Summary: Since late 2019, I have been on the lookout for a property that can rent for higher than the monthly payment would be with a low (3%) down payment. The first week of November 2021, I toured a condo that I had seen on Redfin for a few months and decided to make an offer.
In this post, I go through the steps of the home buying process, my thoughts/feelings along the way, and what I’ve learned.
Table of Contents
Understanding the Market
I started where everyone does: just casually searching through Zillow and Redfin listings. Over the course of a few months, I started to understand the different types of properties and prices in the surrounding areas.
Northern Virginia is a super expensive area, but I’ve been shopping in this area because my family has set down roots here. (It’s also not a terrible market because of all the surrounding government jobs – jobs that aren’t likely to get terminated or go remote.)
The downside to shopping in this market is that properties generally start in the mid-200s. Townhomes are closer to $350k and condos are difficult to get into because condo fees are typically $300-800/month.
Coming in with the presumption that you need to put 20% down would mean that you need at least $40,000 to get into a property. ☠️
That’s when I learned that you can put as low as 3% down. The repercussion of not putting 20% down is a higher monthly payment, partially because of Private Mortgage Insurance (PMI) payments. PMI is basically the bank’s way of making money from the risk of you not putting enough money upfront.
The other thing is I was looking for a property that I could turn into a rental. But you can only put less than 20% down if you’re buying a primary residence. That means that I’d also have to live in the property for a year before being able to rent it. In the end, I figured that if I could find a property that rented for more than the monthly payments would be, buying would be possible and make sense.
2. Getting Preapproved
Once you feel like you’re ready to put an offer on a house within the next 3 months, you first need to get preapproved.
A preapproval letter is basically a bank telling a potential seller that they checked you out, they know how much home you can afford, and that they’ll cover you. These days, if you’re not preapproved, a seller is not going to wait for you to seem financially trustworthy. They’ll simply sell to someone who is already preapproved.
Word of caution: A preapproval will require a credit score check which might make your credit score go down a few points. This shouldn’t really matter unless you’re also planning on buying a car or some other big purchase sometime soon (which I wouldn’t recommend).
I first worked with First Heritage Mortgage to get my preapproval. You’ll typically get preapproved to buy way more house than you can actually afford. The most important numbers I got out of this process were the interest rate and the PMI %. PMI is typically .5-1% but my credit score got me a lower rate of .25%. These are the big reasons why building a good credit score is important.
3. Look at properties
Once I had my preapproval letter, I
3. Make an offer
4. Buyer Agency Agreement