The Northern Virginia (NV) property market is currently remaining an aggressive seller’s market, with low inventories struggling to keep up with buyer demand. According to the Northern Virginia Association of Realtors, a total of 5,186 NV properties went under contract in May 2021 – a figure up 38% year-on-year.
With 81% of homes selling in 10 days or less, and low inventory levels remaining an issue across the region, it may be a tricky time to be a buyer, but not all is lost. 5,862 new listings came on the market in May 2021, up 49% year-on-year, so there is hope that some balance is soon to be restored.
If you are planning on becoming a home buyer in Northern Virginia, here is a guide to the process!
1. Determine Your Budget
Before searching for your dream home, determine what your realistic budget is, based on what you can afford and just how much you are willing to stretch yourself to. Lenders typically look for applicants to have a total debt loading of no more than 40% of their gross monthly income (this is called the debt-to-income ratio). This figure includes all debts such as credit cards, car loans, and student loans, as well as your future mortgage repayments. If you plan on purchasing a condo, you will also have to factor in HOA fees.
Northern Virginia property prices are varied depending on where you’re looking. For example, real estate in Alexandria was $550K in September 2021, whereas the average Fairfax property price was over $60 more, standing at $616K last month.
There are many helpful calculator tools online to help you to determine what you can afford. If you find that you are at your limit, start making plans to reduce your debt-to-income ratio straight away.
2. Plan for Your Down Payment
A 20% down payment is required for most conventional mortgages, and if you can manage that much, it’s advisable to do so. Putting a minimum of 20% down will enable you to avoid paying Private Mortgage Insurance (PMI), thus making your loan costs lower and attracting a better interest rate.
If you’re not quite able to save that much, however, there are a variety of programs that can assist you. FHA offers home loans that only require 3.5% down. Programs like these do require PMI, however, which can drive your monthly payments up considerably.
The US Department of Housing and Urban Development (HUD) can provide a list of state-by-state nonprofit home buying programs, including one for the State of Virginia.
First-time buyer-tailored loan programs are also offered via the Virginia Housing Development Authority (VHDA), as well as programs for buyers wanting to purchase property in areas of economic opportunity.
As you plan for your savings, don’t forget to factor closing costs into your plan. These are fees paid at closing and typically total approximately 2% of the property purchase price. Also, bear in mind that lenders favor seeing stability of funds in your account – ideally for 60 to 90 days before lodging an application.
3. Prioritize Your Property Needs
There are a number of factors to consider when deciding what your new property priorities are. Is proximity to work a deciding factor? What about a big backyard? Is it important to be close to the Metro? Perhaps highly rated schools are high on your agenda? Or maybe you are currently deciding between a new build home, the convenience of condo living, or an existing detached house?
There are a vast array of property types to choose between in Northern Virginia, and focusing on your priorities upfront will help you to make a much better decision as to what to buy when the time comes.
The clearer you are as to your property needs and goals, the easier it is for your agent to find you the perfect property. However, If you’re struggling to determine what your property priorities are, chatting to an agent with expertise in your chosen area can be very helpful.
4. Get a Loan Pre-Approval
The majority of sellers in Alexandria, Fairfax, Arlington, Washington DC and Loudoun Counties will not accept any offers from buyers who do not possess a loan pre-approval. Pre-approval clearly indicates that a buyer possesses the financial resources to back their offer.
So, select a lender and seek pre-approval. They will ask you for all relevant financial documentation, such as pay stubs, tax returns, bank statements, loan statements etc., and then check your credit to assess your financial situation accurately.
Keep in mind that whilst you may be pre-approved for a certain amount, that doesn’t necessarily mean that you can comfortably afford that amount. Take the time to accurately prepare a monthly budget of your own to determine what figure you will be comfortable with.
5. Make an Offer
Once you have found the property for you, your agent should assist you in determining how much to offer and which contingencies to include, if any. An expert agent should consider comparative market analysis to support you in deciding how much to offer on a property.
A traditional offer package for a Northern Virginia home typically includes:
- A Residential Sales Contract
- An Appraisal Contingency Addendum
- A home inspection report, as well as radon testing contingency
- A buyer’s finance pre-approval letter
- An earnest deposit (a personal check for 1% of the property price)
6. Go Into Escrow
Once a buyer and a seller agree to all terms, the contract of sale will become ratified and you will enter escrow. It will typically take between 30 and 45 days from ratification to settlement.
7. Conduct a Home Inspection
Once the contract is ratified, it is recommended that you organize a home inspection. This will allow the opportunity to check further for defects, request that the seller cover any necessary repairs, and even walk away from the deal completely if anything significant is uncovered.
8. Take a Final Walkthrough
Pre-settlement property access law in Virginia allows buyers to schedule in multiple inspection walk-throughs during the last seven days before closing. This enables you to make sure that the property is in the condition that you have agreed upon.
9. Sign the Papers
Usually conducted at the office of the title company, the final documents are to be signed by all parties. Ensure that you take with you your ID and a certified or cashier’s check to pay the balance of the down payment, plus any additional closing costs.
You will then receive the keys and the property is yours.
Whether buying or selling a property in Northern Virginia or in another hotspot area, it is critical to work with a well-respected and experienced agent. Take the time to choose an agent that you feel confident in and work carefully through the outlined steps to ensure that your property transaction is a successful one!