Steps to Buying a Home
The Crawford & Lee Team Guide to Buying a Home
There’s a lot to know when it comes to buying a home in Washington-Baltimore area. Whether you’re buying your first condo, moving to a bigger house or downsizing, our in-depth Buying Guide will take you through all the steps. Click through the links to find out how to:
- Get pre-qualified for a mortgage, make important financing decisions and choose a great lender
- Home search like a pro, online and in-person
- Make an offer and not be intimidated by the paperwork, negotiations or bidding wars
- Be prepared for the closing process and costs so you don’t get caught off-guard
There’s a lot to know when it comes to financing your new house or condo. You’ll need to get pre-qualified for a mortgage, make some important financing decisions and of course, eventually choose a great lender.
Step 1 – Get Pre-Approved for a Mortgage
There’s a reason we put this section first: the first step to buying a house or condo in in the Washington, DC area should be finding out how much your bank is willing to lend you. When you pre-qualify for a mortgage, your lender will look at your income, your debts and your down payment. It’s important to take that pre-qualification to the next level before you fall in love with a house by getting pre-approved for a mortgage. A mortgage pre-approval will be in writing (generally valid for 90 days) and will require you to prove your income and credit history.
Of course, a pre-approval is not a guarantee that a lender will lend you a certain amount of money for any home. Lenders want to know that the home they are purchasing with you (by lending you the money) is worth what you paid. Banks generally order an independent appraisal of a home before they advance the mortgage money.
Getting pre-approved will ensure that you know how much mortgage you can get, which in turn will help you know what price range of homes you should be targeting in your search. It allows you to focus your home search efforts and eliminates the risk and uncertainty of financing once you find your perfect home.
Step 2 – Choose a Lender
There are many types of lenders and mortgages out there. It’s a good idea to talk to at least three lenders:
- A mortgage lender. Mortgage Lenders lend their own money and control the whole loan process in-house. This means that the loan process is faster, cleaner, and more-likely to close on-time. Mortgage Lenders typically sell the loan after the transaction to another lending institution with no effect to you.
- A mortgage broker. Mortgage brokers work with a lot of different lenders and will go to them on your behalf to find the best mortgage rate and terms. Usually, broker fees are paid by the banks, so it’s a good way to comparative shop without having to do all the leg work yourself. However, the loan is not processed locally and delays in communication between the broker and the wholesaler often can cause a delay in settlement.
- Your own bank. They have your bank accounts, credit cards and investments so they should be motivated to give you a good rate, but all too often they just aren’t equipped to hand the transaction properly. Like Mortgage Brokers, most of your national banks procession mortgage files in one remote location and that location is processing applications from all around the country. National Banks almost always cause a delay in settlement.
- Internet Lenders. Many of these internet lending sites just shop Mortgage Brokers from around the country. It’s like adding a middle man between you and the Mortgage Broker. Now add the Mortgage Broker is no longer a local lender and additional delays are discovered. My advice is to avoid this option.
Step 3 – Mortgage Decisions
Mortgages can seem intimidating, especially for the first-time buyer. Once you’ve qualified for a mortgage, there are some basic decisions you will have to make before you take possession of your house or condo: Mortgage term, amortization, interest rate and type of mortgage. Read on to find out what all of that means and use our handy Mortgage Calculator to estimate what your payments would be.
Mortgage Term and Amortization
The mortgage term and amortization period affect the amount of money you can borrow (and thus the price of the home you can buy), and dictate how much your monthly payment will be.
This is the amount of time a lender will loan you money for – anywhere from 10 to 40 years with the most common being 30 years. When the term is up, as long as the amortization was the same length of time, you no longer have to make any further payments. However, as an example, if your term is 15 years and it’s amortized over 30 years, you will have a balloon payment due after the 15-year term unless you refinance the balance.
Choosing your term requires some discussion with your loan officer and possibly your Financial Advisor to be sure to select the appropriate term and program. This said, most mortgages are established with a 30-year term?
Amortization refers to the process of paying off debt over time in regular installments of interest and principal sufficient to repay the loan in full the end of the Term. With mortgage loan payments, a higher percentage of the monthly payment goes toward interest early in the loan. With each subsequent payment, a greater percentage of the payment goes toward the loan's principal. Using our Mortgage Calculator will show you how over time the principle is paid down.
