Steps To A DC Home Purchase
Section: Buyer Playbook
Author: Susan Isaacs, Washington DC Real Estate Strategist
Where to begin
Ready to purchase a home in Washington DC but don’t know where to start? Here’s our ‘best practices’ list to set you on the right path to home ownership.
Prioritized Steps
Research your local market. Interview reputable mortgage lenders and obtain a pre-approval. Select an experienced, skilled buyer’s agent to help you structure your home search in a way that promotes efficiency, a smooth process and satisfaction with its outcome.
Do I Need A Mortgage Loan?
If you are not paying cash for a home, you’ll need a mortgage loan. Seller financing is rare and comes with a list of risks to the buyer. The same is true of rent-to-own agreements.
What Is A Mortgage Pre-Approval?
A mortgage pre-approval is a statement lenders provide asserting your eligibility for a mortgage loan. Pre-approvals are based on your mortgage application and verified income, credit score, debts, and employment history. The pre-approval letter should include: the lender’s name and contact information, your maximum loan amount, estimated interest rate, loan term and an expiration date.
How Does A Pre-Approval Differ From A Pre-Qualification?
A pre-qualification is a quick, informal estimate based on self-reported numbers, while a pre-approval requires verified documentation and a hard credit check. Nearly all sellers are advised by their agents to require a mortgage loan pre-approval to be submitted with an offer as it provides much more value than a pre-qualification.
Why Does The Process Begin With Financing?
Before meeting with agents and signing an agency agreement, you’ll want to be sure of your ability to purchase, verify your price point, and confirm your need for concessions, if any. Obtaining a pre-approval and accompanying worksheet ensures you and prospective agents that you understand the cost of borrowing, broker compensation, and your borrowing limits.
A pre-approval shows prospective agents you’re serious about your intent to purchase and have the ability to assume responsibility for broker compensation
A pre-approval helps your agent define criteria for timeline, feeds and showings
Your Pre-Approval should come with a worksheet that helps you estimate transaction costs accurately
If you find the right property quickly, you’ll have the letter needed to write an offer.
Why Consult Three Lenders?
DC home buyers should contact several lenders for mortgage pre-approvals and worksheets. Request worksheets for the home type(s) you plan to purchase, at the mid-range and the very top of your price point. This will allow you a working estimate for your desired price point, and a ‘worst case scenario.’ It is easier to recalculate downward than upward. Lenders are not always available to generate new worksheets or pre-approvals when offers are being drafted. This way, you’ll have the tools to do the math yourself.
You’ll want pre-approvals from a local, reputable and recognizable lenders. Remember, the pre-approval’s purpose is to provide reassurance. A document from a lender outside your geographical area that none of the parties have heard of does not accomplish that.
Ask lenders to review DC homebuyer programs that may benefit you. You may also qualify for down payment assistance, home buyer tax credits or DC tax abatement.
Don’t make a lender commitment until you’ve contracted on a home. DC condos, new construction, co-ops, and single family properties all qualify differently. Your price point also makes a difference. Lenders offer a variety of programs. You’ll want to match your loan to the property you want to purchase. Having the pre-approval(s) and worksheets in hand speeds up the comparison process and allows for rapid decision-making when an offer is accepted and goes to contract.
12 Questions To Ask Lenders
1, What loan options are available to me, including local home buyer programs?
2. What is the maximum purchase price I qualify for? Which loan category does this loan fall into (jumbo or conforming conventional, or other loan type)?
3. What is the current interest rate and associated costs for this type of loan?
4. What will my monthly mortgage payment be at the maximum approved price, and what loan fees apply?
5. Can you provide me with a cost estimate worksheet similar to a Closing Disclosure, detailing all the costs of a transaction at this price?
6. How do my options change if my downpayment is increased or decreased?
7. When is a rate lock available, what is the duration, and do you offer a free ‘float down’ during the loan term? What is your fee for a rate lock?
8. Are there any restrictions for down payment gifts or source of funds?
10. Will my loan be sold after closing?
11. Does this loan have a prepayment penalty?
12. Is this loan assumable?
What You’ll Need To Provide
Sufficient information to complete a loan application
Credit review. Your lender will run your credit reports.
