Tips for Getting Started
Buying your first home can seem a bit intimidating, but with a little education and guidance along the way, it doesn't have to be. If you're thinking about buying a home, you've probably heard about the financial advantages, and maybe the qualitative advantages too; but you may be wondering: Is this the right time or should I wait? How do I get started? How do I find an agent, or lender, or settlement attorney, or home inspector, or appraiser? Well, this is the lens for you!
You may have heard that all real estate is local, and that's true! This lens contains some information that is specific to the Washington, DC, and Northern Virginia area, so be sure to consult a REALTOR in your local market if you live elsewhere (feel free to contact me for a recommendation!)
New Table of Contents
Northern Virginia and Metro DC Real Estate Blog
My thoughts on the market
Fetching RSS feed... please stand byFirst Time Buyer Classes Now Scheduled in Arlington, VA
The first classes of 2009 are now scheduled at Arlington County Library. As in the past, there is absolutely no cost or obligation to attend this one hour educational session where we will recap the current market conditions, discuss the future outlook, and provide an overview of the home purchase/sale process. Simply email katie@katiewethman.com to register so that we may have materials available for you. Space is limited. Details are as follows:
First Time Home Buyers - Feb 17 @ 7:15 pm
First Time Home Sellers (NEW!) - Feb 17 @ 6:00 pm
Arlington County Library
1015 N Quincy St, 2nd Floor Mtg Room
Ballston (Orange Line)
First Time Home Buyers - Feb 17 @ 7:15 pm
First Time Home Sellers (NEW!) - Feb 17 @ 6:00 pm
Arlington County Library
1015 N Quincy St, 2nd Floor Mtg Room
Ballston (Orange Line)
Rent or Buy Decision
Not a Simple Answer
The decision to keep renting versus buying can be a complicated one. There are of course financial considerations, and also some qualitative factors. Here are some items to consider:
- Are you at a point in your life where your living situation will be stable for the next 2-5 years? If you're expecting to change jobs, transfer to another region, get married or expand your family, make sure you consider where you will be in 2+ years. It will generally take AT LEAST that long to recoup just your purchasing and selling costs (assuming no property appreciation). The market will always have its ups and downs, but the key is to not put yourself in a situation where you MUST sell in a down market.
- Do you have a detailed monthly budget and have you tracked your spending against that budget for several months? Is there room in your budget for not only the mortgage payment, but also property taxes, insurance, and condo/HOA fees? Make sure you you considered the tax implications--For most people, a housing payment will be much higher than the monthly rent, but a good chunk of that payment is tax deductible, which is essentially a government subsidy to buy. Find your previous year's tax returns, and calculate your marginal rate. Then use that information in a rent versus buy calculator (see a link to my favorite one below) and calculate your "breakeven point" for renting versus buying.
- Are you ready for the responsibility of maintaining your own property? No more calling the landlord when something breaks, or floods, or falls off. Make sure you have some cushion in your budget for these items, too! You'll also be responsible for the yardwork, the upkeep, and protecting your investment.
- Are you at a point in your life where your living situation will be stable for the next 2-5 years? If you're expecting to change jobs, transfer to another region, get married or expand your family, make sure you consider where you will be in 2+ years. It will generally take AT LEAST that long to recoup just your purchasing and selling costs (assuming no property appreciation). The market will always have its ups and downs, but the key is to not put yourself in a situation where you MUST sell in a down market.
- Do you have a detailed monthly budget and have you tracked your spending against that budget for several months? Is there room in your budget for not only the mortgage payment, but also property taxes, insurance, and condo/HOA fees? Make sure you you considered the tax implications--For most people, a housing payment will be much higher than the monthly rent, but a good chunk of that payment is tax deductible, which is essentially a government subsidy to buy. Find your previous year's tax returns, and calculate your marginal rate. Then use that information in a rent versus buy calculator (see a link to my favorite one below) and calculate your "breakeven point" for renting versus buying.
- Are you ready for the responsibility of maintaining your own property? No more calling the landlord when something breaks, or floods, or falls off. Make sure you have some cushion in your budget for these items, too! You'll also be responsible for the yardwork, the upkeep, and protecting your investment.
Buyer's Closing Costs
What are all these fees?
Many buyers are aware that they have fees related to the purchase of a new home-a rough guide is 2.5%-3% of the transaction value--but what are these fees, and are there ways to minimize them?
First, a few clarifications. Both buyers and sellers have closing costs in a transaction; the sellers' are typically much higher (because they pay both real estate brokers) than the buyers'. These fees are typically paid at closing-they come out of the sellers' proceeds, and the buyer can either pay cash, or can negotiate to have their portion of the closing costs paid by the seller (read more here.)
