The American Dream: Buying Your First Starter Home

These are a few questions you probably ask yourself when in the process of purchasing a home or refinancing your mortgage. Both are terms that get used often during the buying process, but most people may not know the biggest differences.

Let's start with appraisals. An appraisal is an opinion of value. During the homebuying and refinance process, a licensed appraiser comes to your home and determines a numerical value based on a number of factors. Its purpose is to protect both the lender and the buyer. The lender wants to be sure the home value is accurate and that they're comfortable lending you the money. Just like anyone, you wouldn't want to let someone borrow $200 when they only needed $180. In addition, if the loan defaults, the lender wants to know for sure it will get its money returned by reselling. It protects the buyer to make sure they pay the appropriate price for the home. 

According to Business Insider, the four main parts of the home the appraiser looks at are the square footage, quality of building materials, current condition of the home, and what's nearby. Each of these factors play an important role in determining how much the home is worth. The appraisal also considers surrounding areas and homes alike and what's currently happening in the market. 

Next, an inspection exists for homebuyers to make sure the space is in livable condition. If there is work that needs to be done prior to the purchase, that will be noted in the inspection report and possibly with a suggestion that it gets fixed immediately. 

There are many parts of the home an inspector will review, such as the heating system, central air conditioning system, interior plumbing and electrical systems, roof/rain gutters, walls, attic, ceilings, floors, windows/doors, foundation, structural components, etc. Depending on how the report reads, a buyer might want to reach out to the seller and determine what may need to be done prior to purchase.  

Now that you have an understanding of the purpose each serves, let's play myth or truth.

As a buyer, I want everything to be fixed that came back in the inspection report.

MYTH: Pay close attention to the most important notes—big projects such as window leaks or broken heating systems should be prioritized over some stains on the carpet. Remember it's the certified inspector’s job to find defects. That doesn't mean it needs immediate attention, and that small stain on the carpet from 2018 is probably not top of mind for the seller either. Regardless, you can always try to negotiate next steps after inspection findings, but rest assured, you probably don't need everything fixed before move-in day.

Home appraisals and home inspections are the same thing.

MYTH: But you know that by now!

An appraisal is always needed.

TRUTH: …Mostly. This one is tricky, and the determining factors are Fannie Mae and Freddie Mac. but to be safe, I would assume an appraisal is required during a homebuying or refinance process.

An inspection is always needed.

MYTH: A home inspection is not needed to refinance your home. However, it is highly encouraged you don't skip out on the inspection when purchasing a new home. This is a huge risk you take as the buyer if you decide not to do the inspection. The inspection serves to make sure the home is clear of things such as radon, carbon monoxide, mold, etc., and those are all things you’d want to know before living in a new space.

I need to clean up everything in the house to prepare for an inspection.

TRUTH: …ish. Now, is the inspector going to judge if you drink oat milk over 2%? No. Is keeping the house “clean” going to make much of a difference? Probably not. However, make sure the inspector has enough room to accurately be able to determine the conditions of your home.

The buyer pays for the appraisal and inspection.

TRUTH: In a refinance, the current homeowner pays for the appraisal, and no inspection is needed. During a homebuying process, the buyer pays for both the appraisal and the home inspection.

As you can see, no situation is the same and should be treated accordingly. For more details around appraisals, inspections, or any homebuying and refinance needs, please reach out to me!