Category: PURCHASE

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PURCHASE

Your 10-Step Final Walkthrough Checklist

Buying a home involves a lot of legally required steps, but the steps that aren’t required can be just as important. Case in point: your final walkthrough checklist.

About 24 hours before your closing date, you and your real estate agent will have the opportunity to, you guessed it, walk through the home and make sure everything is aligned with what you’ve agreed to purchase. This could include a lot of easy-to-forget details, so we recommend bringing our final walkthrough checklist along to ensure you don’t miss anything that matters to you.

The must-have home buyer’s final walkthrough checklist

  • Check locks on windows, doors, and gates
  • Make sure windows, doors, and gates open and close properly
  • Confirm appliances are functional
  • Check for mold (especially in damp areas like under sinks)
  • Test all electrical outlets
  • Test the thermostat and HVAC system
  • Check floors, walls, and ceilings for damage
  • Look for signs of pests, like mice and ants
  • Make sure the irrigation system is functional
  • Make sure all agreed-upon repairs have been completed

Your final walkthrough is an important step to take before closing on your home. Make the most of it with our final walkthrough checklist.

1. Check locks on windows, doors, and gates

There’s no feeling quite like being home, safe and sound. So, it’s important to check all the locks throughout the home before closing (closing on your home, not closing the doors). Locks on doors and windows that lead outside are the most critical, but for privacy’s sake, you’ll want to make sure any internal locks are functional as well (especially if you have little ones that tend to explore where they shouldn’t).

2. Make sure windows, doors, and gates open and close properly

All the working locks in the world won’t make much difference if the access points themselves don’t open and close properly. Warmer weather can often cause doors and windows to retain more moisture and swell. So, if you’re buying a home when it’s cooler, keep in mind that a minor mobility issue now could become a much bigger problem later. On the other hand, properly sealed doors and windows are a must-have to lower energy bills during the winter. Ultimately, your doors and windows need to close tightly and open smoothly. Goldilocks was onto something.

3. Confirm appliances are functional

If your purchase agreement includes keeping the appliances that are already installed in the home, those appliances need to be in working order. This includes checking that the sellers haven’t left anything behind, like food in the refrigerator or clothes in the dryer.

4. Check for mold

This is a must-have for any final walkthrough checklist! Mold is the last thing you want to deal with when you move in, so check thoroughly before closing for any signs. Pay extra-close attention to damp areas like bathrooms, laundry rooms, and cabinets under sinks. If your home has a pool, it’s important to check for mold and mildew in and around the pool as well.

5. Test all electrical outlets

With so many appliances essential to our everyday lives, access to functional outlets throughout your home is a must-have. One of the easiest ways to confirm that your new home’s outlets are usable is to bring a phone charger with you to your final walkthrough. Simply test each outlet by charging your phone for a few seconds. Remember that some outlets may be connected to a switch, so make sure all switches are on before you write off any plugs as nonfunctional.

6. Test the thermostat and HVAC system

Especially if you live somewhere with extreme seasonal weather changes, your thermostat and HVAC system are vital to a pleasant homeownership experience. Before closing, check the filter, check the ducts, and set your thermostat to a comfortable temperature. Listen for any unexpected noises as your AC or heating system kicks in (and of course, make sure the temperature is able to stay where you want it).

7. Check floors, walls, and ceilings for damage

This one may seem like it goes without saying, but you’d be surprised how easy it is to overlook the obvious with so much going on during the purchase process. So, during your final walkthrough, take a close look at all the floors, walls, and ceilings of the home for any damage beyond what you’ve already agreed to repair.

8. Look for signs of pests

When it comes to what to look for in a final walkthrough, signs of common pests are especially important. This could include bite marks, droppings, nests in gutters, and small openings that need to be patched.

9. Make sure the irrigation system is functional

If your home includes a sprinkler system, give it a test run during your final walkthrough. It’s vital to know before move-in if there are maintenance issues that haven’t been addressed or disclosed up to this point. For something as major as the irrigation system, it could affect the purchase price.

10. Confirm all agreed-upon repairs have been completed

Your purchase agreement likely includes a contingency clause that requires the seller to complete certain repairs before you move in. If this is the case, your final walkthrough is a great time to check that these repairs have been completed and the seller has upheld their part of the contract.

Is there anything else to look for in my final walkthrough?

