Question: We are planning to buy a home in the D.C. area in the next 12 months. What should we know before buying a house that we can get started with now?
Answer: Whether you’re a first-time buyer, experienced buyer relocating from out-of-state, or moving locally here’s a list of things I review and plan out with clients before getting into the full swing of house hunting.
Requirements, Timelines, and Contracts
The most important thing you can do as a buyer is take time to become educated on the process, timelines and key contractual terms/obligations in the area you plan to search. This is also a good way to meet and vet different real estate agents early on to get a feel for who is willing to spend time with you up-front on education and planning vs pushing immediately for a sale.
It’s important to identify a lender who provides high quality service and also has loan products that fit your profile (down payment, credit score, job industry, etc).
Getting a pre-approval from a lender who reviews and verifies your financial documents, income, and employment will decrease the chances of you being rejected from a loan, increase your leverage in contract negotiations and reduce the amount of work required of you once you’re under contract.
Set A Monthly Budget
Most people qualify for more than they actually want to spend, especially dual-income buyers, so budgeting is important. Set a monthly budget for total housing expenses including mortgage, taxes, insurance and applicable Association fees or mortgage insurance.
Do You Want Representation?
Determine if you want to be represented by a Realtor (breaking news… I highly recommend it). In most cases, the seller pays commission to the buyer’s broker, so representation often comes at little or no cost to buyers.
Cash Needs + Savings
You need cash savings for your down payment + closing costs of 2.5-3% of the sales price. When your offer gets accepted, you need to deposit 1-5% of the sale price into an escrow account to secure the sale.
You’ll spend about $1,000 before closing on inspections and appraisal. Don’t forget moving expenses, furniture, painting, etc. You should have 3-6 months of emergency savings tucked away after everything is paid for.
How Long Will You Live There?
This is the most underrated conversation for buyers to have when setting a budget and determining criteria. Your home-buying strategy should look very different if you’re planning to own for 3-5 years vs 10-12 years so give it serious thought and be realistic.
Sometimes the best investment is buying a house that allows you to live there longer and eliminates one or more real estate transactions in your lifetime. The value you get out of being in a home for 10 years vs 3 years far surpasses a small increase in your budget.
Deadlines and Lease Terms
Figure out if you have any strict deadlines for the move and if there are costs of buying before or after that deadline. If you’re renting, make sure you find out the cost of early termination or if month-to-month leasing is an option.
I hope this list is helpful not just for local D.C. metro readers, but for anybody getting started with their home search and wondering what you should know before buying a house.
These are the conversations and steps I take with my clients every day to make sure they’re prepared and have the right strategy in place before we even look at homes together. I’m sure I left a few things off this list, but this should get you 95% of the way there.