Zero Down Payment

The on again, off again, opportunity to use the $8000 tax credit as a down payment is back on again. At least if you get a VHDA loan.

The guidelines for the program are here. The program utilizes a second mortgage to make this happen. That second mortgage requires no mortgage payments for the first year and has a 0% interest rate during that year. You have multiple options on how to deal with the second mortgage after that first year.

It's worth taking a look at this program if the only thing keeping you from owning a home is coming up with a down payment.

If you need help finding a VHDA lender, let me know. I'd be happy to help!

Your Mortgage is Paid

A real estate firm in Ohio is offering clients a sweet deal. If you buy a home using their agents and their mortgage company, they will pay your mortgage for six months if you lose your job.

By now you've probably seen the car companies doing something like this. And, I know of some builders with similar programs. But I've yet to see a real estate firm try this.

In Ohio, this is not a small commitment. The unemployment rate in Ohio is one of the highest in the country and will likely continue to rise given the number of auto-related jobs in the state.

So, hats off to Real Living HER for taking this gamble! I'd love to see a local firm in Northern Virginia step up and try this. It's far less of a risk here and this market could definitely use a little more innovation! And, with 90%+ of the real estate agents locally telling you it's a great time to buy (for at least the last three years!) I'd love to see them put their money where their mouth is!

I don't know that someone who wasn't going to buy is now going to because of this offer. But if you're going to buy a house anyway, seems like you'd be crazy not to use this brokerage.

LATE UPDATE: My apologies to the local firms who have already stepped up and are offering similar programs! (Google let me down on this one!) Long & Foster and REMAX Regency (Warrenton & Manassas offices) are now offering this type of program. Kudos!

$8000 is Back

If you remember, a couple of weeks ago HUD announced that the first time homebuyer tax credit of $8000 would now be allowed as an upfront loan that could be used as a down payment. Because of concerns over no down payment purchases in general and down payment programs in the past, that announcement was recalled almost as fast as it was put out there.

The new and improved version is now out. The $8000 can not be used as a down payment. However, you can get taht $8000 up front, rather than waiting and using the tax credit on your 2009 taxes, provided you use it for closing costs.

The details are in a HUD letter on their web site. I'm a little skeptical that this will be a huge boost to the market. Most sellers were already paying a substantial portion of the buyer's closing costs. But I do appreciate that the government continues to look for ways to backstop a tough real estate market.

HUD Rethinks

The HUD announcement that it would allow the $8000 first time homebuyer tax credit to be used for a downpayment didn't last out the week. All mention of it was pulled from HUD's home page.

Apparently the program as orginally discussed looked too much like the down payment gift programs that were essentially eliminated last year because of the higher foreclosure rates associated with those programs.

NAR (National Association of REALTORS) says HUD is retooling the program and that there will still be a way to do this.

Stay tuned to this space for updates.

Cash for Down Payment

Last week Shaun Donovan, Secretary of HUD, announced that the Obama administration is coming out with a plan to allow buyers to use the $8000 tax credit up front, as a down payment. The plan will apparently be to utilize FHA to monetize this credit.

Basically lenders that provide FHA loans will be allowed to show an $8000 down payment at settlement, coming from the tax credit. Full details are not yet available, but presumably there will be additional paperwork to sign at settlement acknowledging the source of this financing and waiving the right to the tax credit in the future.

We don't know all the details yet. There may be eligibility restrictions that aren't immediately obvious.

And, of course, some of you will still prefer to have the $8000 tax credit. This appears to be an option. You should be able to take the credit now as a down payment or use it as originally intended for a tax credit on your 2009 income taxes.

More details should be available this week.

New Appraisal Requirements

As of May 1st, guidelines will change for appraisals on mortgages that want Fannie Mae or Freddie Mac's blessing. Up until now, your lender chose the appraiser when you applied for a loan. The fee was typically in the $350 range. Each lender had a list of appraisers that they had approved. And, you, as the home buyer, paid for the appraisal at settlement. In this market the seller often gave you money to pay for the appraisal.

