Loudoun Real Estate Blog

The Housing and Economic Recovery Act of 2008 authorizes a $7,500 tax credit for qualified first-time home buyers purchasing homes on or after April 9, 2008 and before July 1, 2009. This is a great opportunity for first-time home buyers. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. The home buyer is required to repay the credit to the government without interest over 15 years or whenever they sell the house. First-time home buyer is defined in the law as a buyer who has not owned a principal residence during the three-year period prior to the purchase. There are income limitations but even so those buyers would be eligible for partial tax credits. All buyers are encouraged to consult a qualified tax advisor or legal professional to fully understand the benefits and limitations.

Washington, D.C. metro area, Arlington and Alexandria recently made the top ten list in Forbes.com’s “Best Places To Buy Foreclosed Homes” published on March 19, 2008. Their goal was to identifiy markets where there were hints of stabilization and that properties in foreclosure may be a good investment. To compile the list, they took the country’s 100 largest metro areas and ranked them by annual foreclosure rate. Only cities on Forbes’ best places list, which measures criteria such as quality of life and the local economy were considered. Then they compared how real estate prices have moved since 2006 and compared the spread between median prices and foreclosure prices. The Washington, D.C. metro area and suburbs was ranked #10 with a Median home price of $366,583, Foreclosure savings of $56,858, Foreclosure rate of 1.16% and a Price change from 2006-2007 of 0.77%. To see the complete article click here.

I attended a seminar sponsored by Countrywide Mortgage on Tuesday May 6th at the Crowne Plaza in Tysons Corner, Virginia which featured Tom Fiddler, an expert in the real estate industry. It definitely put the current real estate market in perspective. He gave some background about the bond ratings of mortgages, etc. but more importantly emphasized that we need to "celebrate affordability" and I couldn’t agree more. Home prices are down and household income is still up. The final piece of the puzzle is interest rates-which are still so low. It is one of the most affordable times to buy a home nationwide in two decades! Obviously, at some point, probably after the election, interest rates will have to rise.

Mr. Fiddler also emphasized using FHA to the fullest. Not only do FHA loans typically end up being cheaper than conventional loans right now, if home prices were to stay flat or even go lower and interest rates go higher, the sellers who have FHA loans will be in a much better selling position because of the assumability of FHA loans. Tom Fiddler was an excellent speaker and I highly recommend seeing a seminar if you have an opportunity.

Some good news from Martin Crutsinger, an AP Economics Writer, reported this afternoon that sales of existing homes in February nationwide increased after six months of decline. Most experts and economists said it is too early to tell if the decline in the housing market is coming to an end.

There were actually some positive signs in the real estate market at the national level lately. New mortgage applications jumped up in the beginning of March for the first time in more than a month according to the Mortgage Bankers Assocation. Also, the pending home sale index didn’t decline in February as many predicted. It stayed flat. Finally, the Federal Reserve is keeping short term interest rates low. Could this mean real estate conditions are improving? I will keep you posted.

As we had heard through the rumor mill, Fannie Mae has now increased the conforming loan limit in our high cost area to $729,750.  This gives people increadible buying power and we are looking forward to seeing how this affects sales for the rest of the year.  There are some resitrictions, which you can view in Fannie Mae Conforming Loan Limit Announcment and Details pdf file.  The changes go into efftect April 1st 2008 for fixed rate loans and May 1st 2008 for adjustable rate loans.  We have heard some lenders will allow the limit changes earlier, but you need to verify with your loan officer.

Jennifer Moist with First Horizon Home Loans has just updated us that the U.S. Dept of Housing and Urban Development has informed lenders of the new changes to FHA loans.  This is a huge opportunity to move some buyers into homes and/or provide some alternatives to Sellers who have had homes on the market for an extended period.  Also the rumor is that the jumbo loan limit is going to be raised to $729,750 as well and some speculate that HUD decided to go to the same limit.  We will know more about the jumbo limit within the next week.

HERE IS WHY FHA LOANS ARE GREAT:

• There is currently no minimum credit score requirement (although guideline is 580+)
• There is only a 3% downpayment requirement (which you can negotiate for the Seller to pay on the buyer’s behalf via a Seller Funded Downpayment Assistance program such as Nehemiah or AmeriDream–explanation of this attached)
• Seller concessions of up to 6% of the purchase price allowed (PLUS with First Horizon, we currently permit the Seller to contribute another 3-4% towards downpayment assistance for a total of 10% in allowable contributions)–most other lenders include the Seller Funded Downpayment Assistance contribution as part of the maximum 6% concession
• NO INCOME RESTRICTIONS FOR BUYERS
• NOT RESTRICTED TO FIRST TIME HOMEBUYERS, AND NO LIMIT TO HOW MANY PROPERTIES BORROWER CAN OWN SIMULTANEOUSLY
• Current 30 year fixed rate of 6%, or a 3 year ARM at only 5%!!!
• If the Seller isn’t willing to fund the downpayment, the Buyer can receive the entire downpayment as a gift from an immediately family member
• No reserves required

There are other changes coming due with the FHA program, including the prospect of reducing the downpayment required to only 1.5%!!!  This may be in conjunction with tiered pricing adjustments for credit scores/loan amounts, but the exact guidelines for such have not yet been released.  I’ll keep you posted of developments and news as the information becomes available.  It is expected the anticipated changes on Conventional loans will be released tomorrow as well, so I’ll be providing you the information on that too as soon as we get it!

Things to be cautious about concerning FHA:  condominium projects must be FHA approved, and there are not a lot in Loudoun county that are.  Also, there are two forms of mortgage insurance on FHA loans:  an upfront premium that is financed into the loan (so it only marginally affects the monthly payment) PLUS a monthly premium (which is roughly half of what it would be on a conventional loan, so it isn’t a big deal.  Plus the monthly premium can be eliminated once the balance of the mortgage reaches 78% of the initial loan amount (at this time, they won’t allow a new appraisal to eliminate the PMI).  The Borrower must keep the monthly PMI a minimum of 5 years.  However the Borrower can refinance the loan within 6 months of purchase if they qualify and have established enough equity at that point (i.e. they put an addition on the home or the market turns and home starts appreciating, or if they pay a lump sum down on the principal balance). FHA loans must be used for primary residence purchases.  Lastly, the new loan limits are only verified to be through December 31, 2008 at this time.  FHA may decide to extend them, but we won’t know that until a later date. 

Keep in mind these changes have just gone into affect, so many lenders will need to update their computer system and automated approval engines to incorporate the changes

A Wall Street Journal columnist talks about real estate returns compared to other investments like stocks, bonds, etc