Continuing to examine and hold a lively discussion of the Northern Virginia Real Estate market.
Please post your local house search updates, MLS finds, on-topic ideas, and links here.
No one wants to comment on my FHA plan? I thought it was brilliant!
VA-I just read it, I totally agree. Unless you are extremely confident you will have your house paid off or close to paid off it is probably a good idea to go with an FHA loan. It obviously is a little more expensive (about 1 point and 1/8th of a percent), but if you are planning on selling your house in 5ish years your loan terms could be worth far more.
housebuyer,I'd take out the max loan (3.5% down). You want the highest amount possible for assumption. This would also take care of anyone's opportunity cost issues.I saw this in person in the throughout the 80's. VA was the same - don't know about now.p.s. I would put that number, 5 yrs, out to 10.
Va_investor,It's a great interest rate hedge. Given that I think it's foolish to put down more money than you have to in this interest rate environment anyway, it serves dual purposes.I'm not going to do it because I plan on living there long enough that the lower rate and payments for me is more important than the interest rate hedge, but it's a great plan, particularly for starter homes. (by that, I mean starter along the lines of what va_investor calls starter homes, things that a 25 year old could afford and find appropriate but will grow out of in 5-7 years)
Posted by someone else in yesterday's bucket but deserves repeating: NY Times Congress Poised to Keep Homebuyers’ Tax Credit The Senate might pass its version as early as Wednesday, and aides to Congressional leaders say the House could accept it this week, sending the bill to President Obama to sign into law. After weeks of partisan delay in the Senate, Democrats are eager to show progress before Friday, when the October jobless report is again expected to show high unemployment.
does this Arlington home fall in the category of 'McMansion'? either way the price (not the value) sure has fallen like the ones in the burbs.SALES DATE SALES PRICE 11/2/2009 $1,039,0007/17/2006 $1,322,000 *09 tax $1,341,800 another 'bubble mansion' in the same development was just re-listed at $1,199,000. (sold on7/17/2006 for $1,478,701.)incidentally, both homes were listed in MLS one year after the purchases (in '07) but didn't sell. and both came back on the market earlier this year, then finally got aggressive with price drops.these owners supposedly are wealthy people with equity (one is an RE agent) so these shouldn't be distressed sales. is the bubble fallout finally moving up in parts of Arlington?
Cara,I think it would be a good plan for anyone worried about a job transfer or other "need to sell" situation. It benefits others as well as people who "plan" to move in 5-7yrs.Plus, I believe rates are surely to rise and I'd get all the 5 or 6% money I could. I'd rather take a slightly higher rate and keep the cash available for other purposes.
Va_investor,It does do that too.It's funny though, everyone chooses their own risks and hedging mechanisms. Mine is that if we "have to move" I recognize we won't get all of our downpayment back, and might lose most of it. Since I can live/sleep at night with that risk easier than I can trade down for what I'd get at a lower price point, or sleep at night with a higher cash-flow payment, this is the risk I choose to make.However, since we haven't identified a property yet, and thus it's all theoretical, I'm keeping all these plans as alternates in the back of my head and which one we'll do will depend on the actual contract price of whatever we end up buying. So my objection is only on my hypothetical target house. If we end up finding something closer to $280k or below, then the FHA plan starts to be a lot more attractive, because we don't need the 20% down to make the monthly payment comfortable.
Cara,If you had that 20% in the bank, I would think you could sleep at night.But...different strokes...
VA_Investor, I too thought it was brilliant.Do you know what the limits are on property value of houses for which they will issue mortgages? Years ago, FHA mortgage limits (rather than house values) were very low - I know those have been increased but wondered if there is also a limit on the house value or other limits, such as on incomes of borrowers, etc.Also, back in the day, buyers were discouraged from using FHA because approval took a long time and if there was even a broken window the FHA often insisted that it be fixed before approving the loan. So the hassle factor was so high sellers weren't interested in buyers who went FHA, etc. But maybe all that's changed.