Now, lenders will not be allowed to choose the appraiser they use. You can see the reasoning for this. There was a lot of fraud over the last few years. There were crooked lenders using crooked appraisers to "cook" the appraisals to come up with the numbers they wanted/needed. And, that's one piece of why we're in the financial mess we're in.

But no one is very happy about the medicine they'll be taking on this one. Lenders will now go to third party companies who will then assign it to an appraiser they have on their books. Because of the change, appraisers will likely get paid less. But, because another layer has been added in, the consumer will likely pay more.

And, because of the change, buyers will no longer be able to pay for the appraisal at settlement. They'll be required to pay up front. At a time when buyers are putting out cash for other things like home inspections as well, it'll make the money a little tighter. Hopefully, seller's contributions to settlement costs can still be used at settlement to reimburse the buyer for this expense.

As we begin to use the new system, no doubt we'll notice other changes. Stay tuned for more.

Websites for Home Searches

I get asked frequently by buyers which website to use for their online home search.

There are a lot of different features out there on a lot of different web sites and so, in part, this depends on which of those features are most important to you. There are special mapping features and mapping overlays and mashups. I would definitely try out several to see what fits the way you like to search.

That being said, I always assume that very high on the list of vital criteria is data accuracy. For that reason the two sites that I would recommend would be REALTOR.com and HomesDatabase.com

For myself, I like the functionality of HomesDatabase.com better. It does only cover the mid-Atlantic area which is fine for buyers looking in this area. If you're selling here and looking to move elsewhere in the country I'd start with REALTOR.com.

The other sites often have properties listed for sale that were sold long ago. It's very frustrating for buyers to get excited about a property only to find out that it hasn't actually been for sale for months. Stale data is infuriating!

There are also plenty of FSBO (For Sale By Owner) sites out there. Many owners are willing to work with you if you have an agent. They don't want to pay fees to both a buyer's agent and a listing agent, but will often pay the buyer's agent fee if it gets them the sale. If you're working with a buyer's agent (and you should be) tell them you're interested in FSBO properties and ask them how they can help.

With so many homes in some stage of foreclosure right now, if you're buying without an agent, be very careful that you know you're buying a home that you'll have clear title on. Even with agents involved there are plenty of sales that are falling apart right now!

If you've got specific questions about specific web sites and the accuracy of their data, I'd be happy to help answer questions.

Killing Dual Agency

My friend (and fellow VLA alumni), Jim Duncan, announced his move to Nest Realty Group this week. It's a new firm in Charlottesville that will NOT practice dual agency.

Jim's latest video blog talks about why he's making this move, how hard it is to kill this outdated practice and what he's hoping consumers will see.

I'm honored to know Jim and applaud him for having the courage of his convictions.

It's long past time to kill dual agency once and for all! The only ones benefiting from this practice are real estate agents. Consumers and the agents who get this will have to work together to end this practice!

Paragraph 7

The interpretation of Paragraph 7 of the local real estate contract came up recently with a buyer client. I'm sure my client isn't the only buyer to wonder about definitions for this paragraph so I thought it would make a good blog post.

Here is the language of the contract:

Purchaser accepts the Property in the condition as of the Contract Date except as otherwise provided herein. Seller warrants that, except as otherwise provided, the existing appliances, heating, cooling, plumbing, electrical systems and equipment, and smoke and heat detectors (as required), will be in normal working order as of the Possession Date. Seller will deliver the Property in substantially the same condition as on the Contract Date and broom clean with all trash and debris removed. Purchaser and Seller will not hold the Broker liable for any breach of this paragraph. Seller will have all utilities in service through Settlement or as otherwise agreed.

The phrase in question is "normal working order".

This phrase is, unfortunately, open to interpretation. For example, when you bought your oven, it was calibrated at the factory so that when you turned the dial to 350 degrees, that's exactly what temperature you got. However, as your oven has aged, there's a pretty good chance that there's been some slippage. 350 degrees may now mean 360 degrees. Should "normal working order" mean that it must heat at exactly the precise temperature it did when new?

