Investing, Real Estate

Home, Investment…or both

Purchasers are often concerned about home prices…is it the right time to buy….will the value go down, will it not gain as much as they had hoped…what about resale…etc.

Understandably, people do not want to throw money away or invest it unwisely, especially after what our economy has seen; however, a primary residence shouldn’t be considered only for it’s investment potential because often what you would consider a great “investment property” isn’t necessarily where you want to live or doesn’t necessarily meet all of your needs.  With those two interests competing, you will have a very difficult time selecting a home.

If you wanna buy a house strictly as an investment, your considerations are much different and much less emotional, it is about the bottom line.  If you want to purchase a home to live in, make memories in and it be in a place where you want to be, your considerations will naturally be different.

While it is often the largest purchase most individuals will ever make, and it is no doubt a great investment to purchase real estate; it is a LONG TERM investment…that if kept long enough has historically yielded a return much larger than any other type of investment.  If you are buying a home only because you expect a certain percentage increase over a short amount of time, you may be disappointed.  It is an average percentage over periods of time that we look at…which means that some years will be less and some years will be more…some years will be flat.  Overall though, real estate appreciates…there will always be demand for it, because the population grows and we have a finite amount of land.

The key to being comfortable with your investment is to consider the intangibles…growing your family there, making it a home, making lasting memories and friendships, pride of ownership as well as the tangibles, paying in to something that will help you build long term wealth through long term equity build up and appreciation, provide tax advantages, provide a consistent monthly payment (as opposed to rent which steadily increases yet provides no payoff).  What other investment can you actually enjoy while you are investing money in it?  You get something out of it while you are putting money in!  At the end of the day…if it isn’t an “investment property” you are purchasing, it is a home that also happens to be an investment in your future.

This is not to say that you should make frivolous decisions, pay way over market value or ignore serious defects, consistent declines in a particular area or problems that could affect selling in the future, I just mean that it is a home first and an investment second.

Just my two cents…

Financing-home loans, Real Estate

Mortgage Process…What to expect!

house questionIt is critical to get your “ducks in a row” before even beginning to look at homes.  First so that you are fully aware of what you can afford and how much a lender will loan you based on their lending criteria.  And second, so that you truly understand what the purchase will cost you out of pocket…this is something that you really need a Good Faith Estimate (GFE) for and a lender is usually very happy to provide a preliminary GFE based on a specific purchase price.  Additionally, selecting the right lender goes beyond simply finding someone with a good rate.  You should consider other things in addition to the rate, such as fees and points charged, do they apply excessive risk “overlays” in addition to standard guidelines that could make it difficult to get full loan approval for certain types of properties and how accessible and responsive the loan officer is.  Credit Unions often have good rates, but you will almost never get the same person on the phone to discuss your loan status…they do not worry about contract deadlines as much, nor do individual agents have much visibility into the full process of the loan…this can delay settlement or worse, cause default.  It is important to deal with a lender that has great rates AND provides great customer service, availability, is very knowledgeable and has a number of loan products so that they can help you select the right one.

All that said, below is a (basic) description of the mortgage process (note: this is not the overall purchase process…more on that in another post 🙂 ):

1) Pre-Approval: Crucial first step and a necessary document to provide sellers in the offer process.  This is relatively easy and gives you great visibility into the size of mortgage you can afford and what the purchase will cost you.

2) Loan Application: You will actually apply for the loan once your offer is accepted…in Virginia, this step is required to be completed within seven days of ratification of the contract.  As part of this application you will need to provide income documentation and other important asset information.

3) Processing: The processor verifies that the information that you provided is correct and all supporting documents are in tact.  For this to go smoothly and quickly, it is critical that you provide ALL information requested in a timely manner.  As the sales contract says “time is of the essence” and this holds true with getting the lender your documentation as well.  If all items are in place and verified, the processor will prepare your loan for underwriting.

4) Underwriting: An underwriter compares your loan to standard guidelines.  If the guidelines are met, an approval and loan commitment are issued.  Note: additional documents may be requested by underwriting at this time

5) Closing: At closing, you will sign the mortgage promissory note and other required documents transferring ownership (title) from the seller to you.