Va_investor,Yes, that 16.5% in the bank could tide us over if the payment ever became uncomfortable for any reason. And/or it would be there to cover any shortfall if we needed to sell while technically underwater. The stumbling block is selling my husband on buying something with a $350k mortgage. I just can't see that happening. I'm already the driving force behind the home search, I can't also push him into a mortgage size he's uncomfortable with.You're seeing the more spendthrift and risk-taking half of the couple here, believe it or not.But as I said, I'll keep mulling it over.
Ace,Yes, Va_investor's plan makes much more sense for the $420k and below properties than it does for the current $700k limit, that will eventually expire (one assumes...).(I'm pretty sure there's just a loan size limit not an income limit, but for all I know that could be a state by state thing).
Va_Investor, Well, I happen to think it is brilliant because I'm planning on buying VA with 5% down. I'd have to pay 3% closing costs anyway because I'm reusing my VA. eligibilty. I decided this for 2 reasons, I expect interest rates to rise and I know an assumeable loan with a low interest rate makes you sellable. The other or flip side of the coin is appraisals. I know 5% down will get me a fairly good fair market appraisal and going conventional 80/20 not so reilable because if you are putting 20% of your own money in the pot then its easier to appraise higher.
There is no income limit and I'd go the 700K (assuming assumptions would be grandfathered if the limit is taken down).
Ace,Many originations are currently FHA and if the Market for 400K-700K is as slow as people are saying, I doubt many seller's would balk.
That's a really interesting question, would assumptions be grandfathered? Under the normal level of FHA limit fluctuations (where they reset them based on median house price in a given region) it's reasonable to assume that assumptions would be grandfathered, so that's probably the policy. But will it also hold true in this unprecedented case of temporarily vastly expanded limits?Again, one would hope so, because otherwise they really are setting themselves up for a massive number of failures when people who are buying today start moving.Hmmm, basing decisions on the assumption of common sense and self-preservation from a government entity.... I don't think I'm old enough to know whether that's a good idea or not.
Thanks, Cara and VI, I am also interested in the maximum house value limit, if any (i.e., if more than the minimum down payment is made, is there an upper limit on house value, not just one on mortgage value). Let's say you wanted to put down $300K on a $900K house and get an FHA mortgage for $600K. It's clearly under the current mortgage limit but does FHA rule it out because the $900K over some maximum? Haven't found anything by googling so far.
Ace,I'm pretty sure it's a mortgage limit not a purchase price limit. I'd go to the HUD page if I were you.
Cara,I'd like to read the loan docs; particularly the Note and Trust. These are binding legal contracts and cannot be unilaterally modified.Ace,No limit on House price.
VaIndeed, those will contain the conditions for assumability. So what we need to find is someone who's bought a property with an over say 500k FHA loan and read their docs....(unless I'm totally wrong about how early in the process one gets the full loan docs).
Thanks, C & VI.
Cara,Contact your lender and have them EM you blank FHA docs.
i'm voting that these were spec built or specuvestors who have been holding them since completion.they built them at $150/SQFT andwere hoping to sell them at $300/SQFTnow it's just dragging out and the specuvestors are getting nervous.perhaps they had 2/28 financing thatrecast and the burn rate is getting tough, perhaps they are worried the property is getting stale.but Immunington is bound by the laws of physics.
for those following along at home in my house hunt, going to see three more tonight. Just me this time, hubby's getting worn out (and can't leave work as early as I can). If I like one enough to make an offer, but without enough confidence to do so without him seeing it, I'll make him come look. Nothing really exciting, other than that two out of 3 are long term owners who should have an equity cushion, and that are in neighborhoods where the solds have been all over the board, so the list price is just a wild guess, and one is an REO, that someone else will probably out bid us for if we were to bid...
