- The Washington Times - Friday, June 8, 2001

Money doesn't go as far as it used to, and nowhere is this fact more painfully illustrated than in a hot seller's market in real estate.

The cash that would have purchased a four-bedroom, two-level house 15 years ago might buy a two-bedroom town house today.

It is simple supply and demand. Housing is at a premium in the Washington area, so sellers and mortgage companies can afford to be more choosy.

This is even more reason to guard your credit and carefully save for the day when you can sign on the dotted line.

"Every now and then, we get a person who can put a few hundred thousand down on a house," says Bob Shields, an agent with Long & Foster's Annandale office. "But those buyers are few and far between. Most of the time, we are dealing with people who have a little savings in the bank and want to get the best bang for their buck."

Most buyers don't know exactly what kind of mileage they are going to get out of their money. Although a couple might have saved $10,000 for a down payment on a house, few buyers realize that most of the money is going to get eaten up in closing costs and other fees, leaving only a small portion of the money to whittle down the purchase price.

"There are some people out there who can qualify for 100 percent financing," says Katherine Speakman, a mortgage banker with Mortgage and Equity Corp. in Gaithersburg, "but most people are going to need to have some money put away in order to qualify for a good loan."

With sellers driving the real estate market in this area, buyers are picking up more and more of the tab on the sale transaction when they are not driving prices up by bidding against each other for desirable properties.

"We can negotiate in the contract that the seller picks up some of those costs," Mr. Shields says but in a seller's market, buyers who make the best offers usually come away with the property.

That's all the more reason a potential buyer needs to enter the market fully aware of the financing needed before looking for a house.

Most real estate agents require a buyer to be pre-qualified for a loan before they will begin a property search. Not only does this ensure financing for the purchase and give the Realtor some parameters for looking for suitable property but it also gives an agent more bargaining power when trying to negotiate a contract.

"Pre-qualification says you have a lender behind you," Mr. Shields says.

Mrs. Speakman says buyers should have met already with a lender before they even look at the first piece of property.

"You should enter the first home already knowing what your costs are going to be," she says. "A good, efficient lender will have filled out a good-faith estimate of all your costs, based on the home price you've qualified for." Those numbers can fluctuate, usually going down if a buyer finds a home under the selling price estimated on the good-faith estimate.

"But walking through those doors without this information will cause you, as a buyer, a lot of problems," she says. "It can be very discouraging to find the home of your dreams, then not understand where your money is going when you sit down to finalize the arrangements."

Mrs. Speakman says closing costs account for about 3 percent of the selling price of the home. A buyer trying to purchase a $150,000 home, for instance, can figure he is going to need about $4,500 for closing costs and about the same amount, or possibly more, for a down payment.

"That's all their money, if they've saved $10,000," Mrs. Speakman says.

A buyer should be prepared to pay earnest money; some, if not all, of the closing costs; a credit report fee; title search fee; attorney's fees; home inspection fees if the loan requires one; appraisal fees; a loan application fee if the lender has one; and possibly mortgage insurance fees.

This money is above and beyond what is needed for a down payment, which usually is 3 percent to 5 percent of the selling price of the home.

Earnest money is due when an agent submits the contract for consideration.

"Earnest money ensures the seller that you're truly serious about buying their home," Mr. Shields says. "It comes off the bottom line in closing" because it is applied toward the selling price.

Some of these fees are due upfront. Appraisal fees and inspection fees must be paid before a deal can even go to closing.

Even more financial security is needed.

"A buyer should have at least two months of mortgage payments in the bank," Mrs. Speakman says. "Mortgage companies want to make sure you're not going to be tapped out when you give your money due at settlement. They want to see you have the ability to make the payments."

Mrs. Speakman says it is important to be fully informed of all loan options when entering into an agreement with a lender. Some loans allow for down-payment gifts from relatives or other sources. Other loans do not.

"Also, make sure you know what your mortgage rate is," she says. "These rates change daily and have a big impact on the life of your loan."

Referrals from friends and family are one way to choose a mortgage company, but Mrs. Speakman says it is beneficial to do a little research through advertisements and the Internet.

Mrs. Speakman adds that a good agent can streamline the loan process.

"A lot of people see getting a home loan as a big hassle, but if the process is done correctly and the potential buyer knows what to expect, it can be virtually painless," she says.

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