Let’s talk about loans …

bookcover

O.K. maybe not loans, but I think everyone should have a short primer regarding how folks pay for a house.  It really doesn’t matter if it is a co-op, a condo, a town home or a single family home.  One of the basic rules of contract law includes the need for consideration. Consideration is just a fancy legal term for money. If you want to buy a house, you have to be able to produce the funds at settlement.

Now, if you happen to be loaded and can pay cash for the house, well you can either read through this for information, or you can check out another one of the articles I have written. For those of you that want to buy a home and don’t have cash on hand, this is for you.

For purposes of example, I will use a $500,000 purchase price. You and the seller have agreed on the price. Well now, wait a minute, let’s back up. You really should have an idea about all of this before you begin looking for a home.  The very first question you have to ask yourself after deciding you want to own a home of your own is how much can I pay for a home (keeping mindful that your comfort level should be dictated by what you can afford and not what you would like).

I am not a lender. I can only give you general advice in this area. Let’s make that specific advice. After reading this primer, talk to a bonafide lender! Then talk to another. Keep talking until you find one that you are comfortable with. They will provide the rock that your dreams of owning a home will be built upon. The lender will gather information about you and tell you what you can borrow.

The most basic loan is a conventional loan.  Lenders like this sort of loan because it requires that the borrower (you) contribute at least a 20% down payment.  In the example of a $500.000 purchase, you will be putting at least $100,000 down and the lender will provide the rest of the money. Each month you will make a payment that includes principal and interest.  If you do not have 20% down, you can receive a gift from parents or grandparents or anyone to make up the difference. You will need to provide the lender with proof that it is in fact a gift and not a loan. If you just don’t have the 20% down, you have other options.

The FHA guarantees loans. That just means that your lender will have insurance that some of the money you borrowed is guaranteed to be paid back. If you default, the insurance involved steps in. This guarantee allows lenders to loan money to people that don’t have the 20% down payment available. You still have to have at least 3.5% of the purchase price available, and there are limits on how much money you can borrow. The credit demands are a bit less restrictive. Oh, and you still go through the underwriting process. The FHA has rules about who can qualify and their criteria must be met. Every month you will have a payment that includes principal and interest and the mortgage insurance premium (yep, you have to pay the insurance. if you don’t like that, put 20% down).

Veterans have loan guarantees available to them as well. They can get a VA loan. This type of loan is from lenders but it is guaranteed by the Veteran’s Administration. Another feature of the VA loan is that you don’t have to have any money down. This sounds great, but the flip side is that you will have a higher mortgage and you will have  VA fee as well. The VA doesn’t lend the money. Just like the FHA, they guarantee a portion of the loan. That’s right, you pay the premium for the protection.

In some areas, the USDA guarantees loans. It is very similar to the VA in that, you don’t have to put any money down. Again, remember your loan amount will be higher and your payments will be higher as well. This is a great program if you are purchasing a home in an area where these loans are available.

Of course there are all sorts of hybrid loan types out there. There are terms that vary with lenders.

Things to know.  An ARM is an adjustable rate mortgage.  Simply put, the interest rate is fixed for a short term and then it can go up or down depending on the market. Usually, there is a cap on the interest rate (i.e. the highest amount the interest can be).  Lenders offer these loans at attractive rates. You should always consider what you can afford at the market rate today, that means the size mortgage you are comfortable paying at market rates.  Use the lower rate as a saving not a method to qualify for more home  (if variable rates are lower, borrow less and invest the saved money). NOTE: that is just my opinion. I really believe borrowing money, hoping that your income will go up when the rates go up is a fast track to foreclosure.

An interest only loan is another product some lenders offer. Not a bad deal for the lender. You move in. You pay interest on the loan until the interest only term runs out and then your payment shoots up like a rocket ship on rails. Oops. You can’t pay and the home goes into foreclosure. Interest only loans only have the interest of the lender at heart.

So it is not really confusing. There is a conventional loan and then there are other products available to those that do not have sufficient money saved to buy a home. Lots of people have used the FHA guaranteed loans and VA guaranteed loans and USDA supported loans. They are good loans. As a matter of fact, all loan products are good products if they are used by the right borrower.

Buying a home is a major step. I think it is wise to have some money set aside to invest in your purchase.  Of course, you may use a loan product that does not require that you put that money into the purchase of the home. Home ownership is not cheap. The money should be set aside for maintenance and upkeep. It will be your home after all.

If you have any questions, talk to your lender. If you are in the DC area and do not have a lender, I will provide you with a list of three names. You can call them all.