Typically, this phrase has been taken to mean, if it's working at the same level as it was on the contract date, that's good enough. That's barring any negotiation on this point in the home inspection.

My client questioned whether "normal working order" shouldn't really mean "to current code". And it definitely is not interpreted in that way. If the home was built in 1940 there is no requirement that it meet current code. Although, renovations/additions must have met the code at the time they were built.

As with all contracts in Virginia, remember that this is very much a "buyer beware" commonwealth. Do all your due diligence and take it seriously. When you get to the settlement table it's too late!

How Low Will They Go?

Mortgage rates are way, way down today. The lowest I've seen is 4.875% for a 30 year fixed with 0 points. That's truly incredible and probably the lowest mortgage interest rate I've seen in my lifetime.

The rates did not drop because of the Fed's drop of the Fed funds rate, but because of what else Fed Chair Bernanke had to say yesterday. He basically said he's going to do whatever it takes to get this economy moving again. And, he specifically said that can include buying mortgage backed securities. That's the big deal.

Because those mortgage backed securities are still sitting on the banks books. And regardless of what the federal government has tried banks still are not lending money as freely as the economy needs. The mortgage backed securities, which may, in fact, be worthless are a big part of why they still aren't lending. What the Fed did was signal that they will buy these possibly worthless assets and allow the banks to get them off their balance sheets. That should, finally, convince the banks to lend money again.

But, if you've been contemplating buying a home right now, your biggest question is probably, should I buy now or will rates go lower?

No one can answer that question for you definitively. But here's what I think. There's a fair chance that rates may go even lower. There are proposals floating around that would have the government subsidizing mortgage rates to lower them even more. No one knows whether any of these proposals will ever actually be implemented. But given the current environment and government's determination to get the economy fixed, it certainly could happen.

But, if you've found a home you love and the price is right and you can afford a mortgage with rates where they are, I'd suggest you move forward now. The risk of losing a home you want is higher than the risk of losing out on a slightly lower mortgage rate. Buy now, build a little equity and, if rates stay low you can refinance down the road.

If you're out there looking, I'd say keep looking. Inventory is lower than it has been in several years. These lower rates may actually make that worse as more buyers begin to make their move. Your selection isn't likely to improve in the short term and if you find something you'd like, jump on it.

If you haven't started looking yet, I definitely think you ought to at least be very closely monitoring inventory. You should know what's out there and what you get for your money in your price range. I can't tell you whether or not to wait for rates a little lower. But I can tell you that great rates now and a reasonable amount of inventory might be a better situation than even lower rates and buyers fighting over inventory. This is especially true in the lower price ranges where inventory has gotten very picked over.

I think it's shaping up to be a very interesting 2009!

Doing Your Homework

When you buy a condo or a property that is part of a homeowner's association, you are given a copy of the documents that govern that community. These are the rules and regulations by which you are agreeing to live. You are given several days to review these documents and, if during that time, you decide you can't live by the restrictions contained there, you can walk away from the contract without penalty.

Unfortunately, too many buyers never even glance at the documents. In fairness, they are often several hundred pages thick, written in language not even an attorney could love and many of the provisions will never affect the potential home buyer.

However, there are too many stories of homeowners who found a provision they couldn't live with after they purchased the home.

Recently I've been dealing with an investor who wants to rent out the condo unit he bought. This condo association, and many others, have rules limiting the number of units that can be rentals. That provision is there so that potential buyers can take advantage of FHA financing.

Unfortunately, there are too many rentals in this development already. And, it turns out that the association give priority to owner occupied units where the owner needs to rent out the unit because of some hardship or change of circumstances. Investors have almost no chance of being able to rent out their units.

A close reading of the association documents and some follow up questions would probably have told the investor that this was not a good investment prospect. Finding that information out after you've settled on the property simply means you're saddled with a property you can't rent out, don't want to live in and can't sell at a profit.

