Whether you are new to the area or have lived in DC for some time: At some point you will ask yourself if it would make sense to buy a home or continue to rent.
Rents are quite high in the DC area, as you may have experienced. Most expats have substantial housing allowances from their employers, and there is a high turnover in the community with diplomats, journalists, political appointees, and World Bank, IDB and IMF employees. All this contributes to high rents. With every new occupancy the rent usually goes up.
There are calculators that can help you calculate the net cost of buying a home versus renting over time. For example at Realtor.com: http://www.realtor.com/mortgage/tools/rent-or-buy-calculator. This is a good exercise, if you are thinking about buying, especially if you pay a reasonable rent and are quite happy with the property condition of your rental.
If not for property condition, there are many other reasons to buy a home. First of all, the market for properties for sale in DC is by far larger than the rental market for single family homes, and you are more likely to find what you want if you are willing to purchase a property. Moreover, depending on your visa status, buying may have tax advantages. Also, you can decorate your home according to your likes, change fixtures and appliances, keep as many pets as you can handle and install backyard amenities, like play sets or outdoor cooking stations.
Beside those general reasons there are current factors that make buying most attractive for 2016, including: record low interest rates, stabilizing home prices and smaller down payments due to various new loan programs.
If you are looking into the home buying option, here is some language of key terms that you would need to understand:
Before you begin your home search get a pre-approval letter for a loan from a lender of your choice. Ask friends, colleagues or me for referrals of reputable loan consultants, compare rates and fees of the different financial institutions and choose a loan product that best suits you. Note, that not all lenders accept applications from G4 visa holders. So, this should be your first question.
Get help from a licensed real estate professional. The buying process is complicated and leaves room for many decisions. The agent of your choice will explain the process to you, the options you have and inform you about current market conditions in the different neighborhoods. The Metro DC area is a micro-market place. There are huge property value differences even in very close geographical proximities. Your agent can be helpful in clarifying those.
At this first substantial meeting with your agent, you will be asked to sign a Buyer-Agency Agreement.
With your signature, you simply agree to work exclusively with your agent. In turn, your agent owes you fiduciary duties and will act only in your best interest.
For you, the buyer, this service comes free of charge. A commission is paid at settlement by the seller; the seller has agreed to do so with his agent before listing the property. By law the listing agent represents the seller. But agreements between brokers are in place specifying to share set commissions with the buyers’ agent.
Your agent, no matter the brokerage he/she is affiliated with, needs to be licensed in the respective jurisdiction that you are looking to buy; he or she can then negotiate any property for you. All ‘for sale’ listed properties are listed in a shared Multiple Listing System (MLS).
Once you have found a desirable property, you want to make an offer to purchase. This offer contains approximately 50 pages, including seller disclosure documents, in which many particulars about the property are disclosed by the seller and which you need to countersign. With the help of your agent you will specify in your offer your offering price, a possible escalation, the financing terms, the amount of the escrow deposit, the contingencies, and a specific date of closing. The offer becomes the contract once all documents are signed by all buyers and sellers. The contract is then called “ratified contract”.
Contingencies are conditions in a contract that require a specific future act to be fulfilled before the entire contract becomes binding. The typical contingencies are inspection, financing and appraisal.
Appraisal is a document showing an estimated market value of a property. This is done by established methods and an appraiser’s opinion. Lenders require a professional appraisal, so they ensure that the offering price corresponds to the market value of the property, in order for the bank to have a collateral for its loan.
Buyer’s closing costs are paid directly at settlement by a bank certified check or wire transfer. Typical closing costs involve loan origination fees and charges, prepaid loan interest from date of settlement to the end of the month, title insurance, adjusted property taxes from the date of settlement, transfer and recordation taxes, homeowners insurance, inspections and appraisal fees. Your agent can explain details.
Settlement or Closing
Settlement or closing takes place at a settlement or title company, usually at the buyer’s choice. The settlement agent or attorney will lead the closing ceremony. Up to 5 days before settlement you will have a walk-thru at the property and will have to check if the property condition is the same as stated in the contract. All the contingencies have to be fulfilled and promised repairs have to be completed. Closing date is the day, specified in the contract. On the day of closing, the ownership of the property is transferred in exchange for payment of the selling price. The loan amount is disbursed by the lender and the seller receives his proceeds. You obtain the keys to your new home and become a proud homeowner. This whole process from making the offer until closing typically takes 30 days.
You will never have to pay a rent again and with your mortgage payments you start building equity in your home. And finally you will be able to have the big dog your family members have been begging for for so long!