Most mortgage payments consist of four parts: principal, interest, taxes, and insurance. This is known as a blended mortgage payment. Each payment reduces the balance owed on the mortgage by the portion of the payment that is credited to the principal. Over time, the proportion of your payment that reduces the principal balance will increase. The faster you can pay down the remaining balance, the less total interest you’ll pay. There are many ways you can pay down your mortgage faster, from accelerating your payments (e.g. paying biweekly instead of once a month, for 26 payments per year instead of 12 OR making one extra payment per year will shorten the loan 7 years from 30 to 23 years).
The interest rate is one of the biggest contributing factors to how much you end up paying for your home, both on a monthly basis and over the life of your mortgage. Interest is the cost of borrowing money. Interest rates fluctuate with the economy. The interest rate you commit yourself to at the beginning of the term can have a significant effect on the amount you pay each month for your mortgage. There are two basic types of interest rates used in mortgage products: fixed-rate and adjustable-rate:
Fixed-rate mortgage – Essentially, this means committing to a single interest rate that will not change for the term of your mortgage. This strategy locks in how much of your monthly payment repays the principal vs. going to interest. Fixed-rate mortgages are great in an economy where interest rates are going up, as you never have to risk paying higher interest rates.
Adjustable-rate mortgage – With an adjustable-rate mortgages the amount of your monthly payment fluctuates with the bank’s prime interest rate – if rates go up, your payment increases; if rates go down, your payment decreases. Most of these types of loans have a period of time that is fixed. An example of this would be a 7/1 ARM which means the first 7 years are at a fixed-rate, then on the first month of year 8 and each year following, the payment will change according to the loans rules and index rate. Typically, these loans have a maximum they can go up or down, as well as, a minimum and maximum rate they can ever charge.
Types of Mortgages
Jumbo mortgage – Or really not so Jumbo in the D.C. market. The lender will loan over the conforming/conventional loan limits of $726,525. Your down payment amount will depend on the loan program you choose, however, if you put down less than 20%, your payments will be higher with the additional mortgage insurance (MI)
Conventional mortgage – Aptly named because they are the most common type of mortgage. The lender will loan you up to 80% (limited to $726,525) of the appraised value or purchase price of the property (whichever is lower), and you generally need to come up with the other 20% as a down payment.
Non-Conforming mortgage – When you don’t have the 20% down payment required to get a conventional mortgage, a high ratio mortgage can advance you up to 97% (limited to $726,525) of the home’s appraised value or purchase price. However, since you are borrowing more than the usual 80%, the government insists that the mortgage is insured against default and that you pay the cost of the insurance. That cost can be a few percent of the mortgage amount, and is added to the mortgage principal.
It’s important to note that not all of these decisions have to be made before you start looking for a home; the crucial step is getting a pre-approval from a lender—then you’re ready to start the search! Details regarding the term, rate and even which lender you use can be decided—and changed—after the actual purchase, all the way up until reasonably close to your closing date (the date you take possession of your new place). However, the more you understand about your options, the better prepared you will be when that magical day comes.
How the Crawford & Lee Team can help you with financing:
- We keep it real. We’ll look at financial considerations to match what you want with what you can afford. Then we’ll develop strategies to help you afford what you want.
- No surprises. We’ll take you through the real costs of owning a home – and help you navigate the mortgage and financing waters.
- Our partners are the best. We’ll put you in touch with the very best lenders and mortgage brokers in the Washington-Baltimore area.
Let the fun begin! Whether you’re searching online, hitting open houses or searching with a REALTOR, searching for your dream house or condo is both a science and an art. Here’s what’s involved:
Step 1 – Develop your Wish List
Knowing what you need and want in your home is critical. What are your must-haves, your nice-to-haves, and your no-way-absolutely-nots? How many bedrooms do you need? What kind of outdoor space do you want? What about counter-tops, appliances and floors? You can’t get what you want if you don’t know what you want. Of course, location will be a big decision – what neighborhood makes you feel at home?
Of course, in a hot market like ours around Washington, DC, compromise is a big part of the process. Almost everyone needs to compromise on something, and it usually comes down to 4 things: size, finishes, location and price. What’s most important to you? Would you rather live in a bigger house or closer to downtown? Are you OK spending more money for a renovated house or could you buy a cheaper house and do the renovations yourself? Would you consider living on a busy street to more affordably be in a better neighborhood with access to better schools?
Step 2 – Pick Your Team
Buying a house or condo will likely be one of the biggest purchases you’ll ever make – but don’t worry, you don’t need to do it alone. You’ll want to start by picking a Great Real Estate Agent who works exclusively for YOU. You’ll also need a lender to take you through your financing options, and a title company to help with the legal aspects of the purchase. There are thousands of professionals out there (of varying quality), so ask your friends and family for recommendations, do your research and don’t be afraid to interview multiple people.
