The Home Buying process. You have found your home.. now what?

When it’s time to make an offer the first thing one needs to do is to discuss the offer terms with their realtor.  Your realtor is expected to negotiate these terms on your behalf, but keep in mind that a successful negotiation is contingent on the type of market you are operating in and the type of home you have decided on. In the case of multiple offers or a hot market your room for negotiation is limited. Here are the key items to consider. 

Offer price 

Work with your realtor to determine your strategy whether it’s starting low, somewhere in middle or going for broke. Your realtor should pay close attention to the comps, specifically recent solds in the area, inventory notwithstanding. The longer a property has been on the market the better, and the more eager the seller is the better. For my part, I make a habit of contacting the seller’s representative to find out within reason as much as I can, but one should not forget that the seller’s agent has an obligation to represent their client first and foremost. 

The more one can put down the better. And keep in mind that other than say for instance the proceeds from a home sale or one's savings, the downpayment can come from a variety of others sources such as: 

1. Gifts 

Family members may be willing to give a gift for all or portion of your down payment. Ask your tax advisor for current information. Lenders may require a “gift letter” to verify that the benefactor/s don’t expect repayment.

2. Life Insurance

If you have built up cash value on your life insurance policy, you may be able to borrow from your insurance company up to the accumulated amount. There may be a more favorable interest rate than would be asked for other types of loans.

3. Stocks and Bonds

You may be able to secure a bank loan using your portfolio as security.

4. Company Profit Sharing or Savings Plan

Look into the possibility of withdrawing or borrowing against what you have in your profit sharing or savings plan account.

Down Payment

If you are financing your home, your down payment which will be included in the offer will likely vary between 3.5 percent of the purchase price, with an FHA-backed loan, to 20 percent with a conventional loan. For a $700,000 home, that range would be between $24,500 (3.5 percent) and $140,000 (20 percent) down. 

Down payments of greater than 20 percent are also an option: In these cases, the buyer can expect a lower interest rate in addition to a smaller mortgage payment. The buyer should keep in mind that there is a regional loan cap. Because jumbo loans are not covered by Fannie Mae and Freddie Mac, the buyer should expect stricter loan qualification requirements. In Washington DC, for instance, the conforming loan limit as of 2023 is currently $1,089,300 (among the highest in the country). As always seek the advice of a lender or financial advisor in all matters financial. 

Earnest Money Deposit

When drawing up an offer prior to contract acceptance, the buyer is generally expected to pay an up-front cost of 1 to 3 percent of the purchase price. The EMD, as it is commonly called in real estate parlance, is essentially a good faith payment that signals to the seller that the buyer is serious. Delivery time, typically in the form of a personal check, is expected between 3 to 7 days following contract ratification/acceptance. In most cases, the deposit will be wired to the title company (chosen by the buyer/realtor) and held in escrow until closing when it becomes part of the down payment. On a $700,000 home, the earnest money deposit would fall between $7,000 and $21,000.

In a competitive or multi-bid scenario, it behooves the buyer to be as aggressive as possible as far as the delivery time and percentage (there are no limits). If the buyer defaults or is not covered by a contingency, such as a home inspection or an appraisal, the seller gets to keep the money. Conversely, if the deal falls through due to a contingency that was created as part of the contract, the funds will be returned to the buyer. 

Keep in mind that the majority of offers are contingent and at the very least include a home inspection. In the most aggressive cases the buyer can elect to do a pre-inspection prior to the offer deadline: That way the offeror will not need to include a home inspection contingency which of course is cat nip to a seller. 

Meanwhile, in an all cash scenario, for instance, a financial contingency/appraisal would, of course, be unnecessary. 

Settlement date 

Varies from region to region but averages around 30 days in the Washington DC metro area. If the seller wants to move quickly and or slowly you will have to see what you can do to speed up the process or use some other term in the contract as leverage, such as a rent back or a large downpayment: How much one puts down will of course have an impact on the monthly payments. 

Title company

In the DC metro area it is understood that the buyer has the right to choose the settlement company but there are occasions when the buyer might be better served to let the seller choose, especially if your realtor has a good relationship with the company that the seller is requesting and or it could be used as leverage. However for the most part the seller and their representative will not make a request. The settlement company will play a key role in getting you to the finish line. They will for instance conduct a title search to ensure that the title is clean and will transfer to you upon settlement.

Contingencies 

Please refer to my blog on contingencies but these include, home inspection, financial, appraisal, and a home sale contingency. The less you include the better, of course. 

OTHER THINGS TO CONSIDER before moving forward with your offer. 

Closing Costs

Closing costs typically range from 3 to 5 percent of the purchase price and they cover such things as title inspection/insurance, loan-processing costs, attorney fees, taxes, and various other fees. These costs are sometimes negotiable; in certain markets, a developer, for instance, may defer closing costs. In the case of the $700,000 example, closing costs would range from $21,000 to $35,000.

Homeowner's Insurance and Moving Costs 

Mortgage insurance is mandatory/required by the lender/underwriter. The first annual premium is usually paid at closing. Moving costs, of course, are arbitrary/contingent.

FINAL WORD 

Happy hunting and as always please feel free to comment or hit the like button! And remember nothing will make me happier than the opportunity to represent you...