So, you’ve been thinking of this buy a house thing. You’ve heard you can turn your rent money into equity. That you can build wealth through property value appreciation, and also, it kind of rocks to be your own landlord. Yes, all true. So, let’s get started.
There are six things to do to get ready to buy a house. But, before I go on, I want to let you know I am a working class lady who has never earned more than $56,000/year, and I own five properties in the DC area. I tell you, so that you can see I’ve hacked property buying a few times myself. Now, moving forth, the six tips I have for you:
ONE) Calculate the top purchase price you want to pay
Here’s a site where you can calculate your monthly payments:
You should think about how much you can pay per month, and work backwards from there to decide what purchase price that is. I made a sample payment that mirrors what I paid for my house, to give you an idea. I bought my place for $400,000 and pay about $2400/month. It would be $271 less if I had used a conventional loan, but I used an FHA loan, so have the Mortgage Insurance Premium (MIP).
TWO) Figure out your plan for the down payment and closing costs
As you see, you’ll need $14,000 for a down payment on a place that costs $400,000. Closing costs for this price range are around $12,000.
Here is a good closing cost calculator:
There are three main ways to get cash for a down payment and closing costs if you don’t have enough savings and you don’t have friends or family to give you a down payment.
1) If you have a seller who wants to help you, they can do “sellers assistance” which is where the seller adds to the price of the loan, in order to pay for your closing costs. You will still need the down payment. Again, this is something that sellers don’t like to do, but if you find a condo that no one else wants, and the seller wants to close the deal, you can ask for this. It’s a good idea. You can talk to your lender and your real estate agent about this option.
2) Besides that, you can take a loan from your retirement account. Read more on this option here.
3) And you can also do what I did, pay only the minimum on your credit cards each month, and keep the savings in your bank account.
4) BONUS: If you live in DC and make less than $85,000 a year and this is your first time buying a home in DC, you can be a part of the DC Home Purchase Assistance Program (HPAP, bad acronym, yes I know!) This program gives participants a 0% APR loan to use towards your down payment. Read more about the HPAP program here, and also sign up for the mandatory class you need to take in order to qualify at Latino Economic Development Center here in Shaw. HPAP is the best option of all for down payment money, even if you have savings in your bank. If you qualify for HPAP, you should definitely do it! 0% money is FREE MONEY! Keep earning a return on your savings, and also have it available should you need to do repairs on your new home.
THREE) Get a lender and get pre-approved
Now that you know how much you want to pay, and have a general plan for how you will cover your down payments, it’s time to talk to a lender. The lender will look at all of your financial documents and talk to you about the kind of house or condo you want. The lender will then pre-approve you for a certain amount, which allows you to put an offer on a property once you find one you like. If you are in the DC area, without a doubt I recommend Lola Pol. She did my FHA loan, and 100% knows the DC market, will get you a good deal, and will get you approved for the amount that is right for you. She may also have some real estate agents she can recommend you to. But the first step is to get pre-approved for a certain amount. Here’s Lola’s info, call and email her now!
Location: 3800 12th St NE, Washington, DC 20017
Office: (202) 601–3227 Cell: 301.518.6333
FOUR) Become familiar with the housing or condo market
You should create a Zillow account and search the parameters you want, save this search, and set yourself up for daily emails. Then you will get to know how much things cost, and what kind of place you want. The most important parameters are top purchase price, number of bedrooms, neighborhood, and type of property (mainly home or condo). The biggest reason I’ve seen people who haven’t been able to find a property they want to buy is because they have unrealistic search parameters. What they want doesn’t exist. Example: Yes, I would like to live in a mansion in DuPont Circle that costs me $500/month. But, it doesn’t exist. So, if you aren’t seeing anything showing up in your online search, you will either have to raise your purchase price, broaden the neighborhoods you want to live in, or accept a smaller place or one that is older or has fewer amenities.
FIVE) Learn about FHA Loans and 5% conventional loans
FHA loans allow home buyers to have a down payment of only 3.5% instead of 20%. This can be a bonus if you don’t have a lot of savings. However, sellers prefer a conventional loan instead of an FHA loan. As with an FHA loan, the government requires an inspection (which takes more time and adds uncertainty to the deal, all which sellers don’t like). A place that’s been on the market longer will likely work better with an FHA loan. The hard thing is you’ll be competing with conventional loan buyers. Try to get a conventional loan if it is available to you, but if not, you can buy using an FHA loan, it will just take more time and commitment. Lola Pol, or your favorite lender, should be able to help you determine if you’ll go FHA or Conventional.
As an owner-occupant, you may also be eligible for a 5% down conventional loans. These loans provide more flexibility than an FHA loan, so if you have the savings to support a 5% down loan, I would strongly encourage it.
SIX) Get a real estate agent who knows the neighborhood and kind of homes you are looking for
I suggest you find a real estate agent who has experience in the neighborhoods you are searching in. I’m actually now a real estate agent, so I would be honored if you reached out to me to talk money and property (firstname.lastname@example.org)
When you meet with a real estate agent, they may try to get you to sign an exclusivity agreement. DO NOT DO IT. These contracts are for amateurs. They will still work for you even if you do not sign the contract. Just be a good person, and if an agent is giving you a lot of value, stay with that agent. So many times you could sign an agreement, and then not have a good feel about your agent, and then you are STUCK. Or you may find a deal on a property WITHOUT using an agent, and then you cannot take advantage of that opportunity.
From there, your real estate agent hooks you up with daily emails from the MRIS (the official real estate database). Then you pretty much view homes online and select the ones you want to view in real life. The Real estate agent goes with you to view homes until you find one you like. Then you put in an offer; the real estate agent helps you craft a strong offer based on their market knowledge. With luck you’ll get a house after you put in a few offers. Then you’ll be ready to close!
Have you bought a house, do you have any additional tips? Did this blog post make you have more questions? Follow up in the comments section!