Cash or No, It’s Time to Buy
When it comes to purchasing a home, you’ve got a number of things to consider – your cash on hand, access to credit, current interest rates (lock in before they go up), your five-year plan, and access to assistance programs if you need them.
Saving up cash can be hard to do and it takes a long time, but it sure is rewarding to see your balance grow. The more you have, the better you might look to lenders. Saving shows financial stability and responsibility, which can translate to lenders as less of a risky investment than someone who has no cash on hand. Plus, the bigger your down payment on a mortgage, the better your offer will look when you’re bidding on a home.
So, for example, if I’m looking at two offers on my client’s property, and all else being equal, I’d advise the seller to pick the buyer with a 25 percent down payment over the offer with only 3 percent down. That’s because the one with the higher down payment will be more likely to obtain the loan. Between the two, the buyer with the 3 percent may be more likely not to get that loan after all, and then my seller is out a buyer, the mortgage and operating costs will continue to carry, the number of days that the property is on the market will continue to build (making people wonder what’s wrong with it), and no one wants any of that.
Look ahead when you’re making purchase plans because there are considerable closing costs to factor in every time you buy and sell. If there’s a chance that you’ll be relocated for your job, consider if you’ll want to sell or rent the property you’re going to purchase, and how marketable the home might be (steps from the Metro or downwind from the water treatment plant). If you anticipate a life change (you and your partner are getting serious; you and your partner are throwing stuff at each other; or you want to take up canoe building after you retire next year), you may want to factor that in.
Depending upon your financial situation, you may need down payment assistance, and at least as of the day I’m typing this, these programs still exist. I’m talking about programs such as DC Open Doors, Home Purchase Assistance Program (HPAP), and the Good Neighbor Next Door (GNND) program. You can check out DC’s Housing Finance Agency at www.dchfa.org for more information. Not all lenders have access to all down payment assistance programs, so click on the Participating Lenders tab from the left menu.
Different programs have different criteria (household income thresholds, for example). Don’t assume you make too much – they are surprisingly accessible. You might also look into these programs sooner than later, as we don’t know if they might be suspended (like cuts to FHA mortgage insurance rates) or suddenly disappear (like climate change data).
- Keep your eyes on your credit report (you can pull it for free), because the higher your credit rating, the better your chances to get the best interest rates. Some of the assistance programs have a credit rating threshold.
- Shop around. Yes, you need banks to lend to you, but they need your patronage. Comparison shop for lenders, and don’t assume that the lowest interest rate equals the best deal. Google “lender comparison worksheet” to find a Federal Reserve publication to walk you through. Don’t be afraid to ask questions. Don’t feel like they’re not going to give you a loan if you’re asking too many questions. If they are finding it hard to provide transparency and understanding to your satisfaction, you might move on.
- Stay well within your budget. House poor is not for people who don’t like constant financial worry and do enjoy the occasional dinner out. Don’t put yourself in a tight spot. Do you really need the cosmetic upgrades in your property purchase if you’re not rich as Roosevelt? No, you don’t. If you’re on a budget and you don’t like the backsplash or the floor tile or the non-stainless appliances, deal with it for now, and replace later when you’ve got some equity in the home. Living in a space before renovating can be beneficial. You get a chance to see what works for you in the home and what you might like to change.
Bedroom vs. Den
Sometimes you’ll see a listing that says the place is three bedrooms, but when you get there the third bedroom is pretty much the size of a crib. In the District a legal bedroom is a room with a door, a window, and a closet. If it doesn’t have two ways out (points of egress, if you want to talk fancy-like) and a closet, then it’s not a legal bedroom and may be referred to as a den. You’ll see this in a lot of condos on the Hill, such as Jenkins Row, advertising a property as offering a “bedroom plus den,” which usually means there’s a room on the interior side of the property that doesn’t have a window.
Note: the requirement that the bedroom have a closet is not true of all jurisdictions in the world.
It can be really annoying when you go to an open house thinking you’re going to see an actual, “normal-sized” bedroom, but it’s not, and you leave disappointed and feeling like you’ve wasted your time. No one wants that! Agents are in a tough spot here because technically, if it is a legal bedroom, then it’s in our seller’s interest to advertise it as such. Maybe the perfect buyer for this property won’t care that the third bedroom is a little smaller than the others. But if we advertise it as a two bedroom, then it won’t come up in that buyer’s home search for a three-bedroom. They won’t see it listed, and that’s a missed opportunity for them and for the seller.
This, my friends, is why I love for floorplans to be included in the listing. Then my seller’s property gets maximum exposure in searches, and buyers may not feel duped when they get there.
Email me a real estate-related question, and I’ll put it in next month’s issue. Please indicate if you wish your identity to remain a mystery.
Heather Schoell is a Capitol Hill REALTOR with Berkshire Hathaway HomeServices PenFed Realty and can be reached at firstname.lastname@example.org, at the office at 202-608-1880, or by cell at 202-321-0874.