Provide copies of your W2s, tax returns for two years, three months of recent bank statements, and any other information requested by lenders.
Discuss loan options with your loan officer and make sure to request a worksheet showing all costs of your transaction. Ask the lender to calculate based on your highest approvable amount. This saves time when you’re ready to make offers. It is a common misconception that submitting an offer with a pre-approval amount higher than the offer amount will weaken your negotiation power. Price is negotiated on the merits of the property and market values, not the buyer’s purchasing power.
Partnering With An Agent
The biggest transaction of a lifetime is no time to wing it. Now more than ever, it’s important to have an experienced pro to guide you from search, negotiation and transaction management to closing and beyond. Interview experienced agents to find the professional best-suited to your needs. You’ll be asked to review and sign an agency agreement before any work commences on your behalf.
Quality Representation
New market, new rules, new economic climate. A skilled agent can acquaint you with the latest changes to real estate practices, provide expert market knowledge, property valuation tools and information, navigate complex negotiations, offer access to exclusive off-market listings, help you identify potential property issues, and ultimately save you time and money by guiding you through the often intricate home buying process, especially in a unique market like Washington DC.
Benefits Of Working With A Buyer Agent
Market Expertise: Agents have deep understanding of local market trends, pricing, and current conditions, helping buyers make informed decisions based on accurate data. This is especially important in a market with fluctuating rates and diverse options
Negotiation Skills: Agents can effectively negotiate on your behalf, securing the price and terms that work for you while ensuring you don’t lose your desired property to another buyer.
Access to Off-Market Listings: Agents may have access to off-market properties that don’t appear on search engines, providing you with an expanded array of options.
Technology: Digital tools, AI and data play significant roles in real estate, and a skilled agent can leverage them to enhance your search, property valuation and transaction.
In a competitive market, your agent can provide effective strategies and help structure strong offers persuasive to sellers. In a fluctuating market, a skilled agent is invaluable in helping you decode market conditions, identify opportunities, and access off-market properties.
Property Evaluation: An experienced agent can spot potential issues with a property that might not be obvious to a buyer.
Streamlined Process: Agents manage forms, contracts and other paperwork that may be unfamiliar to buyers. In addition, your agent can guide you through contingencies, inspections, rescission periods, and appraisals, freeing up your time and minimizing stress.
Questions To Ask
How are DC real estate market conditions right now?
Why is a written agreement required for us to tour homes?
What are my buyer broker compensation options?
Does your brokerage charge an ‘admin’ fee? How much is it? Is it negotiable?
How do you manage offers when cooperative compensation is not provided?
What if I can’t afford to pay my broker and still cover closing costs and downpayment?
Review the buyer agency forms
Does a seller concession for buyer broker compensation count against Fannie Mae or Freddie Mac caps?
Can I pay my own broker and still use a VA loan?
What tools do you use for the home search process?
How much time should I expect my home search to take?
How will I know if my goals are realistic and achievable?
Will I be able to view off-market listings?
Do you handle my full transaction personally, or will I be working with someone else most of the time?
What’s your communication style and what communication tools do you use?
How many years have you practiced real estate in Washington DC?
Please explain how appraisals can affect my transaction
What do I need to know about home inspection contingencies in the current market?
What You May Be Asked
Do you have a pre-approval letter issued within the past 30 days? Who’s your lender? (You’ll be asked to provide a copy of the pre-approval letter)
Are you working now, or planning to work, with other agents?
Have you toured homes or consulted with other agents? If so, can you furnish a copy of your agreement(s)?
What type of financing will you use, or are you paying cash?
Do you have any credit, tax or other issues that may affect your ability to obtain a mortgage loan?
Do you have available funds for an Earnest Money Deposit, closing costs and broker compensation?
Do you understand new buyer/broker compensation rules and practices, and how they affect you?
How much will your downpayment be?
What are your expectations for your home search?
Do you have any concerns about working with a buyer’s agent?
Do you understand what buyer’s agents do, don’t do, and how they benefit your search?
What are your desired locations, “must-haves” & “wish list?”
What are your needs regarding pets, parking and Metro proximity?
What’s your purchase and move-in timeline?
What else is important to you?