A lender should provide you with a Good Faith Estimate (GFE) when you apply for a loan. This GFE is essentially an estimate of your "HUD-1" form, which you will receive at closing. Each lender has their own preferred format, but you should be able to compare apples-to-apples by looking at the section headers, or, even better, the line item numbers. It's important to note, though, that lenders only control certain sections, while others may be simply based on their own experience. When comparing lenders, it's important to focus only on the line items that the lender actually controls.
The fees vary by jurisdiction, broker, and settlement attorney.
To continue reading this article, including the categories of fees and "junk fees", visit my blog at http://katiewethman.blogspot.com
First, a few clarifications. Both buyers and sellers have closing costs in a transaction; the sellers' are typically much higher (because they pay both real estate brokers) than the buyers'. These fees are typically paid at closing-they come out of the sellers' proceeds, and the buyer can either pay cash, or can negotiate to have their portion of the closing costs paid by the seller (read more here.)
A lender should provide you with a Good Faith Estimate (GFE) when you apply for a loan. This GFE is essentially an estimate of your "HUD-1" form, which you will receive at closing. Each lender has their own preferred format, but you should be able to compare apples-to-apples by looking at the section headers, or, even better, the line item numbers. It's important to note, though, that lenders only control certain sections, while others may be simply based on their own experience. When comparing lenders, it's important to focus only on the line items that the lender actually controls.
The fees vary by jurisdiction, broker, and settlement attorney.
To continue reading this article, including the categories of fees and "junk fees", visit my blog at http://katiewethman.blogspot.com
Purchase Process
A High Level Step-by-Step
A Handy Checklist for First Time Buyers
1. Meet with an agent to discuss the process, get recommendations, and determine whether buying makes sense for you. Buying is not always the answer!
2. Get your financing in order: Check your credit for free at http://www.annualcreditreport.com, meet with a lender to determine a price range you're comfortable with (NOT the same as figuring out how much you're approved for!) Don't forget to include closing costs and other expenses like condo fees in your budgeting. You'll need enough cash for your downpayment as well as closing costs.
3. Discuss the price-location-condition tradeoffs with your agent. Define and prioritize your "must have" criteria.
4. Visit open houses, preview listings with your agent, and drive through neighborhoods to get a feel for the local market. Search online and set up alerts. I find it takes most of my clients 2-3 months to find a home that meets their needs in their price range.
5. When you find a home, discuss negotiation strategy and craft an offer.
6. Once the parties agree to the contract terms, conduct inspections and remove contingencies. This typically takes about 30 days.
7. Attend settlement ("closing") and move in to your new home!
1. Meet with an agent to discuss the process, get recommendations, and determine whether buying makes sense for you. Buying is not always the answer!
2. Get your financing in order: Check your credit for free at http://www.annualcreditreport.com, meet with a lender to determine a price range you're comfortable with (NOT the same as figuring out how much you're approved for!) Don't forget to include closing costs and other expenses like condo fees in your budgeting. You'll need enough cash for your downpayment as well as closing costs.
3. Discuss the price-location-condition tradeoffs with your agent. Define and prioritize your "must have" criteria.
4. Visit open houses, preview listings with your agent, and drive through neighborhoods to get a feel for the local market. Search online and set up alerts. I find it takes most of my clients 2-3 months to find a home that meets their needs in their price range.
5. When you find a home, discuss negotiation strategy and craft an offer.
6. Once the parties agree to the contract terms, conduct inspections and remove contingencies. This typically takes about 30 days.
7. Attend settlement ("closing") and move in to your new home!
First Time Home Buyer Seminars
Free one hour educational sessions on market conditions and the home purchase process:
Tuesday, February 17
7:15 pm - 8:30 pm
Arlington County Library
1015 N Quincy St, 2nd Floor Mtg Room
Ballston (Orange Line)
Registration Reqd: email katie@katiewethman.com
Helpful Links for First Time Buyers
- What realty agents won't tell you - Buying a House - MSN Real Estate
- Information that real estate agents can't tell you!
- Tax Info for First Time Buyers
- IRS guidance on deductible costs.
- Best Rent vs Buy Calculator
- Including my commentary on how to best use the calculator.
- HUD's Common Questions from First Time Buyers
- Common questions answered by the Department of Housing and Urban Development
- First Time Buyer Loan Pitfalls
- Don't rush to apply to that program - read this first.
- Financing Tips
- Some helpful advice on types of loans, paying down debt, and other considerations from SmartMoney magazine.
- Freddie Mac's Homeownership Guide
- Tons of useful info on preparing to buy, getting a mortgage, and avoiding foreclosure.