MM, could be. I think that one added factor is that those designs are really out of favor with today's buyers. They look like 1980s style houses from the exterior as do some parts of the interior. Taste is subjective but I am suggesting this because nearly all of the house with that style in Arl. and Alex. seem to be facing the same fate. The au courant ones (Craftsman style) in that size and price range seem to be selling more briskly, for higher prices (but are not doing as well as the sellers want).So I am not sure how much it says about price drops in general in that price range.
good luck, Cara
My agent, Jeff Royce, sent me this YouTube video on buying a bank owned home. It's hilarious:How to buy a bank-owned home
Va_Investor,The only problem I see with your plan is buyers might skip the home because they might set their upper home price limit based on the prevailing mortgage rate. Unless a lot of people do FHA loan assumptions like you it's not something the average buyer will consider.If in five years the mortgage interest rate is 7% then a buyer might say I can only afford homes up to $400,000. And if your home is listed for $450,000 they might not even look at it even though the monthly payment is lower on a $450k home with 5% interest than a $400k home with 7% interest.
TBW-In this case you might have your agent list the house at 400K, and than in the description say something like it is actually listed at 450K, but it is a loan assumption at 5% making payments similar to a 400K loan.
MM,I think pat is right that these houses have never sold. Take the first one (almost as ugly as that Falls Church house with crazy windows). Tax records list the owner as a Sharif Shafik. If you google his name this comes up. Mr. Shafik (and a business partner presumably) was asking to subdivide two homes in the City of Alexandria -- presumably to create a new mini-subdivision.My guess is this Shafik guy has a bunch of homes in tear down/remodel communities.The second home links to three tax records. One was sold and two were not. I don't understand why there would three tax records for one address. Unclear if that one was sold either.
housebuyer,Yes, that's a possibility. One would have to make sure that's not seen as unethical for a realtor to do or against MLS rules or whatever. The only other issue is Va_Investor would be eliminating investors (who would pay cash or some pretty substantial amount of money) and anyone planning on doing a 15 year loan or a 30 year loan but figures the odds are high they'll pay it off more quickly. They'll want the comp price of $400k as the loan terms will not have as much appeal for them.
tbw, VADoes the loan assumption require a re-appraisal? I don't think it does.tbw,Hmmm, limiting yourself to 85% of the market. Scary. :)
In the 80's these listings were screaming ASSUMPTION!!!! I think it might end up being the same. All the agents were totally clued in.Cara,Just heard one of my shorts is approved. Comps are much higher (for now, anyway). The contract was written in April!
Va_investor,Sweet, congrats!! (I assume when you say approved you mean approved at your contract price, or near enough thereto that you don't care).
Va_Investor, these are younguns..they don't have our memories. Yep, we both know because we have experience it, lived thru it.
I'm not looking for another schools discussion. Just noting for anyone who is interested that they did a feature in the Style section about the heroin ring at Westfield High School, which is something HayfieldGrad has brought up a lot.Here is apparently how it began:The ring had its beginnings in 2005, when 17-year-old Kevin Zuiker made a connection on a drug forum Web site to a young red-haired guy in Alexandria who dealt heroin. Then Zuiker and his friends started going to his source in D.C., a dealer named Antonio Harper, known on the streets as "T." A few of the students quickly climbed to the top of the ring's hierarchy: David Schreider and Joshua Quick became primary distributors in Centreville. Both applied a business savvy to their dealing, establishing competitive pricing and recruiting new customers.
Cara,At contract price. This is my 3rd at contract price.
Cara saidHmmm, limiting yourself to 85% of the market. Scary. :)I didn't say it was a huge issue. This reminds me though of the recent Calculated Risk posting about how many FHA buyers and investors (defined as those who buy a home and have the property tax bill sent to another addresss) are in Miami, Vegas, and Phoenix. I wondered what percentage of investors you have in a normal market. I also wonder what the FHA/investor numbers are in the DC area but I don't think they are tracking that data.
va_investor,Sweet. Good to hear that the fluff in the late summer/fall market didn't screw this up for you. Now if I could just find a short that I liked enough to make this kind of open-ended commitment to...Nah, for now anyway, I'm sticking with things that can transact in a normal timeframe.I suspect that IF more real sellers enter the market, shorts will become the exclusive purvue of flippers and LLs who are less concerned about the timing of the purchase.