Hope this is helpful and as always, don’t hesitate to reach out to me with any questions.  I am always happy to help!

Financing-home loans, Real Estate, The Market

The cost of waiting to buy…

rent_buyI recently read an article in the Washington Post regarding “millennials” and home buying titled “Studies find now is the time for millennials to buy”.

I found it very informative and interesting, so I thought I would share the highlights, weigh in and provide a link to the original article for your viewing pleasure 🙂

Basically, the article sited studies done by Zillow and the Harvard Joint Center for Housing Studies.

Zillow looked at how interest rates and rising home prices will affect purchasing power and discovered (shocker)  that waiting even one year, could cost you more money (approximately $189/month in the DC area) based on the assumption of home prices staying the same and interest rates increasing.

The Harvard Joint Center for Housing Studies looked at why first-time buyers weren’t buying even though affordability is at an all time high.  They looked at 25-34 year olds who do not own a home and looked at how many earned enough to afford a median-priced home in the top metro areas.  The discovery was that in 42 of the 85 metro areas, more than 50% of the renters can afford the monthly payments of owning a home if purchased with 5% down. 

See the Full Article Here

Here are my thoughts:

Affordability IS at an all time high, for all age groups because of the drastically low interest rates that WILL at some point increase.  But for millennials, it may be their greatest opportunity to get in with very little invested and the ability to borrow money at a historically low rate. 

Here is an example of how interest rates effect affordability.  In 1981, the typical house payment was around 31% of a person’s income…in 2010 (even though homes are much more expensive), it comprised around 14% of individuals income.  One reason is because the interest rates in 1981 were around 19%.  In 2010 they were around 5%.  Now the rates are around 4.25%

To illustrate the affect interest rate has on affordability, here is an example:

  • Home Price: $400,000
  • 5% Down: $20,000
  • Loan Amount: $380,000
  • Monthly Payment with a 4% Interest Rate @ 30years: $1814.18 (principal and interest only)

Scenario 1: Home prices decline 5% but there is a 1% rate increase

  • Home Price (same home): $380,000
  • 5% Down: $19,000
  • Loan Amount: $361,000
  • Monthly payment with a 5% Interest Rate @ 30years: $1,937.93 (principal and interest only)…this is a monthly increase of $123.75

Scenario 2: Home prices increase 5% (which is +/- the current rate of appreciation depending on the area) and there is a 1% rate increase as well

  • Home Price (same home): $420,000
  • 5% Down: $21,000
  • Loan Amount: $399,000
  • Monthly Payment with a 5% Interest Rate @ 30 years: $2141.92 (principal and interest only)…this is a monthly increase of $327.74

We live in the monthly payment, because realistically, most of us do not keep our homes for 30 years.  So really the monthly payment and, more importantly, the interest rate will affect us much more than the total home price in terms of affordability. Don’t let marginal price differences cloud this reality.

Of course now may not be an option for some, and everyone needs to evaluate where they are financially and personally and determine what works best for them.  Simply put, for those who are in a financial and personal position where buying makes sense, now is one of the best times to jump in…and simply waiting due to fear or hoping prices will drop, may not be the best over-all financial decision. 

Hope this was helpful and please feel free to reach out with any questions!

Real Estate, Tips and Tricks

Moving Tips

movingMost people have moved at least once in their lives, but for some, it has been quite a long time OR the thought of moving is so overwhelming (either because of a bad experience or because moving all of your life’s treasures is just difficult by nature) that they just don’t even know where to start.  Here are a few tips for a successful and less stressful move:

*A quick note: Some Moving expenses are tax-deductible, so save receipts and check with a tax professional for details

1) This probably goes without saying, but plan ahead.  Do not make the physical move and packing the last item on your list.  You will need time to get on a mover’s schedule and determine your timeline for packers, etc.

2) Considerations for Moving within the state vs. out-of-state.  Moving out-of-state is a little more complex and requires more coordination.  Moving charges will be calculated differently depending on whether or not you are staying within the stave or leaving the state.  Within the state, charges are usually based on an hourly rate plus any additional services.  Between states, will often be calculated by weight and other factors, so it is helpful to get a specialized moving consultant/coordinator to lay out your options and help you determine what the best course of action is.  Many interstate moving companies include this service as part of their initial quote.

