Understanding Real Estate Sales Contracts in Washington, DC [Part 1 – Price & Financing]

Understanding Real Estate Sales Contracts in Washington, DC [General Sales Contract]
June 20, 2017
Should I Buy Title Insurance? Washington, DC Home Purchase Question
June 20, 2017
Show all

Beyond basic information such as buyer and seller names, property address, and brokerage info, here are some of the specifics on how buyers craft unique offer contracts in the DC real estate market:

A. Price and Financing

GCAAR Sales Contract – Pg 1

Here, you will provide the initial overview of the sales price being offered as well as the basic financing terms. Unless you are completely waiving additional financing contingencies which is rare (and not recommended), you will have another opportunity to outline your financing plan in more detail. However, you are only giving a very brief overview in this first part of your offer contract.

The amount of money you plan to put down and the amount you intend to finance are expressed in this contract as percentages. The trust sections here refer to a Deed of Trust which is what a mortgage or loan is technically referred to as. Some offer situations can involve more than one trust to purchase a home although this is rare. Of course, the sum of the down payment and all trusts must be 100%.

Section A. Down Payment

In an increasingly competitive market, buyers are often putting down more than the standard 20% of a the purchase price of a home. However, many options exist to allow buyers to put down 10%, 5%, and even 3% down to purchase a property. Contact me to learn more about lenders in the area who can provide low down payment loans without excessive fees and often available without additional monthly paid mortgage insurance.

Though, your down payment amount doesn’t translate into a different payoff for the seller at the end of a home sale, it can be used to help you stand out in competitive bids. In multiple offer situations, sellers generally like to see higher down payments since this generally translates into a stronger financial foundation and less chance of a purchaser not being able to secure financing. If you’re putting less than 20% down on a home purchase, fear not. You still have a great shot at participating in the DC real estate market and finding a great home at a great price. Your realtor should be able to sit down with you at each contract offer you may encounter and develop a competitive strategy that fits your abilities all while ensuring that you’re getting a good deal.

Section B. Financing

Unless you are paying cash for your next home, you will use this section to detail the amount of your loan as a percentage of the sale price. At this point, you should be pre-qualified with a lender who will have explained to you what your affordability is based on your income, credit scores, and cash on hand. Contact me for a list of trusted lenders who can help you through this critical step of the home purchase process.

Some lenders may offer loan programs that involve multiple trusts. These mortgages can be used for purchases where the standard loan amount maximums have been reached and a second loan is needed to reach the 20% equity mark or because of a variety of other concerns. Again, this is rare but many buyers leverage multiple loans to help complete their purchase. Talking to your lender will help you understand what options are best for you.

Section C. First Deed of Trust Loan Type

The vast majority of loans cannot be assumed which basically means taking over someone else’s previously issued loan. The FHA program is one of the few that allow for buyers to assume the existing loan of the seller with the same terms being held in place. This is still subject to underwriting and the bank determining that you can qualify for this loan. Most of the time, a buyer will choose to obtain a new loan.

Most often, buyers will secure fixed rate mortgages to help ensure stability in consistent loan payment amounts and to secure historically low mortgage rates. An adjustable rate mortgage carries with it more risk but can be a helpful tool in allowing you to secure a lower monthly payment or the opportunity to build more equity if you wanted to put away additional money towards principal each month.

With an adjustable rate mortgage, you will know well ahead of time when your interest rate will increase or “balloon” and you will be told by how much. The key to maintaining an adjustable rate mortgage successfully and to avoid rapid increases is to preserve your ability to refinance your loan once it becomes clear in the market that fixed rates will increase beyond a rate that you are comfortable with or can afford. This will involve keeping a pulse on the mortgage market well beyond your initial purchase. This will also require you to make sure you remain able to refinance your loan which means that you will have to show sufficient income over the past 2 years and not carry excessive debt.

Financing Contingencies

Financing contingencies serve as an addendum to a contract further outlining what your plan is. This will include what rate you will secure your mortgage at and additional protections afforded to you as a buyer through the process. The type of contingency you use will depend on what financing product you use. The loan type used most often is Conventional Financing and is most favorable in a competitive market. However, you may find that the FHA program with more flexible credit score and down payment requirements is the right option for you. VA loans are great tools for veterans in the DC area to secure a mortgage with as little as 0% down as well as other benefits.

If your transaction is an all cash deal (lucky you!), you will select that the contract is not contingent on Financing. Typically, non financing contingent transactions can close in as little as 7 days after title work has been completed and the settlement company has put together all of the paperwork for the transaction. More on financing contingencies soon.

Section D & E Second Trust and Loan Assumption

Again, these sections are rarely used but come into play from time to time. Your realtor will need to inquire with the listing agent and your lender as to your ability to assume someone else’s loan which may be an advantage if seller was able to secure a lower rate in the past than what is available to you now. Your lender will also work with you to help you understand whether a second trust can help you purchase your new home at a more affordable cost when it comes to financing.

For more information on any of the items discussed here or for a list of trusted area lenders, contact me at [email protected] or at 202-378-0567.


Leave a Reply

Your email address will not be published. Required fields are marked *