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Cover story: Realtors’ advice for first-time homebuyers
Rising rents and rock-bottom mortgage rates have combined in the Washington area to push some young renters into considering homeownership. In some cases, these prospective buyers haven’t even thought about owning a home — except as a future dream — until a Realtor points out that buying often will cost the same as or less than renting.
“A lot of young renters assume they can’t afford to buy a home,” said Jules Cole, a Realtor with Re/Max Realty Group in Gaithersburg. “Recently a young couple contacted me to ask if they could rent one of my listings. I put them in touch with a lender who specializes in working with first-time buyers to find out if they could qualify for a mortgage and for some special programs that are available for buyers.”
Ms. Cole pointed out that many financial institutions have loan programs that can provide down-payment assistance. State and local government programs also are available. She said that even though those programs are limited to buyers within a certain income range, the upper income limits are relatively high.
Realtors suggest prospective buyers begin by learning about their financing options for a home, particularly if they have not been preparing for a home purchase.
“We always start with the money,” said Lindsay Dreyer, broker-owner of City Chic Real Estate in the District. “It’s a myth that you need a 20 percent down payment. We work with lenders who have low-down-payment options that aren’t FHA-insured loans, so they don’t have high mortgage insurance premiums. Many lenders now offer conventional loans with a 5 percent down payment.”
Ms. Dreyer said many young buyers receive their down-payment funds from their parents as a gift.
“Sometimes the parents will cut an investment deal with their kids and ask for a certain percentage of the profit when the home sells in exchange for the down-payment gift,” Ms. Dreyer said.
Buyers also need cash for closing costs, which Brooke Schara, a Realtor with Arbour Realty in Arlington, said costs between 3 percent and 3.5 percent of the sales price.
“Even though we’re now in more of a seller’s market, many sellers will agree to pay closing costs,” Ms. Schara said. “Sellers are mostly concerned about the net profit, so one way to handle this is to offer $210,000 when they are asking $200,000 and then ask the sellers to pay the closing costs.”
Ms. Schara said she provides a broad overview of the home-buying process at her initial meeting with prospective buyers and gives them a mortgage guide from the U.S. Department of Housing and Urban Development that explains how to compare loan products and what questions buyers should ask a lender.
“I never take buyers out looking at homes until they have a lender preapproval letter because otherwise they not only don’t know if they can qualify for a loan, but they also don’t know their price range,” Ms. Cole said.
While financing usually is the biggest obstacle for prospective buyers, particularly those who have been working for just a few years since graduating from college, these novice buyers also need guidance in determining what to buy.
“I try to get an idea of what someone’s five-year plan is,” Ms. Dreyer said. “If they plan to stay in D.C., in this property for at least five years, then it probably makes sense to buy. If not, I need to know what their exit strategy will be. One option that works well for a lot of buyers is to keep their first home as an investment property for rental income.”
Ms. Cole said buyers who sell their home within two or three years are not likely to get the money back on their investment.
“While no one knows exactly what’s happening with the housing market, you’ll be in better shape if you keep your home for five or six years or longer,” Ms. Cole said.
By Donald Lambro
Growth spikes are little more than trend-free anomalies
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