3) Make sure the company you are interviewing sends someone to the house to give a quote and do not accept a quote over the phone.  The last thing you want is to expect one price and get another on the day of the move.  Some companies will guarantee their price quote…this gives you assurance that you will actually pay what you have been quoted, regardless of unexpected factors such as whether the move took longer than expected because of traffic or bad weather.

4) Make sure that the company insures the goods for damage or loss and find out how much coverage you receive per item.  In many cases, you pay an additional fee for full coverage but basic coverage is only a percentage on the dollar or weight.

5) Get the kiddos on board: we all know that moves are difficult, but kids (who love routine, can get especially upset by a move if care isn’t taken to prepare them).  Help them feel more comfortable by keeping open dialogue about the move, introducing them to the neighborhood and maintaining as much of a normal routine as you can.   Try to get them involved in the packing by allowing them to pack their toys and favorite belongings in their own special box.

6) Make a plan for the pets…either to stay with a friend or family member during the move to reduce anxiety and/or keep them out-of-the-way.  If flying or driving a long distance, make a plan for how you will keep them comfortable.  If flying, it is a good idea to take them to the vet first to get copies of vaccinations and other health records, and determine if some sort of sedation is needed to get them through the trip.   Also check with your airline for their guidelines on moving animals.  For long car rides, get them accustomed to riding in the car ahead of time if they are not already.

7) Finally, the moving consultant you meet with can give you all sorts of options and tips on how to make the move successful, such as how to properly pack certain fragile or special items and what to expect from the moving team, so listen to their recommendations.  If they have none, you may want to consider interviewing someone else :).

*And a little reminder…don’t forget to coordinate utilities in the new house and the home you are leaving ahead of time.  It is important to transfer utilities out of your name as of the closing date or to be safe, the day after and have the utilities put into your name as of the closing date in your new home.  This can sometimes take coordination between buyer and seller so that there is a seamless transition and there is no interruption in service or undue paying of reconnection fees.

Happy moving all!

Real Estate

Sellers Closing Costs Breakdown

I thought I would write a post to sellers regarding their closing costs because often, when considering selling your home, it is overlooked that you will have costs when selling your property (in addition to real estate commissions).  Here is a list of items that could be on your side of the HUD1:

  • Broker’s commission as stated above as something you probably already considered, is a full-service fee and will cost anywhere between 6% to 8% of the purchase price BEFORE any subsidies offered to the purchaser.  These services include: marketing your property to potential buyers and other agents through signs, print marketing, online marketing through the MLS and other sources, brokers opens and calls to brokers and network, taking calls from, qualifying and showing your property to potential purchasers and holding open houses, (often) staging, giving professional recommendations for a quick sale at the right price and terms, coordinating showings and other contractors, negotiating on your behalf and protecting your interests through the contract negotiation and contractual process…and more… (MORE ON WHAT WE OFFER IN ANOTHER POST…TRUST ME, THE GOOD REALTORS EARN OUR PAYCHECK AND ACTUALLY SAVE YOU MONEY, TIME AND HASTLE)
  • Local property transfer tax, county transfer tax, state transfer tax, and state capital gains tax (if applicable) are the charges that you’ll pay for the privilege of selling your home. Credit to the buyer of unpaid real estate taxes for the prior or current year are variable and depend on when you close and when your taxes are due.
  • Prorated Fees if applicable: credits to the purchaser for condo or HOA fees, rents, etc.  These are items that cover the period of time that you owned the property but haven’t yet paid that the purchaser will end up paying (when they are due) on your behalf.  In the case of rents, rent is usually paid in advance, so I you close during the month, you will owe the purchaser the portion of rent for the number of days of the month that they own the property. Similarly, if you have paid anything up front and the purchaser takes ownership during the that time, the purchaser will credit you.
  • FHA fees and costs are now negotiable between a FHA buyer and seller.  Typically these are paid for by the purchaser.
  • Home inspections fees, while in most instances are paid for by the purchaser, are in some circumstances paid for by the seller and include pest, radon and other inspections.
  • Miscellaneous fees can accrue from correcting problems noticed during the home inspection.  These you will typically fix and pay for prior to closing, but some sellers offer a credit at closing intended to be used for correcting problems.