Once you have been pre-approved and are ready to begin the search, well, that”s my area of expertise. Once you are in my hands, I will review where you are with the lender, offer some advice about fine tuning the financing and then I will listen to you tell me a tale of your dreams and set out to assist you in making those dreams come true.

As always, I am only a phone call away…. 301-509-5111

The DC housing market … why is it so hot

Every recent market report seems to add the caveat that DC is an anomaly. Most markets are still attempting to recover from the 2006 crash. DC took a bit of a dip, but is roaring back. How can this be happening?  The economy is certainly not much better today than it has been for several years. Federal workers haven’t seen a raise in pay for a few years. If all economic indicators remain uncertain, why are homes in DC costing more every month?

The answer is as plain as day.  DC has jobs.  Very few places across the country can make the same claim. DC is a small 10 square mile area. There are only so many homes that will fit. Engineers and builders and architects can do a lot of things …. they can not create more dirt. Space is limited in DC. Put those two factors together and you have recipe for rising home prices (regardless of the economy).

This little chart covers the phenomena.  At the top, the various places new residents come from are depicted.  People moving to DC come from Universities (college dorms or off campus shared housing), their parent’s home, homes they own in other parts of the country or homes they rent elsewhere.  They want to live in or near DC and begin a search. Almost every last one of them jumps on the internet and begins their search there.  After all, there are hundreds of thousands of websites that share available homes in DC.  The majority of the people searching do not understand that the accuracy of the data is often outdated or limited at best.  For every single home/town home/row home/condo listed there is just one property. How that property is displayed has more to do with syndication by agents and brokers than it has to do with the actual property. (A word to the wise: If you want to be more successful in your search, contact an agent in the area. Talk to someone that knows more about the area than can be revealed in wikipedia or some local towns site. Boots on the ground, an ability to listen and then share information is the best way to discover DC (or any other area for that matter).

housing flow chart

As always, DC has more people wanting to live here than there are places to live.  More buyers than available homes creates an imbalance and that old supply and demand process takes over.  Multiple bids appear, prices continue to rise and the market remains “hot”.  Regardless of promises that might be made by some, the truth is you may not find a home you are seeking for the price you are willing or able to pay.  I certainly would never guarantee that home prices will continue to rise, but I promise you that I can see nothing in the marketplace that will slow down the DC market in the near or distant future.

If you are considering a move to DC, you need factually based assistance.  You need to begin the process now, rather than later. You need to begin putting together a comprehensive home buying plan today.  Remember, a comprehensive plan begins with a discussion with a lender. Know what you can comfortably afford. Then, and only then, take the next step. Contact an agent that knows DC. Speak with someone that knows the difference between Adams Morgan and Madame’s Organ. Have a conversation with some one that understands the difference between Petworth and what is a pet worth, the difference between NOMA and no mas or the difference between the Capitol and Capitol Hill.  Subtle differences of a few blocks can add 30 minutes to an hour or more to your commute each day. A map of the subway (Metorail Line) does not include information regarding ease of use or ease of transfer.  A google map of DC will not reveal the walking score of a neighborhood.

DC is my town. I was born here. I know the neighborhoods. I know the Metro stops. I know the nightlife. This is a great place to live. Before you move here and decide on an address, don’t you think we might need to talk.  My phone number is 301-509-5111.

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The hardest call to make

phone call

The hardest call to make in real estate involves letting a client know that they did not get the house.  The other call is the one you see in advertisements. People on one end of the phone excitedly listening to their agent tell them “you got the house”, followed by shouts of joy and jubilation. Yeah, that is the easy call to make. The other end of the spectrum is the sorrow and frustration felt by clients that receive the call “the sellers decided to go with another offer”.

No one wants to be the bearer of bad news.  Some agents avoid making the call to the buyer’s agent because they don’t want to deal with questions. Some realtors avoid any confrontation and send a crisp email stating that their clients chose the other offer. Some even include platitudes about how it was a close call, but the sellers chose the other offer. Eventually, in multiple bid situations, one person will receive a call resulting in joy and everyone else will be left to share the bad news with their clients.

It is the hardest call to make. Cynics will share that the agent representing the people that were not chosen are only unhappy because they are missing a paycheck. Truth be told, it is only human nature to feel a bit let down when your clients are not chosen. It is not greedy to look forward to earning an income for doing your job. Sure, it is a bump in the road, but the difficulty in making the call has absolutely nothing to do with your income.

People have put their ability to buy a home in your hands. You have guided them through the process. You have used your negotiation skills and knowledge of how to write an attractive offer.  You have held their hand as they have put the best offer on the table. You have carried their dreams to the listing agent.

