Despite being an exciting opportunity, the process of buying a home can also be stressful—especially when it comes to financing. If you plan on buying in a popular DC neighborhood like Logan Circle, you can reduce your feelings of stress by ensuring that you’re prepared for the transaction. Buying a home will likely be the largest financial investment of your life thus far, so you should learn everything you can about the homes you view, the neighborhood, and the options you have for financing.
The guide below will help you get prepared to finance your Logan Circle dream home and to anticipate what sellers and banks are looking for in a buyer.
Start saving
While waiting can be excruciating, it’s best to save as much as you can before officially entering the DC real estate market. Logan Circle real estate agents often tell their clients to wait at least another year if they don’t have enough saved to cover a down payment, earnest money, or closing costs. Though you can acquire a loan that doesn’t require 20% down, the best way to get a good interest rate and avoid private mortgage insurance is to make a hefty down payment. If you’re putting 20% down on a median-priced home (about $671,000 in Logan Circle), you’ll need upwards of $130,000—plus additional earnest money and closing costs, which could range anywhere from $20,000-$40,000. There are ways to borrow this money if you don’t have it, but it’s always best to pay this initial lump sum out-of-pocket if possible.
Set your budget
It’s important to keep in mind that the amount a mortgage company approves for your loan—and the amount you can actually afford—are usually not the same thing. Before you get pre-approved for a mortgage, sit down and go through your finances to set a budget that you deem realistic and appropriate for your future. Take into account how much you make, your normal monthly expenses, how much debt you have, and how much you’d like to continue putting into savings/retirement after you’ve purchased a Logan Circle home for sale. Make sure you also account for the cost of homeownership, such as paying utilities, covering maintenance and unexpected repair costs, and homeowner’s association dues (if applicable).
Strengthen your credit
You’ll want to acquire a loan with the lowest interest rate possible. In Washington DC or elsewhere, you’ll need a credit score of at least 740 to qualify for the best rates, and a 620 or higher to get a conventional fixed-rate mortgage. If you check your score and find that it doesn’t meet this threshold, you may want to hold off on applying for a mortgage until you can get your credit score higher. To strengthen your credit score, pay off revolving debt, ensure you pay all monthly bills on time, keep current credit cards open (even after they’re paid off), and avoid opening any new cards or applying for loans until you secure a loan to buy your home.
Decide which mortgage is right for you
Depending on your eligibility, credit score, down payment, and unique situation, you may be able to choose between a variety of mortgage options when you buy a Logan Circle home for sale. These include:
- Conventional mortgage.
â—¾ These are loans that are not guaranteed by the government. Although some offer down payments as low as 3%, keep in mind that these usually have added fees such as private mortgage insurance. - FHA loans.
â—¾ These are loans that are guaranteed by the U.S. government and are usually intended for buyers with lower credit scores or down payments. They can usually be obtained for as little as 3.5% down, but make sure you ask about added fees. - VA loans.
â—¾ If you’re a retired or active member of the U.S. military (or married to one), you can qualify for a VA loan that is guaranteed by the Department of Veterans Affairs. These loans can be obtained for no money down, but again have added fees.
If you need further help, you can also look at federal or state first-time homebuyer assistance programs. These programs often offer down payment assistance, tax credits, or low-interest mortgages to help those who want to make their dreams of homeownership a reality.
Compare rates and fees
After determining the type of loans you qualify for, compare rates and fees between the loans themselves and between several mortgage lenders. Some lenders may offer the ability to purchase discount points, while others may tack on origination fees that increase your costs. If you’re confused about which you should choose—or just want an informed second opinion—ask your chosen Logan Circle real estate agent for guidance.
Get pre-approved
Once you’ve set a budget, decided on a lender, and chosen a loan type, go to your mortgage lender of choice and get pre-approved for a mortgage. This process involves showing proof of employment and assets, as well as having your credit score, history, and income-to-debt ratio examined. A lender will also ask to see your license and social security number and may ask for additional documentation. Once you have a letter of pre-approval in hand, you can take it with you while looking at homes. This shows sellers you are a good-faith buyer and are ready to move forward. Having pre-approval will also expedite the offer and buying processes. Just remember that the amount you are pre-approved for isn’t necessarily the amount you should spend and that bidding wars are common in popular neighborhoods like Logan Circle. It’s better to walk away than spend more than you can afford.
—
When you’re ready to begin the process of purchasing a home in Logan Circle, reach out to trusted Logan Circle real estate agent Desmond McKenna for expert guidance. Desmond is happy to help first-time homebuyers, as well as experienced real estate investors, and brings local specialization, knowledge, and customer service to every transaction.
