How to Buy a House

If you are a first time home buyer in the DC Metro area you probably have questions about how the home buying process works here.  I have been asked this question many, many times by my home buying clients in the Bethesda, MD, Washington, DC and Northern VA areas and have summarized the process here:

I will start with the assumption that you have already identified the home you want to make an offer on. If you do not have a real estate agent yet, please get one NOW.  The seller’s agent represents the seller, not the buyer, and there are many different ways you can be taken advantage of!  Your agent will help you prepare your offer and will present it to the sellers for you.

Before you make your offer, you should be pre-qualified by a lender, identify a settlement company to handle the title search and transfer paperwork, and identify a home inspector.  Your real estate agent can help you with all of this.

As part of the offer you will need to include an earnest money deposit (EMD) check.  This deposit is your way of telling the seller that you are serious about purchasing their home.  The EMD check can be any amount, but the higher the amount, the more seriously the seller will consider your offer.  Most of my clients use a range of 2% to 6% of the offer price.  This money will not be deposited until all terms of the contract are agreed to by all parties.  It will be held by the broker or the settlement attorney.  It will be put toward your down payment and used to pay for the taxes, lender fees, settlement fees, title insurance and other costs associated with purchasing a house.  Any money that is unused for the down payment or other fees will be returned to you.  If you default on the contract, you will lose this deposit.  Your real estate agent will make sure that you understand all of the terms of the contract so that you do not default and lose your deposit.

Other information included in the offer is the date you would like to settle (in some parts of the country this is called closing escrow), the name of your settlement company, the amount and type of financing you will use to purchase the home (VA, FHA, Conventional, or all cash), and any contingencies that are part of your offer.  At a minimum, you should include a finance contingency, an appraisal contingency and a home inspection contingency.  Your real estate agent will advise you as to the appropriate contingencies for your situation.

Your offer will be presented to the seller and the seller will accept it, reject it or make a counter offer.  You will then have the opportunity to accept, reject or counter.   This negotiation continues until both parties come to agreement or one party walks away from the negotiation.  Please remember that all parts of the contract must be in writing.  Any verbal negotiation must be put in writing and signed by all parties

Once all parties agree to the terms of the contract and the last party to sign it has returned the contract to the other party, the contract is ratified.  It will take about 4-5 weeks from the time the contract is ratified until the time you go to settlement and get the keys to the house.  During this 4-5 week period, the following things happen:

– Your home inspector will do an inspection of the house.  The inspection will take place 5-7 days after the offer is accepted.  It will cost about $400 and take about 2-3 hours. If   possible, you should be present during the inspection. The inspector will look over the appliances, electrical system, plumbing, heating, air conditioning, roof, windows, etc. and educate you about the house.

– The settlement attorney will research the title to the property and makes sure there are no outstanding liens or claims on the property.

-Your lender will order an appraisal of the property.  The lender will also prepare the loan and transfer the money to the settlement attorney.  They may ask you for more documents such as pay stubs and bank statements during this time.

– You will need to purchase homeowners insurance during this time.  Your real estate agent can help you identify an insurance agent if you don’t already have one.

– You will need to set up accounts with the Utility (Electric, Water and possibly Gas and Cable) companies.

At the end of the 4-5 week period, you will go to a meeting, called Settlement, with your real estate agent, the attorney, the seller, and the seller’s real estate agent.  At this meeting you will sign a lot of papers, including the loan papers.  You will need to bring a certified check or electronically wire the funds to cover the balance of your down payment and closing costs.  The settlement attorney will tell you the exact amount the day before settlement.   The best part of the settlement is when you get the keys to your new house!

Anytime after the Settlement, you can move into your new house.

About one month after the settlement, your will begin to make your mortgage payments.

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