Your Realtor should provide you an estimate of these costs, so if he/she haven’t,  ask for one so that you can prepare accordingly.

Hope this helps and happy selling!

Financing-home loans, Real Estate

2014 VA loan limits for the DC Metro area

Anyone who knows mehome ownership for vets, they know I love a VA Loan.  VA loans are truly the best deal on the market (in my humble opinion)…and they do not have all of the problems that some agents and veterans think they do.  The appraisal process can be a little more difficult, but only in the fact that they MAY require some repairs (such as fixing peeling lead-based paint…not such a bad thing to require)  and a re-inspect if repairs were required, but more often than not, they do not require anything.  They value the home just the same as a conventional appraiser and I have never seen a VA appraiser come in low on a property that was priced right.  I digress…

Just to update you folks, the VA loan limits for a 0% down loan (yes…ZERO down) have changed in many higher cost areas.  For most areas, it is still a max of loan limit of $417,000.  In Northern Virginia and DC, the loan limit has always been higher and is now $692,500…NOT BAD!  And if you are willing to put money down, they will lend up to (I am told) @ $1.5 million (depending on the down payment of course).

VA loans have low rates and if you are disabled in ANY way, they will waive the funding fee (this fee is 9 times out of 10 financed into the loan amount anyway).  They will also allow up to 6% of the purchase price towards closing costs in subsidies from the seller…if you are in an area where subsidies “fly”…more on that another time (*there are a few caveats to this, so be sure you have a good lender who will find a way to get the most out of any seller subsidies you have negotiated…such as the seller buying down your rate, etc*)

Lastly, the VA will allow you to do what is called a streamline refinance.  If a lower rate is available, you can get it and there is no appraisal required.  Additionally, most lenders will pay the refi costs, so you can pretty much to the refi for free or for VERY little out of pocket.  If it benefits the veteran, it is allowed.

This is an amazing way to realize the dream of home-ownership…and a rightful benefit for our nation’s heroes who have risked their lives for our freedom and liberties!

In summery, if you are eligible to get a VA loan, consider it!

 

Financing-home loans, Real Estate, The Market

Lock Your Mortgage Rate: New Loan Fees Expected Within Days

Article sent from a lender partner: Will and Nancy Jacobs with First Heritage Mortgage in Virginia

Starting soon, nearly all home buyers and refinancing households nationwide will pay higher mortgage loan fees. Congress has made it law.

13 months ago, as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Congress enacted a one-year cut to FICA payroll taxes.

FICA stands for Federal Insurance Contributions Act. Taxes collected under FICA fund such programs as Social Security and Medicare.

The stimulus plan temporarily lowered tax rates for salaried workers from 6.2% to 4.2%; and for self-employed persons from 12.4% to 10.4%. Effective January 1, 2012, “regular” tax rates were to return.

That is, until late-December 2011. In one of its last moves of the year, Congress passed a temporary, two-month extension to the payroll tax cut, extending it through February 29, 2012. The expected cost to the U.S. Treasury is $33 billion.

To recoup those costs, Congress has turned to Fannie Mae, Freddie Mac and the FHA.

Each entity has been ordered to collect news fees on each new mortgage is backs, and has been told to forward said fees to U.S. Treasury directly. There’s no “workaround” allowed or forgiveness applied — each new loan is subject to the payment.

The rules are listed on page 17 of the law’s final draft, in a section unambiguously titled “Title IV — Mortgage Fees and Premiums”.

According to the law :

*  Fannie Mae and Freddie Mac must collect an average fee of no less than 10 basis points (0.1%) per new loan

The FHA must raise its monthly mortgage insurance premiums 10 basis points for all new loans

The expected cost to consumers is no less than $10 monthly per $100,000 borrowed. Some analysts, however, expect Fannie Mae and Freddie Mac to collect more than is minimally required. This could add an additional $30-50 to your monthly mortgage payment per $100,000 borrowed.

Therefore, if you’ve been shopping for a home or for mortgage rates , take advantage. Within days, lenders are expected to start collecting Payroll Tax Extension fees from mortgage applicants — a move that will cost you money.

Lock today to avoid the big fees. Save yourself money.