The active inventory of homes in March was down more than 25 percent from March 2011, and in some areas of Washington, increased demand, driven by such factors as a stable local economy and low interest rates, has created a seller’s dream and a buyer’s nightmare. Real estate agent Coral Gundlach took reader questions Wednesday on how buyers can better position themselves to get the house of their dreams — even in this market. An excerpt follows:
Q: Coral, my partner and I have been saving for a house, but we never know when we have enough of a down payment and when we could affordably buy our first house together. The price range for good real estate appears to be too high for a young couple. Do you have any advice for how to purchase a new home in the D.C. area and when you know you have checked all the boxes in order to responsibly purchase?
A: That is a great question, and there are a few things to consider before you decide if you can afford a house here. Homes are very expensive here, especially in close-in communities like Arlington, Alexandria, Northwest D.C. and Bethesda. You can get a loan that’s insured by FHA for only 3.5 percent down, but there is a lot of mortgage insurance that must be paid, both upfront and monthly. There are also some 5 percent down loans and even 100 percent down, depending on the cost of the home and your income — but they also come at a higher monthly cost. The less you put down, the higher your mortgage payment will be. So you need to decide what monthly payment you will be comfortable with paying. If you are not sure what you can afford, there are two first steps: Contact a local mortgage originator and get pre-qualified for a loan, and meet with a local real estate agent to get an idea of what the market is like for the kind of home you want. If you have no idea of what you want, or where you want to live, meet with the agent first, and get an idea of what kind of locations and homes cost, and they should refer you to some good local mortgage people to get pre-qualified. If you need an idea of where to start, you can contact me offline and I can direct you to some great lenders.
Q: We currently own a home that has lost a lot of value. While we can afford the mortgage payments, we desperately want to buy a bigger home in a better neighborhood. We would most likely rent our existing home. But now I’m hearing that lenders will not count rent as income so we may not be able to acquire a new mortgage for a new house. Do you know if this is, in fact, the case?
A: They usually won’t count rent as income unless it has already been rented out for six months and even then they only count 75 percent of the rent. That’s tough to do if you are living there. You might want to consider taking the loss in value and selling if you really want to move, if you can afford it and have a down payment outside of that lost equity. There are portfolio lenders who sometimes can make up their own rules because they don’t follow Fannie Mae and Freddie Mac guidelines (let me know if you want a referral). That said, if you have a lot of money in the bank and can afford to carry both mortgages and have six to eight months of both payments in reserve, it can be done. Make sure you know what your home is worth by talking to a local agent, and not just going by your tax assessment.
Q: Aside from showing up with cash, what are these excellent ways to “position” oneself to land the dream house? My fiance and I plan to pay at least 20 percent down, but I fear we’ll still end up not winning out. We’d settle for a real fixer upper, but it’s got to be in D.C., near the Metro, wood floors, off-street parking. I guess it’s time to move to Detroit. Do sellers even care about down payment?
A: If you are looking at fixer uppers, you will be competing with cash, so it can be tough. My one word answer is: endurance. Just keep trying. Keep a laser focus on your home search, and make sure your agent is doing the same. Always write a personal cover letter and get your offer in by the deadline. Tell your employer you have to leave to look at homes in the middle of the day, and be completely approved for your loan so perhaps you can waive that contingency. Also consider a pre-contract inspection so you can waive that, too. You can always install hardwood floors, but can’t move a home near the Metro. So make sure to compromise on features that can be changed. Best of luck, I know it is tough out there and cash buyers are out in droves!