Whether you're an investor or buying a home to occupy, it's important to read those documents. Tossing them in a corner to read in a couple of months can be a costly mistake.

Ten Cents

I was supposed to have a settlement yesterday. My clients are buying a foreclosure. (The one that we've been working on for months and months and months!)

I know it will come as no surprise to many of you that the settlement didn't happen.

Why, you ask......?

The original estimated settlement statement (HUD1) differed from the final numbers by.....TEN CENTS.

Ordinarily, the change would be made and we'd have approval from all parties for the change in a matter of minutes and would proceed with settlement.

But, this ten cent change had to go back up the chain of command on the bank's side. And, so, we're still waiting. Since this was Friday and no bank is going to give us final approval over the weekend settlement won't happen before Monday.

Except that this week, Monday is a holiday. So, now we're looking at Tuesday at the earliest.

So, how much do you think it cost the bank, to approve this ten cent change? How much in lost time (wages) for the employees who worked on this? How much did it cost them to have this money in my clients' pockets and not theirs for these extra few days?

This is the culmination of months of negotiations as the bank continued to get lower offers from my clients after they rejected higher ones. And, in one case, lowered the price while we had a higher offer on the table!

There are very well managed financial institutions in this country. This isn't one of them.

VA Inspection is Not A Home Inspection

Buyer clients of mine were advised this week by their lender that they did not need to do a pre-offer home inspection on a foreclosure listing because, since they are getting a VA loan, the inspection is automatically part of what they get. Voila! Save money!

Bad lender!! Unfortunately, he doesn't quite have the whole picture.

When you get either a VA or FHA mortgage, as part of the appraisal, there is something of an inspection done. What these entities are doing is making sure there are no significant issues with the home that will cause the buyer to have to come up with money for repairs in the first year or two of home ownership. It's a worthy goal. But the inspection has gotten increasingly cursory over the years. And, things that the VA or FHA consider to be a problem, may in fact be things that are not a problem at all. (I've seen deals fall apart over these things!)

A real home inspection takes around 3 hours, sometimes longer, depending on the home. Each system will be tested. The home will be evaluated for water issues. The inspector will go into the attic to look for leaks. Better yet, the potential buyer gets a better understanding of what they're buying, how the systems work and what they'll need to do to maintain their home in good condition.

The VA or FHA appraisal doesn't come close to performing any of these functions.

But there's an even bigger problem here. The lender assured my clients that if they find anything significant, they'll simply increase the size of the loan so they can immediately have it fixed. So, no worries about having to walk away from the contract and lose their earnest money deposit to the bank.

So, even if the appraisal says the home is worth only the contract price and the place needs a brand new roof, no problem loaning them the extra money? A lending institution, given our current situation is willing to loan over 100% of the value of the property to first time home buyers? (Yes, this is going to be a no money down transaction.) And, they'll say this up front without even limiting the amount? If the required repairs bring that number to 110% of the value of the home, are they still going to approve the loan?

I think the answer is "no" and I think they've badly mislead my clients. Lending institutions should do what they do best, make lending decision. (OK, that may not be what most of them do best any more but we're giving them the benefit of the doubt!)

Lending institutions should not be offering advice that puts my clients at risk for losing their earnest money.

To Inspect or Not

Clients I'm working with who are trying to buy a home settled on the one they want this week. It's a foreclosure and, as with most foreclosure properties, it's sold as is. That means we can't make the offer contingent on a home inspection or a radon inspection.

Normally, what I advise clients to do in this situation is to have a home inspection done before writing an offer. But in this case the bank already had several offers and gave us a deadline if we wanted to submit an offer. We had less than 20 hours to do so.

It's impossible to get a radon inspection in that time. And, it's practically impossible to get a home inspection done that quickly. In the end, my clients decided to pass on writing an offer on this home.