Nothing new in latest FOMC statement. So I was 2/3 on those predictions (right about Dow hitting 10k during October and no change to Fed Funds but looks like I'm probably wrong that they would not extend the housebuyer credit -- but at least it's a six month extension instead of another year and Isakson (although probably bluffing) has said this is the last extension.)
Hmm, cut the tax credit out right in the middle of the beginning of the selling season. I'll believe it when I see it.
Cara,If you have a 3 day kick-out on your short, why would you care? You really aren't being tied-up. I'm quite sure that they wouldn't even hold you to the 3 days given the HOA absolute out.I looked at an reo a little while ago. I'm going to take a run at it as a flip. I know there will be a bidding war, but if I can get it for my number I'll take it.I can't see any benefit to going for a regular sale unless the mark-up makes sense.
Cara,I think that was their exact design. If you are going to end the tax credit they figure it's less disruptive during the hottest time of the year (April) for home sales then the weakest time (Nov/Dec).
Cara,This is the third housebuyer credit. First the $7500 credit you had to pay back, the $8k one, and now this one (with the new $6500 five year move-up to a home no more than $800k). If they have a fourth round and can't let it expire in the spring selling season then I would expect it to have become a permanent part of our tax code like the DC first time homebuyer tax credit.
Va_investor,Well, you have to get past that initial period of 30-45 days where you don't have the 3 day kick-out clause. Which, for me, is a lot of commitment, now that we finally have amassed our full DP.It is indeed all about finding the right short. One which hasn't been so adversely effected by years of neglect due to an owner who couldn't actually afford the house, such that the short sale discount covers more than the postponed maintanence to get it up to the condition of the real sales. In my neck of the woods, the good shorts like that right now are in the SFH category and are priced such that we don't necessarily have the cash to bring them back to snuff. But we'll keep our eyes out.
tbw,Less disruptive in the hottest time of the year? Hmmm, yeah, way less disruptive when everyone (of the non-contrarians) who wants to buy at all in 2010 tries to fit that into Jan-April. Yeah. Right.There will always be a new rationale for why any given time is the wrong time. The question really is, can Congress and their constiuents stomach the continuing cost. That's what I liked about the phase out, it showed a more concrete willingness to let it end.
I thought that Spring would be fairly good (Hot in the low end) without the 8K. Things under 300K will be crazy. Mini bubble on the low-end or over-correction? What is the general consensus?
Va-investor,The curve ball is the step-up buyer $6,500. Kevin thinks this means everyone who is thinking of selling in 2010 or 2011 will all list in January. I think that for the sub$300k market the impact of the $8k will recede as the majority of buyers who could be incentivized by it have already bought. But increasing the income limits and adding in the step-up credit muddies the picture considerably.One thing I definitely think will happen is that there will be more contracts in January to April than there would have been otherwise. How many more? I'm guessing as much as 50% more, or double the 2009 numbers. Price-wise? No idea. I hope that Kevin's right, but I worry that there's a subtlety that will make his expected price declines not materialize.Two possible subtleties (1) the continuing 5% interest rates that make current prices do-able, (2) that the step-up buyers will be less motivated by the $6.5k than the first timers were by $8k (3) that regardless of numbers of listings, sellers who are willing to sell for less will continue to be few and far between, such that the inventory of well-priced homes remains small.
re: TBW's comments on the downside of the FHA planI'm having a lot of "duh" moments this week, so please pardon me if this is merely another one. I don't see how going FHA would change the scenario that you describe. For example, assume you buy a house now for $400K and take an assumable FHA loan, and interest rates go up and prices go down over the next five years. I now want to buy your house, and other houses like yours are now going for $350K. I may only offer you $350K, but certainly that is all I would offer you if you had NOT gone FHA (since I can't assume your loan). There is a chance I might offer you more because of the financing. So I can see only how you could be potentially better off, and don't see how you could be potentially worse off, to go FHA (other than if the terms of the loan are worse than for other loans now). But maybe your point is that going FHA is no guarantee against losing money. If so I agree. It's just that it provides you with the potential for stemming the loss.And VI and Arkey, count me with you Oldies but Goodies. I remember the 80s (fondly for the music, not so fondly for the interest rates). Assumable mortgages were very definitely a selling point for many buyers.