Step 3 – Searching for Houses and Condos Online
You aren’t alone: 94% of home buyers search for their home online. While there are endless real estate websites out there, here are the ones you should consider:
- Realtor.com is the website owned by the real estate association. It pulls available properties for sale directly from the system that agents use, the MLS (multiple listing services). realtor.com is usually a day behind what’s happening in the market, but a great tool to explore what’s for sale and start to get a feel for what’s available.
- Custom Listings from a REALTOR Another way to get quick and easy access to what’s available is to have a real estate agent e-mail you daily listings of available houses and condos that match what you’re looking for. Better yet, ask them to set you up in the MLS Portal to have control over your searches and get instant notification of new listings that match what you’re looking for.
- The Crawford & Lee home search tool – Of course we’re biased, but our home search tool pulls house and condo listings directly from the MLS every hour and includes a lot more information than what you’ll find on realtor.com. You can set up a custom home search for yourself that will automatically e-mail you listings that match whatever criteria you set, so you never miss a listing. Click here to check it out or set up a property search for yourself.
- The RE/MAX home search tool & app – A brand NEW product that just launched on February 1st, this home search tool pulls house and condo listings directly from their own proprietary database every 30 minutes and has some very unique search tools that sync seamlessly between your computer and your phone. You can even sync your search with someone else that is also looking with you, so you can collaborate on what you have found. You can set up a custom home search for yourself that will automatically e-mail you listings that match whatever criteria you set, so you never miss a listing. Click here to check it out or set up a property search for yourself.
Tips for looking for a home online:
- Keep an open mind. Photos aren’t always representative of what the house looks like in real life.
- Don’t always believe the description and read between the lines. ‘Ready to put your decorator touch on it’ means it needs a lot of work. And “Bethesda dream home for under $600K” probably isn’t really in Bethesda.
- Remember that the asking price ban be very different than the sale price. In a hot market like our in the DMV, houses can sell for more than the listing price depending on the area and condition or improvements.
- If you’re shopping for a condo, keep in mind that what’s included in the condo maintenance fees varies from building to building, so it isn’t easy to compare condos. A lower maintenance fee might still mean more monthly costs if it doesn’t include heat and electricity.
- Take some time to learn how to read an MLS listing – all those acronyms are guaranteed to confuse you.
Step 4 – House Hunting in Real Life
This is your opportunity to get a feel for the different neighborhoods, refine your wish list, and ask questions. While a wish list seems kind of scientific and is a useful tool in deciding which properties to visit, the truth of the matter is that most people walk into their perfect home and just feel it. Of course, it helps when it satisfies your needs and wants too, but don’t underestimate the power of ‘just knowing’.
You can visit homes for sale in real life with your real estate agent or by attending an open house. Keep in mind that not all properties will have open houses, so working with a real estate agent you trust is the only way to guarantee that you’ll be able to see the houses or condos you want to see (and on your schedule!).
Tips for looking at homes in real life:
- Make a plan. If you’re like most people, you have a few target neighborhoods. Try to focus on one neighborhood at a time and don’t forget about traffic.
- Wear slip-on/slip-off shoes. Seriously. You’ll be taking your shoes off dozens of times, so save yourself the hassle of lace-up shoes. Wearing socks will also save you in the ‘do-frat-boys-live-here?’ houses.
- Don’t just focus on the house or condo, focus on the neighborhood. Drive around the neighborhood. Locate the schools, parks and grocery stores. Take a walk down the street and check out the neighbors. Make a point of going to a cafe, restaurant or pub in the area.
- Vary the time of day that you house hunt. Everything looks better when the sun is shining, but it’s important to get a feel for the house or condo and the neighborhood during the day AND at night.
- Experience the bad with the good. Every neighborhood has its drawbacks, so make a plan to experience them. Thinking of buying a house near the railroad tracks? Check it out during rush hour when most of the trains are running. Thinking of buying along the C&O Canal and Macarthur Boulevard? Make sure to check it out when there are throngs of tourists, bicyclist and roller-bladers are jamming the streets.
- Take notes and photos. It’s surprising how quickly you can forget the first house or condo you saw. We suggest that our clients take notes and photos of every property. And no, you’re probably not allowed to take photos of other people’s houses, but it happens all the time. Just don’t go posting them online.
- See past the gross. You’ll probably be surprised to find out how some people live, but don’t let someone’s bad decorating styles, outdated tastes and lack of housekeeping get in the way of finding your perfect house or condo.
- Don’t fall in love with the seller’s stuff. This happens all the time and that beautifully staged condo won’t look nearly as great with all your stuff in it. Try to imagine your furniture and style.