You receive the call (hopefully) or maybe the email (distastefully) or maybe you see the status change in the MLS without any notification (just cowardly and mean spirited) and you have to gather your wits about you and pick up the phone and make the call. Try as you might, the tone of your voice shares the bad news before the words can form in your mouth. You have to let them know.  Sure, you share that they put their best offer on the table. You encourage them. You tell them that “if it were meant to be, it would have happened”, “the right house for you is still out there” and you want to bang your head against the wall because you know how badly they feel.

We are not automatons. We do get emotionally invested. Our goal is to find the right home. Our goal is to guide them smoothly into the home they choose. At this point, we are way past the ciphering stage. At this point, we are way past what can be and what can not be afforded.  When you reach the point of writing an offer, you are at the end game stage.

This was the home they could afford. This was the home they wanted. This was the one.

The hardest call to make is letting them know that someone else just bought “their” house.

Tomorrow is another day. Tonight, you will feel their pain and dedicate yourself to work even harder to make sure they don’t receive that call from you again.

It is no secret what a streamlined 203k can do

The condition of many of the homes for sale today is far from the rosey picture painted by agents in their on-line comments. Often agents put up pictures of the home before the place was destroyed.  Consumers, visiting any one of the 6 million websites that feature homes for sale, are routinely misled about the actual shape of the homes they select to view.

Let’s face it, this kitchen needs more than a little “TLC’ !  Buyers go on their house hunting mission and soon become dismayed at the “real condition” of the homes that are listed “need a little work”.  The first clue is the over grown yard. Abandoned homes often have been stripped of appliances, feature rooms with carpeting that carries suspicious stains, water damage and more. They are often “musty” (I know I am being kind) or down right foul smelling.  The power and water usually are turned off. Many are secured by a deadlock and access is obtained with a key secured in a combo lock box.

Don’t shoot me, I am only sharing the truth. As an industry, we are challenged to sell these properties.  Often, they are “bank owned” or they are in the limbo state where the owner has walked away and the bank is going through the foreclosure process. Some of them are listed as “short sales”, but they have been abandoned and left in a state of disrepair.  Their condition is reflected in their sales price.  The impact of the sale is felt by everyone in the neighborhood.

There is hope.  Many of these trashed properties are not that far removed from their past glory.  “TLC” implies a little elbow grease. These homes need more than can be accomplished on a free weekend.  Despite the visual appearance, there is a wonderful home beneath the rubble. Not only that, home buyers have access to loan programs that will do more that “put lipstick on a pig”.

Rehab a Home with a 203(k)

You might be surprised to learn what you can accomplish using a streamlined FHA 203k.  For starters, there is no minimum amount regarding repairs and you can borrow up to $35,000 for qualified improvements.  What are some of the things you can do?

You can repair or replace a roof !

You can install new windows !

You can install new floors !

You can upgrade the electrical system !

You can install a new HVAC system !

You can install new appliances !

You can remodel the kitchen !

You can change the back of your home from this

to this by adding a deck and patio !

It is no secret what a streamlined 203k can do!  This program allows you to change the old saying “what you see is what you get”.  You can now look beyond the condition of the home you visit and imagine what you can create using the 203k streamlined loan.

When considering what you might want to do and what may be possible, understand, there are limitations. $35,000 may sound like a lot of money (well, it is a lot of money), but home improvements vary in cost. In the DC area,  a new roof can cost about $300 per 100 square feet (that is a 10′ X 10′ area),  new windows will depend on the number of windows (there are several well know companies that will gladly give you an estimate), new flooring can cost about $7 to $11 per square foot, upgrading your electric can cost as much as $2,500, a new HVAC can run $8,000 and kitchen remodels can go from$15,000 and up. Just remember, you can do a lot with the loan.

Your local lender should be able to go over the loan with you. If they do not have someone that has actually done 203k loans, find another lender.  You don’t need the aggravation of having your lender stumble through the requirements at your expense. Use an experienced local lender.

Oh, if you need help finding the right house (in Washington DC  or the Maryland suburbs), well that is one of my services. I also listen to dreams, hold hands and support my clients from home search through settlement. I can be reached easily by calling 301-509-5111.