Cara,As George W Bush said: "fool me once, shame on — shame on you. Fool me — you can't get fooled again."It sounds like you are predicting next spring they pass a *fourth* housing credit bill. Everyone I know who bought this year admitted the $8k was a major factor and their belief that it would not be extended. There is going to be some stimulative effect to this credit with the new $6500 move-up buyer credit and probably still some stimulative effect from extending the $8k another six years. I'm willing to give them the benefit of the doubt that it ends next spring.If they pass a fourth housing credit bill next spring then I don't know who is going to be foolish enough to believe they are ever ending it. Even Senator Isakson understands this and said there has to be an end or else people will not feel any pressure to beat a deadline for the credit. If they extend it again next spring I don't know who really starts worrying about whether to buy in 2010 vs. 2011 because of the tax credit. At some point the stimulative effect of the credit goes and it just becomes yet another permanent part of the tax code for homeowners that becomes priced into the system and will be there for you in 2010 or 2015 (just like the mortgage interest deduction).
Ace,Interesting, interesting. For those of us who were little kids in the 1980s this is news to me. I think this partially answers the mystery of why prices did not crumble in the 1980s from sky high mortgage rates. From googling it appears in the 70s and 80s *most* mortgages could be assumed, not just FHA and VA. And since mortgage companies felt screwed by this they started inserting requirements that mortgages be paid in full at the sale of a house.The benefit to buyer and seller from assuming an old loan comes at the expense of the lender. Instead of having the 5.5% loan repaid, which would allow the lender to convert it into a new 7% loan, the 5.5% loan stays on the books. Back in the 70s and 80s, lenders couldn’t do anything about this. Mortgage notes at that time did not prohibit assumptions, and the courts ruled that lenders could not prevent them.Following that experience, however, lenders have inserted due-on-sale clauses in their notes. (An exception is FHA and VA mortgages, which do not contain these clauses, see below). These stipulate that if the property is sold, the loan must be repaid. Even with a due-on-sale clause, the lender may allow an assumption -- keeping the loan on the books avoids the cost of making a new loan – but the interest rate will be raised to the current market rate. ArticleSeeing as mortgage rates have been going down since mortgage companies got rid of assumption for conventional loans, we've never seen a situation (other than perhaps 2006-07) where interest rates went up while we had mostly unassumable mortgages. Hence IT'S DIFFERENT THIS TIME. ;) ;) I had no idea assumable mortgages were common in the 80s. This makes me more of a bear.And I think Va_Investor is definitely on to something here. Given the strong likelihood of higher rates over the next few years, it's definitely in your best interest (if you buy this year) to get an FHA Loan to minimize potential losses from higher mortgage rates in a few years.
Arkey,Are there some benefits to you with the VA Loan as opposed to the FHA Loan? If so then I can see why you might do a VA Loan. But the downside of the VA Loan is I think the only people who can assume it are veterans. So that limits the selling feature of the assumption.Although if wherever you are moving in Arkansas is military/veteran heavy then that might be a non-issue, particularly if there is some advantage to the VA Loan over the FHA Loan.Although I'm not sure I follow why you are getting a new mortgage in retirement. Can't you buy a home in Arkansas all cash in light with the money you'll get from a lifetime of living and working in the DC area? Why have a mortgage in retirement?
I have to wonder why the federal government is not forcing banks to make conventional mortgages assumable again. It's the best way to extend the current ridiculously low mortgage rates. Sure it's a bad deal for banks but is it worse to banks than foreclosures that will come if mortgage rates zoom up over the next five years?