Here's my dilemna. I advised them that it's certainly not prudent to buy a home without an inspection. And, that's true. But the deeper truth is that I'd have put an offer on this home without a home inspection. It's a pretty new home, built in 2005. I see nothing that worries me, nothing to suggest water or pest issues, my two biggest worries. I am, by nature, less risk averse than your average individual.  And, so, I'd have jumped in and made that offer.

But, it seems like the wrong advice to give to clients. First of all, let's all admit that we live in a litigious society. God forbid something seriously wrong shows up after they've moved in. These are very, very nice people. But that doesn't mean they wouldn't sue me for giving them bad advice and costing them a lot of money. And, that does impact what I say.

I also try very, very hard to never push my own personal likes, dislikes and personal biases on my clients. So, just because I'm willing to take that risk doesn't mean I assume that my clients have that same willingness to take risks with what may be their largest investment.

I'll admit that I remain a little torn about this. It's possible this would have been a good home for them. And I'll never know whether my advice was right or wrong. Don't you hate that?!

The Right House

A client asked a question this week that I've heard before. And, I thought it made for a good blog post. She asked:

How many homes do most people look at before they find the right one?

The answer, as in so many things, is that everyone is different. I've shown someone 1 house and that's the one they bought. I've also show someone over 30 houses before they decided not to move after all! And, I've even had someone buy a home without seeing it until the walk through on the day of settlement.

Nationally, people are physically looking at fewer houses these days before they buy one. The last statistics I saw said the average is 6 homes. The technology available today allows buyers to weed out a lot of homes online without ever stepping foot in them.

Usually it comes down to a couple of houses. And, often there's some dissension in a family over which house to choose. Here's a little guidance that may help.

First of all, if I've done my job, you're not going to go wrong buying either of your top choices.

And, I've never seen anyone unhappy because of that choice.

They may be unhappy over the commute, they may not like the neighbors, they may have over estimated their willingness to work on home improvements on weekends. If they were crazy enough to skip a home inspection, they may be unhappy about what they found! And, if your marriage is already in trouble, the fight over the right house definitely isn't going to improve the situation!

Most people, if they are happy, well-adjusted people, will continue to be happy, well-adjusted people, whichever home they move into.

I'll admit to a bias here. We lived in Miami, Florida when Hurricane Andrew hit in 1992. Being less than half a mile from the water we got pretty much wiped out. Most of us give lip service about knowing that our "stuff" isn't really all that important. I got the chance to test that theory!

So, do your homework. Research the home and the neighborhood. Make absolutely sure you're comfortable with how much you're spending on the house. Then, listen to your gut, work with your family to get buy in and move confidently forward.

A year from now, whichever house you chose, your chances of living happily ever after are pretty good!

Summer Price Spikes

Slate has a great new piece explaining why housing prices are higher in the summer.

Just the thing to make those buyers just getting ready to buy now feel good about waiting!

Buyers: Get Your Money!

I've got a lot more information for those of you who are either contemplating buying your first house, or who recently bought one. This tax credit is retroactive back to April 9th of this year!

If you've got additional questions on any of this, please get in touch!

