but should you buy or sell first?

It’s time. Your family’s getting bigger and you need more space, or maybe you’ve got an awesome job opportunity somewhere else. No matter what’s causing you to consider moving, there’s always going to be that one tricky question. Should I buy a new home, or sell this one first? It’s a common problem. Managing the sale and purchase of two homes at once takes a lot of planning. Unless everything turns out perfectly, there’s likely going to be a time in the process where you either don’t own any houses, or you own two at once. So, which one is better?

The pros and cons of selling your home first

Pro: Fewer mortgage payments

One of the biggest perks of selling first is that you won’t be responsible for two mortgages at once. That relieves some of the pressure to lower the price of your home or sell it quicker than you wanted to. Selling your home allows you to access the equity you’ve built, which can come in handy when you’re looking for a place to stay or store your things in the meantime. You can even put it toward a down payment on your new home.

Most of us don’t have the money to make a down payment on a new house or the income to keep up with two mortgage payments indefinitely, so selling first may seem like the obvious choice. But even though you won’t be paying two mortgages, you’ll still be spending your money on the things we just mentioned.

Con: Finding housing during the transition

Finding a place to stay and store your things can be expensive. If you have friends or family you could stay with for an extended period of time, that may be your best bet. The downside is you’ll essentially be moving twice, and it puts pressure on you to find a new house as soon as possible. But if those aren’t problems for you, selling first may be in your best interest.

The pros and cons of buying your home first

Pro: Flexibility of contingent offers

If you want to move directly into your new home without a pit stop in between, you’re going to want to buy first. It may not seem ideal unless you’re sitting on a mountain of cash, but there are ways to make it work, even if your bank account is a little more down to earth.

Your best bet if you’re trying to buy before you sell is to make a contingent offer on your new home. What this means is that you’ll enter into a contract to buy the new home if and when you sell your current one. The contract will have an expiration date, so you can’t promise to buy your new home, then take your sweet time selling your old one.

Con: Contingent offers don’t always carry weight in a hot market

If the house you’re looking to buy is in high demand, a contingent offer may not get much consideration from sellers. A seller is already worried about selling their own home, and with a contingent offer, you’re asking them to worry about you selling yours, too. Contingent offers also take away most of your ability to negotiate. The asking price will likely be the floor, not the ceiling, of your offer. It’s important to talk to your real estate agent about whether a contingent offer makes sense in the market you’re looking to buy in.

Pro: Bridge loans.

If the conditions aren’t right for a contingent offer, all hope isn’t lost! Assuming you’ve built up some equity, you can use your current home to finance your next one. Bridge loans are short-term loans designed to help bridge the gap between buying and selling. You can get bridge loans to either pay off your existing mortgage and provide a down payment on your new home, or you can get one just for the down payment. Be careful though. Bridge loans are considered high-risk, so they’re harder to get and usually come with a higher interest rate.

So, should I buy or sell my home first?

The right choice for you is dependent on your financial situation and the conditions of the local market. In a buyer’s market, you’ll have more leverage as a buyer so a contingent offer may be the way to go. In a seller’s market, selling your home first may be the strategic choice. Our advice? There’s safety in numbers. Give our mortgage calculator a spin to see what’s possible.

Only you can answer the question of buying or selling your home first. But we can certainly offer some expert advice to help make your choice clearer.

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Smart Home Upgrades: How to Renovate for the Future

Boost your property value with these smart home upgrades.

When you make the decision to renovate, the end goal is to increase your home’s value when it’s time to sell. Back in the day, a fresh coat of paint, trimmed shrubbery, and new light fixtures might have done the trick. Those are still a great place to start, but in a competitive market, you might need to add some modern innovations to those renovation staples.

Smart home upgrades to try in 2022

  • Update your thermostat
  • Improve home security
  • Install smart lighting systems
  • Connect it all with voice control

Update your thermostat

As a homeowner, you’re probably starting to understand your dad’s obsession with leaving the thermostat alone. Those energy bills tend to get higher no matter how you conserve, but there’s no need to sweat in silence. A smart thermostat won’t just save you time, money, and energy—it also makes your home that much more attractive to potential buyers when it’s time to sell. Most smart thermostats provide helpful features like voice controls and geofencing without breaking the bank. If you’re on the fence about smart technology in your home, thermostats are a great way to ease into it.

Improve home security

Smart technology has completely transformed the way we make our homes safe. Interior and exterior cameras, video doorbells, and smart locks have all become hot commodities for homeowners across the country and home values have continued to rise as a result. Not only that, but installing a smart security system could help you (and future buyers) save on home insurance.

Install smart lighting systems

There are plenty of smart lighting starter kit options for people who are thinking of trying it out. All it takes is simply swapping your old bulbs for the smart LEDs and connecting them to the internet. Installing smart lighting technology is an energy-efficient and cost-effective way to increase your home’s appeal to future buyers.

Connect it all with voice control

Once you’ve got a few elements for your smart home, it’s time to tie it all together. Smart speakers act as a hub for the rest of your tech, allowing you to control them all with your voice. Voice control doesn’t just make day-to-day tasks easier. It also makes your home more accessible for those with vision impairment, mobility issues, or other disabilities.

Are there any other smart home upgrade trends I should consider?

With technology changing so rapidly, it can be hard to prioritize which smart home upgrades will stand the test of time. Ultimately, it comes down to your budget and what you’re comfortable with. Not everyone wants every aspect of their home to be online, and that’s understandable (we saw that streaming show, too). If you’re not sure where to start, ask yourself the following questions:

  • Can I afford it?
  • Will it appeal to or alienate buyers when it’s time to sell?
  • Does it simplify the homeownership experience or make it more complicated? Does it fit the style of my home? The latest gadgets may look a bit out of place in that charming Victorian villa.

Bottom line, if you don’t like it, don’t spend money on it. As important as it is to consider resale value, you’re the one who has to live there now. Enjoy it!

Doorbells and thermostats are two easy smart swaps you can make to boost value and improve the homeownership experience.