Buyer Agency
Interviewing and hiring an agent should accomplished before reviewing listings and touring homes. In fact, new rules require it. Read about buyer agency and how it affects you.
Strategy And Search
Review your wish list, timeline, price point and other important factors with your agent. Discuss market conditions and how they align with your goals. Your agent should provide various strategies to help you accomplish your goals, and explain the pros and cons of each. Reach compromises where necessary.
Identify the search targets your agent will incorporate in your search feeds. If you’re working with a Compass agent, you’ll receive invitations to private Collections of listings that match your search criteria. All the latest listings will generate automatically, and you’ll get updates in your Inbox as often as you choose. You will also be able to view off-market opportunities throughout the Compass network.
You and your agent will discuss the merits of each listing of interest amd you’ll create a shortlist of favorites. Once you’ve identified the homes you’d like to tour, prioritize them and your agent will set up a tour.
Your agent will make inquires on your behalf about buyer broker compensation, create and review a comparative market value analysis (CMA) for properties toured, and outline an offer strategy when you’ve decided on a home. Strategy for offers differs with each property.
Offer And Contract
Once you’ve discussed terms, your agent will draft your offer and attach all necessary disclosures, then send it to you for signature. Once signed, the offer will be ‘packaged’ and submitted to the listing agent.
A ratified offer exists when all terms are agreed upon in writing. During the contract phase, you’ll exercise your contingencies, if any, perform your due diligence and review any additional documentation required or provided. There may be some additional negotiation involved, for contingencies such as inspection and appraisal. Once all contingencies are satisfied, you’re on your way to settlement.
Settlement And Post-Closing
Your title company will facilitate settlement, during which you’ll sign financial and legal documents, including the Closing Disclosure, promissory note, and mortgage or deed of trust if you’re financing. At the end, you’ll be handed the keys to your new home.
Post-settlement, your agent may check in to make sure your move went smoothly and all is as expected with your home. Many clients appreciate having access to a contractor and vendor list for improvements and repairs.
Rules Of Thumb
Earnest Money
Earnest Money Deposits typically range from 3% to 20%, depending on the situation and price point. The lower end of 3% commonly represents an amount equal to a special mortgage program, or relates to a low-priced property. EMD at the higher end commonly relates to sums for cash transactions, high-value purchases and/or deposits relating to multiple offer scenarios. EMD is presented with your offer in the form of a photo of a check, and credited toward your downpayment if the contract goes to settlement.
Note:
EMD will be lost if you default on your contract.
EMD is held by the title company and deposited when a contract is ratified
EMD percentage affects the strength of your offer.
Down-Payments
Down Payment amounts vary. In the DC Metro area, down payments typically range from as low as 0% down for qualifying VA borrowers, to 3.5% for FHA loans, 3% to 5% for specialized mortgage loan programs, 10% to 20% for co-ops, and conventional loan programs from 5% to 25%. In a multiple offer situation, down payment percentage affects the strength of your offer.
Note:
Downpayment amount can affect the strength of your offer
If in doubt of your down payment %, err on the conservative side. You can always increase downpayment, but reducing can trigger contract issues
Consult with a mortgage professional to determine your downpayment options. Always consult with a mortgage professional to determine your downpayment options.
Closing Cost Budget
In addition to down payment, you’ll pay for transaction closing costs, which can be estimated at approximately 3% to 3.5% of the purchase price of the home, plus broker compensation. Transaction costs vary based on loan product, type of home, and purchase price. Ask lenders for one or more worksheets detailing costs to make apples-to-apples comparisons. Provide your lender with basic worksheet information such as top price (worst case scenario), condo fee if applicable, tax zip code and loan type.
Related Links
Before You Go
There’s no paywall here.
If you find this article helpful, that’s exactly why I write it.
If you’re planning to buy, sell, or invest in Washington, DC or Northern Virginia this year, the best way to support this publication is to work with me.
I don’t sell leads or charge subscriptions. My business is representing clients, and every article here is written to help consumers make better real estate decisions.
If you’d like to discuss your goals, your timing, or the current market, I’d be happy to schedule a no-obligation representation consultation.
Contact Susan Isaacs to start the conversation.