With the spring market well underway at the start of May, many potential homebuyers are starting to get serious about making an offer on their new home. The month of May marks one of the busiest times for the D.C. market, and there are many common errors that potential buyers should avoid before getting to the closing table. Here are a few things to consider when making an offer this spring:
First, know what you can afford! Many homebuyers start their home search online through websites like Zillow, Trulia or ColdwellBanker.com. While each of these sites is great for understanding the supply of homes that are on the market, it is important to be preapproved for a mortgage prior to getting serious with the home search process. You may think you can afford X amount of home, but you might qualify for only part of that amount. Remember that there are a variety of factors that make up your preapproval from your credit score to the amount of money you plan to put down on a property. Your first step to take, if you have not already, should be to find a great loan officer to describe your loan options.
Also, be sure to take into consideration the type of home you would like to purchase. For example, an individual who is preapproved for their maximum mortgage may not factor in costs for condo fees if purchasing a condominium. As a rule of thumb, remember that your monthly payment for a mortgage can be broken down into PITI; that is, principle and interest (this is your loan), taxes and insurance (plus a condo/coop/HOA fee where applicable).
Next, be prepared when it comes to making an offer. For serious buyers who would like to enter a contract, bring your checkbook to showings and open houses in the event you decide to write an offer on your next home. Contracts in the D.C. area almost always include some kind of earnest money deposit (or EMD). This deposit, which comes back to the buyer at closing in the form of down payment or closing costs, is normally two to three percent of the purchase price.
One of the most common errors that homebuyers make is forgetting about closing costs. These costs are paid at closing and generally account for 2.5 percent to 3 percent of the transaction costs. Common closing costs include transfer taxes paid to the city/state you live in, brokerage fees, title costs and insurance and proration for utilities like condo fees, water and property taxes. These costs are added on top of the down payment that you make to purchase a property. For example, if you are purchasing a $500,000 townhome with 20 percent down, you can expect to pay $100,000 in a down payment and around $12,500 to $15,000 in closing costs. Of course, there are many other options for a down payment depending on your lender’s options.
The D.C. market is competitive, and one common error that homebuyers make is the inability to compete for a home they want. For listings new on the market, it is of course very important to run comparables on the property. However, keep in mind that listings in the hottest places in D.C. sell for 100 percent of the listed value, if not higher in some cases. Thus, plan to search for the perfect place with new listings rather than getting a steal on negotiating. However, don’t be afraid of competitive listings as many buyers may be making some of these common errors.
Finally, it is important not to make the error of emotions. Yes, buying a home is a seriously scary and emotional process. However, remember that millions of people accomplish a purchase each year. For the purposes of the process, your home purchase is considered a business transaction. Emotions can often make non-personal actions seem very personal between buyers and sellers. Remember that at the end of the day, you will end up with the home of your dreams with patience and preparation. The full emotion should come after the home is closed and the Champagne has been poured.
All in all, the home buying process is complex and full of potential pitfalls for homebuyers, both new and seasoned. Each year, more than 40 million people move in the United States, and a good portion of those purchase a home. It is important when purchasing a home to keep focused and prepared for the process. After a short time, you will be moving into your new home and breathing smoothly once again. To those house hunting now, good luck!