Buying a home in DC, Maryland & Virginia

Finding the right Realtor is an important first step in your home search. Not only should your agent be knowledgeable about the area you are looking to purchase in, but you should also have a good relationship with them. You will be spending a lot of time with them, so getting along is important. They will be guiding you through one of the largest decisions and transactions of your life; therefore it is important to find someone you trust and connect with.

If you have a lender you are already working with, providing your agent with your pre-approval letter along with other search criteria will allow them to best serve you. Today a large portion of buyers use online search tools to help locate properties. Unfortunately, not all the information on public sites is accurate or up to date. Your agent has access to all properties listed in the MLS — some of which are not yet available to the public. They also hear about homes before they hit the market, so the more information you give them, the more they can help you.

If you have not started speaking with a lender, now is the time. This is your first step on the path to homeownership. Doing this at the start of your home-buying journey will allow you to know your budget, and avoid any broken hearts or arguments if you fall in love with a home that is not affordable. If you do not have a lender in mind, your agent should be able to provide you a list of different lenders to speak to and consider.

Lenders look at more than income and tax returns when pricing your mortgage. Other things to consider:

• What is your down-payment amount?
• Will you be receiving any gift money?
• Will you require private mortgage insurance (PMI)? — required if you are putting less than 20% down
• Are you purchasing a condominium or a property with a Home Owners Association (HOA) that has additional separate fees?
• What are the property taxes?

Other fees you need to consider as a buyer:

• Home insurance
• Home warranty
• Appraisal fee
• Home inspection fee
• Termite inspection
• Radon testing
• Transfer & recordation taxes
• Settlement / closing costs
• Lender fees
• Title insurance

Most online mortgage calculators do not include these extra fees. They can affect your monthly payment and cost thousands of extra dollars that you may be required to bring to settlement — so make sure you get an idea of the fees up front.

The first thing to remember is that no house will ever be perfect — you will always have to make a few compromises. It is important to make a list of your non-negotiable items, such as school districts, number of bedrooms, or style of home, along with any other items you simply cannot live without.

When considering homes, it is always important not to judge a home by its photos. Going to see properties in person is the only way you will get a true feeling for the right property. If your agent suggests a home you are not sure of, make sure to listen — sometimes you don't know what you want until you're standing in it.

So you have found a home you love — now it is time to put in an offer. You and your agent have more to discuss than just the price.

1. Earnest Money Deposit (EMD). The amount you submit to the settlement company to hold in escrow once you have a ratified contract. It shows the seller you are invested in the property and is a sign of good faith. The amount varies from county to county and on the price of the home, but as a rule the larger the EMD, the more attractive your offer appears. Note: the title company will cash the check to hold in their escrow account, so any funds need to be liquid and available to make sure this deposit clears.
2. Sales Price. You and your agent should look at the comparable sold homes in the neighborhood and arrive at the price you feel financially and emotionally comfortable with.
3. Settlement Company & Date. It is up to you, the buyer, to select a settlement company and date for closing. Your agent should check whether the seller has a specific settlement date they would prefer. If you don't have a settlement company you prefer, your agent should be able to provide a selection.
4. Financial Information. Along with your offer you will complete a financial information sheet showing your income, savings, and debts. You may also be asked for proof of funds showing you have the amount needed for the EMD check and down payment. If money is coming from another source, such as a gift from a parent, you will likely need to provide proof of funds in those accounts too. If you are getting gift money, it is crucial to inform your lender ASAP — they need to verify the funds and account for them in the correct manner.

Contingencies

When you submit your offer you will also include any contingencies you are asking for in the contract. These contingencies protect you and your EMD money for their duration while under contract. Some common contingencies to consider:

1. Home Inspection. It is always in your best interest to conduct a home inspection. A licensed inspector will go through the home and note any issues. The price varies greatly with the size of the home but averages $300–$500. Buyers pay the inspector on-site at the time of service.
2. Radon. Radon is an odorless, colorless gas that can cause cancer. It is easy to test for and not overly expensive to fix — remediation usually costs $800–$1,500. The EPA recommends a level of 4.0 or lower; above that, they recommend a remediation system. Since legislation effective Oct 1, 2016, some properties now require a radon test prior to settlement by the seller; the buyer can elect a radon contingency to perform the test themselves.
3. Financing. Your financing contingency protects you if you are unable to qualify for the loan you applied for.
4. Appraisal. An appraisal is required by a lender for any financed property. An independent third-party appraiser visits the property and looks at the home, the sales price, and comparable sold homes to determine their opinion of value. Should the house not appraise at the sales price or higher, it gives you options to negotiate.

Loan & Insurance Application

Within 7 days of contract ratification, you must have formally applied for your loan and your home insurance. If this is not done, you may be in default of the contract and your EMD could be lost.

Home Warranty

Along with home insurance, consider whether you would like to purchase a home warranty to cover the appliances and systems in your new home. They typically cost around $500 a year for a standard warranty. Occasionally the seller offers this as part of the purchase; you also have the option to ask for it in your offer.

Title Insurance

Title insurance protects you from title defects. Lenders require it on the amount they are lending in order for the loan to be issued. Owner's title insurance is optional; however, the cost of not having it could be extremely expensive should an issue with title ever occur. The settlement company will provide information and options. It is a one-time fee taken at settlement.

Inspections

Per your contract, you will go through the different inspections needed for the property. You will be expected to be present at the home inspection with your agent and your chosen inspector. Depending on the size of the home, this can take anywhere from 2–3 hours for a smaller property to 6+ hours for a larger home.

Condo / HOA Document Review

Once the seller has presented you with the Condo or HOA documents, you have a set time period to review them. During this review period, you have the right to walk away from the contract without your EMD money being in jeopardy. The time periods vary by state:

Final Walk-Through. Your final walk-through is conducted with your agent, usually the morning of — or the day before — settlement. You will walk through the property and make sure it is broom-clean, free of debris, and in accordance with the terms of the contract. Your agent will present the final walk-through form, which you sign once complete, and will confirm the final water-meter reading and present it to the settlement company.

Rent Back. If you agreed to it during the contract period, the seller may have asked for a rent back to allow more time to move out. Usually the seller pays your principal, interest, taxes, and insurance on the property, along with the utilities, for that period. The title company works out the exact numbers at settlement. Once settlement has occurred you are the owner, and the seller is simply renting it back from you. It is normal to take a security deposit at settlement to cover any damage caused by the seller moving out. After they move out, you do a post-occupancy walk-through with your agent; if no issues are found, the deposit is returned. The settlement company keeps all security deposits in their escrow account.

Utility Transfer. Schedule the transfer of utilities into your name for the day of settlement to avoid any interruption in service. If there is a rent back, schedule the transfer for the day the seller moves out.

Settlement Payments & Wire Transfers. Today it is customary for any funds due at settlement to be provided to the settlement company via wire transfer. Collect the wiring instructions at least one week before settlement. Wire transfers are the most secure and quickest way to ensure your funds arrive on time and without issue.

The day has finally arrived — you are off to settlement. Bring your photo identification, any checks required by the title company, and any other information they have requested. You will be signing a lot of paperwork, so come relaxed and be prepared to stay a while. A usual settlement runs from 30 minutes to 2 hours, depending on the complexity of the transaction. Your agent should be at settlement with you, and usually the seller and their agent will be present too (unless the seller signed their portion ahead of time). When settlement is complete, the title company will give you a folder with all the important information related to your transaction — find a safe place to keep it in your new home!