Home buying sealed with a KISS

K (eep) I (t) S (imple) S (weetheart)

          There are so many times that I can recall that a kiss was just what the doctor ordered.  A kiss for good luck, a kiss that bridges fantasy to reality, a kiss when wed, a New Year’s kiss and the infamous call when a ball is hit out of the park “kiss it goodbye” are kisses.  The right kiss can remove the stress of home buying.  K(eep) I(t) S(imple) S(weetheart).  Sure, the process can seem overwhelming.  Most people are not involved in the home buying process on a daily basis. I am. I know it may appear like a mystery to you, but I do this all of the time and I have to tell you, it is far less complicated for an experienced agent.  There is an orderly process to follow that will keep  you on track.

         To begin with, you don’t need any other people for your first step.  You have to move from the “I want to buy a house” status to the “I know I can buy a house” position. Now that sounds simple enough and actually it is. You want to be armed with information from the very beginning.  The most important pieces of information are your credit reports and  your FICO score. (Your FICO score stands for the Fair Issac Corp., which is the company that uses proprietary algorithms to reduce your financial history to three digit number that ranges between 450 and 850. The higher the number, the better your history and the better your chances are at getting a loan at favorable terms. If you number is too low, you won’t be able to qualify for a loan without an extraordinary amount of money down.) There are three major credit reporting agencies. They are pretty much the same, but not always exactly the same. I would avoid the free credit report sites. They have a lot of small print and tend to end up costing you an ongoing fee. Your best bet is to go to www.annualcreditreport.com. Follow the instructions and gather all three of your reports. You will notice they do not include your FICO score. You can purchase your FICO score online at www.myfico.com. Now, before you ask “Why do I need this if the lender will get it?”, let me just share that it is better to know how you look going in than it is to be blindsided sitting in a lenders office. You should be in control and getting the facts will give you that control.

         Once you have you credit reports and FICO score in hand, you are ready for the next step. Before you go looking on line, before you start wandering into open houses, before you even begin the home search, you have to KNOW how much home you can comfortably afford. You are now ready to sit down with a lender. My advice is to get in touch with an experienced, local mortgage lender. It is best to focus on a loan officer that is well know in the community. As alluring as the on site lenders may appear, they are often located quite some distance away and that fact may hinder you as the time to close the loan draws near. The lenders job will to be to provide you with a dollar amount for the home you can afford. One word of caution, make sure that the lender is working with today’s interest rate and a clear picture of what your monthly payment will be throughout the length of your loan.  With rare exception, you are a fool if you agree to a loan that has low payments today and the caveat that the payments will increase in the future. MAKE SURE YOUR LOAN QUALIFICATION IS BASED ON TODAY’S INCOME AND TODAY’S INTEREST RATES. The goal of this meeting is to get a informal commitment from the lender. The lender should be willing to provide you with a “pre-qualification” letter that will state that the lender has reviewed your credit, has verified you income and the cash you have available for a down payment. The letter should state that the only information needed for the loan is a contract on a home and a satisfactory appraisal of that home.

         It would be in your best interest not to get caught up in the slight variations in interest rates and fees.  The lenders job is to make sure your loan is funded within the time constraints outlined in the contract. The lender will have to provide you with a good faith estimate. You can use the good faith estimate to compare what is offered against other lenders. If you do not have a lender, check with your bank or credit union for a recommendation. If you have an accountant, they may know of a lender. You can also ask a real estate professional for the name of a good mortgage broker. (If the agent refers you to a lender that is tied to their broker BEWARE. A good mortgage lender does not have to affiliate with any real estate brokerage. Once an affiliation exists, the possibility (real or imagined) for violations of RESPA come into play.)

        I know you hear the NAR commercials suggesting that you need a Realtor. In Maryland, almost 10   Your next step is to select ONE full-time experienced real estate agent.0% of the practicing agents are Realtors. (You see, in Maryland, every agent has to work for a broker. If a broker wants to be a member of the Maryland Association of Realtors, something they have to do to be a member of the NAR, they must agree that all agents working for them will be members as well…ergo…almost 100% of the agents working in Maryland are Realtors).   Now, how do you find a good agent (hint: if you have read this far, you are already pretty close to a dog gone good agent, but I digress)? Some would say, ask a friend, ask a co-worker, ask a family member…ask somebody.  I would suggest that you can do your homework. Go on-line and find an agent that shares more than listings. Find an agent that has experience in the market and the area. Talk to the agent. Discern their style. Beyond knowledge, you will have to be comfortable and believe that the agent knows what they are doing.  I am not the only one that believes experience is a difference. Dave Stevens, the former head of the FHA agrees with me. Why full-time? Representing you is their job and you deserve the full-time attention of the agent. There is no reason you should receive part-time representation from a part-time agent that will be earning full time pay!