Va_Investor, Arkey,My parents purchased 3 homes through assumptions in 1977,1979, and 1982. The last mortgage assumption was a VA loan. The couple that owned the house were divorcing and needed to sell. That was the only way my parents could buy a home with those sky-high interest rates.
Cara said..."The curve ball is the step-up buyer $6,500. Kevin thinks this means everyone who is thinking of selling in 2010 or 2011 will all list in January. "Not everyone, but it will have a significant impact, just like the last credit had to buyers. You don't have to get 100% of the potential move-ups to go for the bribe. Just 10 or 20 percent will do it.
Kevin,The move-up $6,500 means squat to people in homes over 350K or 400K. Could the intent be to free up some of the low-end by having these people move up into the lower-mid range?
VA Investor,I agree with that. In these markets, if you're looking at a $400k plus property, $6,500 or $8,000 is not a deal maker or breaker when it comes to buying/selling. At best it moves up your time line to be ready to buy or sell by a month or two. For example, like someone in Cara's position.I just don't see these tax credits impacting the upper middle to higher end markets that significantly.My $0.02
Logically the $8k or $6.5k should not make a difference when you calculate how little off that is. But many homebuyers are very emotional creatures and do not think about everything as one might assume a rational buyer would. Anecdotally, in various articles, many realtors and mortgage brokers have noted people are like FREE MONEY!!!!!! and rushed to buy to get that $8k. I can't find the article but a mortgage broker noted it was odd his client was going nuts over $8k on what was likely the largest purchase in her life.I agree that the higher up the home's price the more muted the effect of the credit. But I don't think it's a non-player until you hit $800k or above where the law says you can't claim it.
I don't think the $6.5k will add much inventory though for people hoping to move-up. Ultimately most people are not moving up without selling their current home and getting that money.If they wanted to grease the move-up market they would have restricted the $8k credits to if you bought a non-foreclosed/non-short sale home (since those sales do not result in a move-up buyer). But the federal gov't is mostly worried about saving the banks.
If they want to grease the move up market here, they have to remove the income limitations, particularly for singles - no way a single earning $125K can afford what is considered a move up place here without a huge down payment. And the vast majority of single buyers do NOT buy with other single buyers (buying with someone to whom you aren't married is generally not a good idea IMHO, other than obviously for gay couples not permitted to marry), so there aren't two incomes.The $6500 may help some move up *sellers* here, in that if you own a property that is in a price range that is on the high end for first time buyers (e.g., $600K), you may now have more potential buyers (those who currently own a $250K condo, for example) who can get the credit. If this credit makes it easier for the $600K homeowner to sell for the price s/he wants, then s/he may then be able to move, even though s/he may be ineligible for the credit on the new place, due to income limitations.Of course these conditions are unique to high priced metro areas like this one. The credit will likely have more effect in most other places.
Talking to my realtor last night, in more houses we're not going to buy...His take is that the 6,500 may not seem like much, but for those sellers who are on the borderline of having to bring money to the table to sell, this will be the tipping point emotionally that lets them move-up to a new house. I say that given the 5 year time-line puts us in 2004, there could be a significant fraction of 2002-2004 buyers who will want to take advantage of this to lubricate their step-up. This will add even more inventory to the condo market with no additional demand to speak of, will provide both sellers and buyers of THs and small SFHs, and will provide buyers for the move-up market primarily somewhere in the $400-$700k range.As I said, more transactions. It may crush condos in non-condo places (i.e. not on the Potomac Arlington or Alex or on the Orange Line or Dupont, whatever). It will be "interesting" for the in-between market that's starters for some and move-up for others, and it could be nasty (in that it tightens the market and firms up prices) for the move-up market. The mini-bubble we've seen in the sub-300 category may shift to a new mini-bubble in the over 400 category, I'm hoping it's at worst a wash for the 300-400 category I'm in. :)tbw,absolute agreement from me on the (lack of) effectiveness of a 4th round.
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