How the BREL team can help you hunt for your next home:
- We’ll help you match what you want with the greatest opportunity for ROI. Together we’ll examine your needs, wants and must-haves to create a picture of your ideal home or investment property.
- We’ll stay on top of new properties in the best Toronto neighbourhoods as they come on and off the market. We’ll send you daily listings of what’s available and monitor what’s happening, as it happens.
- We’ll be your house-hunting partner on YOUR schedule. We can take you to see any property that’s for sale and sometimes even ones that aren’t.
- We’ll save you time. We can preview properties on your behalf and screen what is or is not for you, saving you time and hassle. We can send you video profiles of what we’re seeing – or better yet, you can follow us streaming live on the web.
Making an Offer
Your home search efforts have paid off, and you’ve found the right home for you: it satisfies your wants/needs, it’s in your price range, and it feels right. The offer process is both exciting and nerve-wracking. We begin by drafting the Sales Contract. This is a legally binding document which contains everything from the price you are prepared to pay, to the inspections you want (Home Inspection, RADON, Well & Septic, etc.), to your ideal closing date (the date you take possession), to conditions that need to be met for the deal to go through. Once you’ve submitted your offer, the seller can accept it, reject it or sign back a counter offer. During these back-and-forth negotiations, you may need to compromise on small things, but a good real estate agent will work hard to get you what you want. And if you’re in a bidding war, make sure you know the facts about Bidding Wars and How to Win in Multiple Offers.
Meet Conditions and Provide Deposit
Conditions are requirements within the Sales Contract and Sale that must be met for the deal to go through. In your offer, you may have included a financing condition or a home inspection, or a home sale contingency. And of course, you’ll need to submit a deposit–in the DMV, typically between 1% to 5% of the purchase price, which is held in trust until closing. Once the conditions have been met, the agreement is firm, and now it’s just a matter of waiting for your closing date. And of course, packing!
How the Crawford & Lee Team can help you negotiate and get your new home:
- We’re kinda known for our kick-ass negotiation skills.
- We have earned our desination as Certified Negotiations Experts (CNE)
- We’ll stand up for you come negotiation time. We won’t be bullied or pressured to make a move you aren’t comfortable with.
- We will be honest with you during the negotiations to advise you with the best strategy to have your offer WIN.
- We’ll decipher the fine print. We’ll take the mystery out of financing and legal requirements and make sure your interests are protected. Think of us as your coat of armour as you enter the battle of buying a home.
Once you have a firm deal (both you and the Seller have agreed on price and agreement terms, you’ve submitted a deposit, and there are no more conditions to waive), the closing process starts. This will require you to be in close contact with your lender the title company – they’ll need lots of information, and of course, money, from you. Our Transaction Coordinator will help guide you through the whole process.
A few days prior to closing you will need to communicate with the Title Company to get the wiring instructions so that you can provide the remaining balance of your down payment. The Title Company should NEVER email you the wiring instructions. Should you receive the instructions via email, DO NOT wire the fund without speaking directly to the Title Representative you have always spoken to, to verify the information. This is to prevent Wire Fraud.
The day you go to closing and take possession are the most critical – you’ll need to sign a lot of paperwork and of course, pick up your keys.
Closing is the point at which the ownership and possession of the property are transferred from the Seller to you. It takes place after all legal and financial obligations have been met, paperwork has been signed, and the purchase funds have been received by the Title Company. Closing the purchase will be a team effort: in addition to yourself, the Real Estate Agent, the Title Lawyer and your Lender will all be involved in helping close the deal.
Costs of Buying a Home
As you go through the process of buying a home, you’ll naturally want to know how much money this will cost you. The Loan Officer, Title Company and Real Estate Agent can help you estimate your costs. Some of the things you can expect to pay are:
- Down payment (less any money you have already provided as the earnest money deposit)
- State and County transfer & recordation taxes*
- Lender fees, if applicable (appraisal fees, application fees, etc.)
- Title fees
- Title Insurance
- Real Estate Broker administration fee
- Adjustments (the seller may have pre-paid taxes or other expenses past the closing date which you will need to reimburse during the closing process)
- Legal fees (plus applicable taxes)
For a detailed list of all the closing costs involved in buying a house or condo in Maryland, Virginia, or Washington DC feel free to call us. Each county their own fee schedule.
The Lender and the Title Company will calculate the final amount owing, and you will need to wire the Title Company the full amount before the closing.
If you’re a first-time home buyer, you may qualify for some great government programs that can save you hundreds of dollars in closing costs.