• The amount of the federal tax credit is for 10% of the cost of the home, up to a maximum credit of $7,500. In essence, this is an interest-free loan that enables consumers to receive a tax credit on a dollar-for-dollar basis on their personal income tax return in the calendar year following the year of closing on their home. They begin paying the tax credit back the year after that and make equal installments during the next 15 years. If the homeowner sells the home at any point during the 15-year payback period, then the remaining amount is recaptured, unless they sell the home at a loss, at which point the balance is forgiven.
  • e.g., If a home costs $65,000, the allowable credit would be $6,500. If a home costs $120,000, then the allowable credit would be $7,500.
• Eligibility is for first-time homebuyers only. In this case, a first-time homebuyer is defined as an individual who has not owned a primary home at any time during the past three years, but who may have done so previously. Although certain income limits do apply, the amount of the credit is the same for all taxpayers, married or single.
• Individuals whose Form 1040 filing status is single (or head of household) are eligible for the tax credit if their income is no more than $75,000. Individuals who file a joint return may have no more than $150,000 in income.
• Individuals with incomes between $75,001 and $94,999 (single) or $150,001 and $169,999 (joint returns) are eligible for a partial tax credit.
• Individuals with incomes greater than $95,000 (single) or $170,000 (joint return) are not eligible for this tax credit.
• The federal income credit can be claimed on one’s individual or joint tax return for the purchase of any single-family home between April 9, 2008 through July 1, 2009. Individuals should consult a professional tax advisor for exact tax calculations.
  • e.g., If an individual’s actual tax liability was $5,000, then after the tax credit is applied the purchaser would receive a total refund of $2,500. The refundable amount is the difference between the $7,500 tax credit and the amount of one’s tax liability.
  • e.g., If an individual’s actual tax refund was $2,000, then after the tax credit is applied the purchaser would receive a total refund of $9,500.
• This tax credit is required to be repaid without interest in equal installments of 6.67% of the total credit each year for 15 years beginning the year after the tax credit is claimed.
  • e.g., If a homebuyer claims the $7,500 credit in 2009 on their federal income tax return for a closing that occurred in 2008, then the credit is received in 2009, so repayment begins in 2010 with an annual repayment amount of approximately $500 a year.

Buyer's Window

Buyers for years now have been taking advantage of downpayment assistance programs such as Nehemiah. These programs help provide up to 6% in funds that go towards the downpayment on a home purchase. These are classified as a gift and these programs can be used with FHA mortgages.

But the default rates on mortgages going through these programs has been much higher than that for other loans. So, beginning October 1st these programs will essentially cease to exist.

But for the next few weeks there is a window of opportunity here. If you're a buyer looking for help with a downpayment and don't have family or other assets to tap, look into this program. But do it now! There must be a case number assigned by the end of September in order for you to take advantage of these programs.

The other current buyer benefit that's out there now is a current quirk with VA loans. While the guidelines providing the loan limits on jumbo loans have come out, the interest rates have not. So currently those jumbo mortgages are being financed at the same interest rate as, say a mortgage on a $350K house. This is only with VA loans and this will disappear quickly. So, if you're eligible for a VA loan and know that the home you want to buy will put you in the Jumbo market I'd move quickly on this one.

Buyers Never Say...

I wish I'd bought a house on a busier street.

I wish I hadn't wasted my money on a home inspection.

I wish my commute was a little longer.

It was such a waste of time test driving the commute ahead of time.

I'm so glad I didn't worry about resale when I bought this house.

I so wish I'd bought more house than I could afford.

Using the seller's agent and having no representation was definitely a good move.

I'd just as soon not see photos on listings on the internet.

I wish I hadn't saved up so much money for the down payment.

I love that heavy metal rock band that practices in the garage next door.

Home Warranties More Important

Given that the bulk of sales in our area are either short sales or foreclosures, home warranties are becoming increasingly important.

Most short sales and foreclosures are sold "as is" meaning that the owner is not willing to repair any defects in the property. So, if the refrigerator doesn't work, too bad.

These are the properties buyers are snapping up and they're getting excellent deals. But it's a higher risk transaction and home warranties are one way to take away a little bit of that risk.

There are a couple of things to keep in mind if the seller is buying the home warranty, an increasingly common occurrence in this market.

Home warranties typically have basic coverage with options available for additional coverage. The additional coverage can cover things such as the roof, well and septic, swimming pools, etc. Depending on the property you're buying, it may make sense to consider purchasing the additional coverage yourself.

If the seller buys the basic coverage, most companies will allow the buyer 30 days to add additional coverage. Note that this is not meant to allow you to find problems and then buy insurance retroactively to cover them! So, the best way to do this is really at the settlement table.

When you're buying foreclosures or short sales, you should really have a home inspection before making an offer. But if you don't, a home warranty can be a very good investment!

For more information, check out my previous blog post on this subject.