Don’t let the home-buying process overwhelm you.
Be prepared with these helpful tips and insights.
Congratulations! As a first-time home buyer, you’re on your way to joining the opens in a new window128.58 million homeowners in the United States. As exciting as homeownership is, there are many steps and hurdles you have to go through before you can fully celebrate your first home. We’ve compiled a list of the fundamental things to think about when buying your first home and what to do before you start the process from considering adjustable rate mortgages to insights into the VA, MD & DC markets.
What’s the Market Like for a First-Time Home Buyer in VA, MD & DC?
According to opens in a new window Redfin, market trends in our area are very competitive but we probably all knew that already. The average selling price for a home is $625K at around $467 per square foot. Only 0.3% of the homes end up selling under the listing price with homes going into “pending” status less than a month after being listed on the market. Needless to say, as a first-time home buyer within the Northern VA, MD, and DC area, you’re going to have to be well prepared!
As you’re looking for your first home, make sure to look into the neighborhood that’s best for you both financially and in terms of preference. You should have a checklist of the features for the neighborhood you want to live in. This will ultimately impact your overall quality of life and it’s worth making a few compromises on the home of your dreams, for the neighborhood of your dreams.
First-Time Home Buyer – Tips and Insights
Buying a home is a LONG term investment
A rule of thumb to go by as a first-time home buyer: you’re not just buying for your needs today. This is a long term investment meaning your needs in 30-40 years are as equally as important as the ones in 5-10 years. Are you thinking of having children in the future? Pets? Extended family? Would you like to eventually be able to move and rent this home out? These are some of the longer-term interests to consider as you’re thinking about budgeting, location, etc.
Additionally, you want to think about the costs for furnishing and decorating the house with furniture, appliances, and home improvement projects. Save for this beforehand so that you don’t incur any unexpected expenses. You also need to factor in the cost of maintaining the house, home association fees (if applicable), upkeep for the front and back yard, paying yearly property taxes, home insurance, and more.
Pay off as much debt as you can
Your debt-to-income ratio when purchasing a house should be around or below 36% with the maximum hovering around 43%. To determine your debt-to-income ratio, you should divide your monthly debt by your pre-tax income.
For example, if you make $4,569 per month and your monthly expenses total to $1,700 your debt-to-income ratio is 37%. To make sure you’re not living beyond your means, experts recommend that your total monthly expenses tally between the 25%-30% range (and should not exceed 39%) of your monthly income.
By focusing on paying off the outstanding debts you’re able to beforehand – car loans, credit card debt, etc., – you can lower your debt-to-income ratio and increase your chances of being approved for a mortgage loan.
Get pre-approved for a loan
Applying for a mortgage loan before shopping for houses might seem counterintuitive but it’s actually a strategic advantage. A pre-approval will show sellers that you’re serious and have taken the steps necessary to present your validity as a buyer.
Lenders will evaluate a number of factors when determining if you qualify for their loans including your credit score, debt-to-income ratio, how much you’re willing to deposit as a down payment, and your employment history. The last one is tricky, especially for entrepreneurs, business owners, and freelancers. At John Marshall Bank, we provide a 6/5 Adjustable Rate Mortgage that offers flexible mortgage options for those who might not have the traditional standard salary in VA, MD & DC.
Improve your credit score
As mentioned before, your credit score will be scrutinized by lenders when making a decision on your loan. Increase your chances of getting approved by improving, building or maintaining your credit score to at least 700 or above. If you have anything below that, it won’t automatically mean you’ll get rejected. But it might increase your interest rate which can cost you thousands down the road. This is a controllable factor with significant implications to your overall costs, so make sure you establish good credit before applying for a mortgage loan.
Calculate how much house you can afford
Your monthly mortgage costs will be determined by your initial down payment, type of mortgage and interest. opens in a new windowNerd Wallet offers a calculator that can help you determine what kind of mortgage you can afford based on the market you’re in, your income, minimum monthly debt, and other factors. Don’t forget to weigh in your closing costs when you’re saving for your home. Closing costs include your lender fees, title fees, title search, settlement services and prepaid costs such as a year’s worth of homeowners insurance upfront.
Look into the types of loan that are best for you
- Traditional: The traditional mortgage loan involves a fixed rate for a designated amount of years that doesn’t change — either 10, 15, 20, 30, or 40 years. A 30-year fixed mortgage rate and a 15-year fixed mortgage rate are the most common.
- Adjustable Rate Mortgage (ARM): With an Adjustable Rate Mortgage, homebuyers in VA, MD & DC can qualify for a one-digit interest rate for a designated amount of years, after which the interest rate is subject to change depending on the market and the economy. This is a great option for individuals who are not traditional employees such as entrepreneurs or business owners. Here at John Marshall Bank, we offer a competitive 6/5 Adjustable Rate Mortgage to help you in your home buying process in VA, MD & DC.
- Government Assistance Programs: Federal programs such as The Federal Housing Administration (FHA) loans and the Veterans Affairs loans provide a guarantee for the seller and lower or eliminate the down payment for the buyer. However, there are certain fees and stipulations to look out for so make sure to do your research before considering this option. As a first-time home buyer, FHA loans are very appealing due to their reduced down payment requirements but it’s important to read through the fine print and determine if the additional fees – such as premium insurance – are worth it down the road.
Find a reliable real estate agent
This agent will have to be someone you work with on almost a daily basis during your home buying process. Make sure to choose someone you are compatible with. Word-of-mouth references are an excellent source for a credible real estate agent. You can ask questions about the home buyer experience, communication effectiveness, etc. Ultimately, you’ll want to work with someone you can trust that will help you find the right home for you, not just close on a deal.
Shop around for homeowner’s insurance before and during the home searching process. You want to be prepared with the best option for you when the time comes to close on the house of your dreams. Waiting till the last minute can result in an impulsive decision and you may miss out on lower rates and premiums.
Attend open houses
Make the most of the options available within your desired neighborhood. Attend open houses even for properties that you’re not interested in just to get a feel for the neighborhood and the market. You’ll also want to have a checklist of questions to ask during the open house about the condition of the home, any renovations, owner’s history in the home, etc. Below are some examples:
- What are the average utility costs?
- Have there been any issues with mold?
- How old is the carpet?
- When was the last time the bathroom or kitchen was updated?
- Is this a family friendly neighborhood?
- Any issues with termites, flooding, fires, or mold?