- Confused About Paying Points?
- It's a simple break-even calculation - use this calculator if you're putting less than 20% down.
- Tax Tips for Buyers
- In real world language, not IRS-speak.
- Arlington VA Buyer Assistance Programs
- Information on Arlington Assistance Programs
- Washington DC Buyer Assistance Programs
- Detail on DC based programs, including HPAP
- Multi-Jurisdictional Assitance Programs
- Includes options for VA, DC, and MD
Common Buyer Mistakes
Common Mistakes
I work with many first time buyers who look at condos, and I see the same mistakes over and over. Here are my top 3:
1) Not using an agent for new construction (or registering without an agent and then being denied the chance for representation later.) Builders use their own contracts and represent their own best interest. An agent can tell you what's common practice in a contract, and what's not. They frequently are also privy to other sales (both new and resales) and can advise accordingly. Similarly, focusing only on new construction can be a pricey mistake--often there are much better values with units just slightly older. Think of it as the "new car premium."
2) For condo buyers: Forgetting to look at entry-level townhouses -- often you can find a small townhouse (without the high monthly fee) slightly further from the metro for the same monthly payment. $300 "buys" a lot of mortgage each month. With a condo, you often pay for amenities you won't use. Those "must haves" restrict your options, but I find most clients, once they move in, don't take advantage of all the things they just paid for, and then are stuck paying the condo fees to support them, regardless.
3) Making assumptions about the state of the market. All real estate is local. All real estate is local. All real estate is local. (Do I have to say it again?) And to clarify, local means not only Arlington, not only Ballston, but even down to individual buildings. Some have held their value incredibly well. Others are dropping like rocks. The best way to really get a feel is to pick individual buildings you can see yourself living in, and then studying the statistics on those.
I work with many first time buyers who look at condos, and I see the same mistakes over and over. Here are my top 3:
1) Not using an agent for new construction (or registering without an agent and then being denied the chance for representation later.) Builders use their own contracts and represent their own best interest. An agent can tell you what's common practice in a contract, and what's not. They frequently are also privy to other sales (both new and resales) and can advise accordingly. Similarly, focusing only on new construction can be a pricey mistake--often there are much better values with units just slightly older. Think of it as the "new car premium."
2) For condo buyers: Forgetting to look at entry-level townhouses -- often you can find a small townhouse (without the high monthly fee) slightly further from the metro for the same monthly payment. $300 "buys" a lot of mortgage each month. With a condo, you often pay for amenities you won't use. Those "must haves" restrict your options, but I find most clients, once they move in, don't take advantage of all the things they just paid for, and then are stuck paying the condo fees to support them, regardless.
3) Making assumptions about the state of the market. All real estate is local. All real estate is local. All real estate is local. (Do I have to say it again?) And to clarify, local means not only Arlington, not only Ballston, but even down to individual buildings. Some have held their value incredibly well. Others are dropping like rocks. The best way to really get a feel is to pick individual buildings you can see yourself living in, and then studying the statistics on those.
About Me
Katie Wethman, CPA, MBA, REALTOR
I'm a licensed REALTOR in VA, DC, and MD, affiliated with Keller Williams Realty.
6820 Elm Street
Suite 100
McLean, VA 22101
(703) 636-7300
Direct: (703) 655-7672
katie@katiewethman.com
6820 Elm Street
Suite 100
McLean, VA 22101
(703) 636-7300
Direct: (703) 655-7672
katie@katiewethman.com
Reader Feedback
Do you have a question or issue that wasn't addressed here? Add it to the comments and I'll be sure to add some information for you!
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- wethmank wethmank Jan 29, 2009 @ 11:03 am
- Carol, I can't lie--it's going to be very difficult. In this lending market it's more important than ever to have an excellent credit score and a decent downpayment. Your best bet may be to talk to a lender who specializes in FHA loans, which require only a 3.5% downpayment and aren't as punishing if your credit isn't perfect (though it still needs to be good.) With the situation you're in, with bills continuing to come in, renting is probably the best option for you -- I would focus on saving money and fixing up that credit score for a few years.
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- carol holston carol holston Jan 29, 2009 @ 5:13 am
- ive been wanting to buy a for a while, I know that i have credit problems and been trying to pay things off. but it has been extremely hard to do so. due to some health conditions that i have, i constantly have doctors bill. Are there really anything out there that a can be done to help me still to be able to purchase a house. I really dont want to be discourage but its hard not to. can you help
by wethmank
Katie is a CPA and an MBA, and that's important because your home is one of the biggest investments you will ever make, and wouldn't you want a REALTO... (more)
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