          Of course, you might think that you can go it alone. Every home worth considering is on-line. The listing agent can unlock the door for you. Why go through the hassle of working with one agent? Well, you are right. A monkey can find homes for sale randomly plunking a keyboard.  Beyond that, you enter murky waters when you choose to swim alone. Finding the right home is but the tip of the iceberg.  Doing it on your own will always leave that nagging doubt “would a real estate agent have found a better home?”  Once the home is discovered, do you really want to go on line and print out a contract and sign it? In Maryland there are over 50 pages in a real estate contract to purchase. The body of the document is 11 pages of terms and conditions. In addition to that there are local addendum’s, jurisdictional addendum’s, disclosures about the home, about lead paint, etc., and then you have to add various contingencies for inspections, appraisals and dozens of other potential requirements. You are done yet. If the home is governed by a home owner’s association, you will need to request and review their documentation. There is a sea of paperwork that flows between the front door of your dream and the settlement table where you will close the transaction.  The real estate agent is the captain of your ship of dreams and you better be sure he is sea worthy and able to get you into a safe harbor and closed on time.

         There is a lot to consider when you first begin to believe, “I want to buy a home”.  Rather than be intimidated by the challenge, keep it simple sweetheart, follow the easy steps. You don’t have to be a wall flower, the band is playing.  Is it your time to dance?

         I’d love to go over any of this with you. If you are seeking a captain, I’d welcome the opportunity to take the helm! Contact me. 

Experience…the difference; Experience the difference!

I believe that anyone seriously interested in buying a home possesses an attention span greater than 140 characters.  If you fall outside of those parameters, you need to slow down.

One of the largest purchases of your life is important enough that you set aside 5 or 10 minutes to read information. Maybe a good rule of thumb should be that you devote one minute of reading for every thousand dollars you plan to spend.

After all, it’s your money, your house, your life.

Consider this a job application.

I want to work for you.

You may not realize it, but you need to hire me.

My name is John MacArthur and I am a Realtor in the DC area (Maryland and the District of Columbia).

c21nm  Century 21 New Millennium

The first thing most people consider is the broker. My broker is the number one Century 21 franchise in the world. I don’t work for some cute little boutique firm.  I don’t work for one of those “mom and pop” companies that are still locked into the way things were done before Al Gore invented the internet.  I don’t work for some local firm trading off the name of their forefathers. Nope, I work for Century 21 New Millennium and I have all the resources necessary to assist you.  My broker has been heralded as being ahead of the curve and creating a real estate experience based on today and tomorrow.  Having those resources behind you will give you the support you need to find the right home.

Reputation

When seeking someone to represent you in your undertaking, you have to have more than a gut feeling about your decision.  Certainly, you can ask for references.  The downside of getting a list of references is that they will all be stacked in the favor of the person offering the list. Only an idiot would give you the name and number of a disgruntled past client.  The other hiccup involves the people on the list. Some people do not want their name and number given out.  I always like to offer a recommendation I am very proud to have received a JD Powers award for customer satisfaction.

“John is a true real estate professional who combines passion, integrity, and a deep knowledge of real estate to produce outstanding results”
                                                                                                                                                      David H. Stevens, Assistant Secretary – former, FHA Commissioner at HUD
Results
Your comfort level during the process is a number one priority.  Too often, consumers feel like they are talking to a wall when purchasing a home.  Too often, consumers are being shown homes that are not even remotely close to what they are seeking and often priced no where near what they would be comfortable spending.  While working together, you have my focus on the task at hand.  I listen to you. I hear what you are saying .  I provide feedback. The truth. There is no need to go seeking dreams. Home buyers need to be working in real terms with attainable goals.
I will share the truth with you. It is important for  you to have complete information about neighborhoods, traffic, schools and value. Understand, the asking price on any home is just a number. Your offer has to be rooted in value to you. It is my job to prepare you.
John MacArthur
This is my profession.  I do this on a full time basis. When I am not working with clients, I am staying up to date on market changes, changes in the laws, changes in financing and changes in real estate.  It is not secret that the market has changed a great deal. I make sure that I keep my finger on the pulse of the market.  I have negotiated million dollar contracts and made sure that an $18,900 purchase transpired correctly. I have served on advisory committees to the Montgomery County Council and represented the Montgomery County Contingent at the National Head Start Meetings. I have worked with the County Council on services for Clarksburg.  I have lived in this area my entire life. I have raised a family here.  I know the I-270 corridor and the brand new ICC and more importantly, I know where all the pot holes are and how to avoid them.  This is my home and I look forward to helping you make it yours.
I can be reached at 301-509-5111.  Experience … the difference; Experience the difference !