Since the final walkthrough is mainly to ensure everything is in line with your purchase agreement, your exact final walkthrough checklist will be unique to you. In very broad strokes: Make sure everything works, everything that’s supposed to be there is there, and everything that’s not supposed to be there has been removed.

Oh, and if the home includes additions like a storage shed or detached garage, don’t forget to apply the same checklist to those structures as well!

 
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PURCHASE

How to Get Rid of MIP on an FHA Loan

We’ve got good news and bad news when it comes to getting rid of MIP (mortgage insurance premiums) on an FHA loan. So, let’s get the latter out of the way first: Financing your home with an FHA loan means paying mortgage insurance premiums for at least 11 years. But, rest assured, there are still plenty of benefits.

Now here’s the good news: As you build up your home equity, there are steps you can take to get rid of MIP. Let’s explore them!

Acronym Alert: As much as we try to avoid complicating mortgages with acronyms, we also don’t want to make you read “Federal Housing Administration” every other sentence. So, here are a few key acronyms you’ll see repeated throughout this blog and what they stand for.

Oh, and one more important definition: Mortgage insurance (private or otherwise) protects the lender if you default on your loan. Now, back to the good news.

What is MIP?

Government-backed FHA loans can be a smart choice for any borrower who needs flexible down payment and credit score requirements. Often considered a great option for first-time home buyers, FHA loans offer perks like:

But, that flexibility comes with a tradeoff. You’re required to pay MIP on an FHA loan, regardless of how much home equity you have. MIP includes a fee you’ll pay at closing, plus annual premiums that are part of your monthly mortgage bill. In total, your annual MIP costs will depend on your loan amount, your down payment size, and the length of your mortgage term.

What’s the difference between MIP and PMI?

For some mortgages, like VA and USDA loans, qualified borrowers aren’t required to pay any kind of mortgage insurance. But for the two most popular mortgage options—FHA and Conventional—it’s a different story. For these loan types, you’ll likely have to pay either MIP or PMI. 

Both MIP and PMI are forms of mortgage insurance, but the FHA provides MIP. Since Conventional loans are not insured or guaranteed by any government agency, PMI is provided by private insurance companies. 

If you put down less than 20% on a Conventional loan, you’ll pay PMI as a monthly premium. But, you’re eligible to drop PMI once you’ve built up 20% equity (in other words, when you own 20% of your home). And when you hit 22% equity, your PMI is automatically dropped for you.

How can I get rid of MIP payments on my FHA loan?

The ability to drop MIP depends on a few factors.

1. When did you get your FHA loan?

If you took out your FHA loan before June 2013, you may be able to cancel MIP. To be eligible, you need to have 22% equity in your home and have made your payments on time. If you purchased or refinanced with an FHA loan on or after June 3, 2013, MIP will last for the life of the loan.

2. How much did you put down?

Unlike private lenders, the FHA doesn’t cancel your MIP once you reach a certain home equity percentage. The amount of time you’ll have to pay MIP mainly depends on your down payment. If you put down 10% or more at closing, you’ll pay MIP for 11 years before you can cancel. If you put down less than 10%, you’re not eligible to drop MIP at any point.

3. Do you plan to refinance your FHA mortgage?

Many homeowners like to refinance to take advantage of a lower interest rate or get cash out. But even if rates aren’t ideal, a refi could still help you drop MIP. By switching from an FHA loan to another loan, such as a Conventional mortgage, you could also be eligible to cancel your mortgage insurance payments.

So, can I actually get rid of MIP on an FHA loan?

If you’re getting an FHA loan, you can’t avoid MIP. Regardless of how much equity you build, you’ll be required to pay an upfront mortgage insurance premium at closing as well as annual premiums.

MIP doesn’t have to be forever, though. If you put down at least 10% on your FHA loan, you’ll only need to pay MIP for 11 years. If you can’t swing that down payment now, one of the most common workarounds for this is to refinance to a Conventional loan once you’ve built up 20% equity. At that point, you can drop the PMI that would replace FHA mortgage insurance when you refinance.

Mortgage insurance premiums are an unavoidable part of financing your home with an FHA loan. Refinancing to a Conventional loan could be your best bet to drop it.

Bottom line, as long as you have your FHA loan, you’ll likely have to pay MIP. But, refinancing to a different loan type when you’re ready to drop it may be easier than you think (especially when you work with Cardinal Financial). You’ve got this.

 
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PURCHASE

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.