Thursday Poll – What did the Mortgage Crisis do to Loudoun County Home Prices?

In the third quarter of this year, the biggest story in real estate was the Mortgage Crisis.  And while the majority of the attention was given to sub-prime loans, the rates for jumbo loans (mortgages over $417,000) spiked up during this time period.  And with the majority of homes in Loudoun County priced in the Jumbo category, we are wondering what impact it will have on prices in Loudoun County.

So the Thursday Poll this week asks the question:

We will publish a post giving the actual change in median prices in the beginning of January.

And yes, we forgot to publish the poll yesterday (Thursday). But better late than never.

Mortgage 101 – Closing Costs and Good Faith Estimates

Home buyers who obtain a mortgage have to pay "closing costs". Closing costs is the general term used to describe the various fees and expenses paid in order to obtain a mortgage. As a general rule of thumb, closing costs are between 2 and 3 percent of the gross purchase price. In order to see a break down of closing costs, you need to get a "Good Faith Estimate" (GFE) from the lender(s) you’re working with or comparison shopping. A GFE shows all the closing costs line by line. It also shows you your estimated total monthly payment.

Here’s a sample Good Faith Estimate (click on picture to enlarge):

   

Note: If a lender drags their feet or gives you a hard time about providing you with a GFE, do not work with that lender.

Once you get the GFE, ask your lender to go over it with you in detail. You may also want to go over the GFE with your real estate agent to make sure you didn’t miss something and that the lender didn’t hide any fees.

In order to better understand the Good Faith Estimate prior to going over it with your lender/agent, here’s a list of some common items and their fees and what line they can be found on.

Items that must be paid in order to close the loan. Neither the lender nor broker have control over these charges:

• Title Settlement Fee – line 1101
• Title Insurance – line 1108
• State Recording Tax/Stamps – line 1203
• Property Tax Escrows – line 1004
• Hazard Insurance (Home Owner’s Insurance) Escrows – line 1001

Items that can change, but are associated with all lenders:

• Pre-paid Interest – line 901
• Underwriting Fee – line 811
• Processing Fee – line 810
• Flood Certification Fee – line 815

Items that are specific to the broker/lender:

• Origination Fee – line 801
• Discount Fee – line 802
• Broker Processing Fee – line 813
• Broker Administrative Fee – line 814

The last set of fees (specific to the broker/lender) are directly controlled by the broker/lender and can be negotiated. But understand that if these fees are reduced or waived, the interest rate usually goes up since the broker/lender has to make a profit somewhere. And remember…you get what you pay for.

When looking at GFE’s, don’t simply look at the bottom line. You must compare lender fees to lender fees as these are the only ones that the lender controls. Make sure there aren’t fees hidden among the title or state tax fees, a tactic used by some shady lenders out there.

Lenders are also responsible for quoting other fees involved with a mortgage loan. Since many of these are third party fees (title search, survey, etc), they are often under-quoted up front by a lender in order to make their bottom line appear lower. 

Important note: Lender’s Good Faith Estimates are not held to much of a standard by law. The total amount of closing costs listed on your GFE can vary greatly from what your actual closing costs are on settlement day. Unfortunately, you will probably not be able to back out of the purchase due to a change in closing costs and/or your interest rate (check with your agent/broker/lawyer for further guidance). That is why using a reputable lender with a proven track record and high customer satisfaction is so important.

For more about Good Faith Estimates and why you should be careful, read Lenders versus Mechanics.

Special thanks to Christopher Koegler of America Funding in Mclean, Virginia.

One Loudoun, Future Home Of World Trade Center Dulles Airport, Breaks Ground

Virginia Governor Tim Kaine and other government and business leaders broke ground this week on the "One Loudoun" project, which is the future home of the World Trade Center Dulles Airport. One Loudoun, a joint venture between Miller and Smith and Meridian Group, will be a mixed-use project similar in "feel" to Reston Town Center with commercial, retail and residential space. According to One Loudoun, first deliveries of commercial buildings will be 2009 with residential units delivering 2009/2010.

The developer has been working on the ground-breaking for 3 years now and has had to make changes to the original plans in order to get it done. Some of the changes include agreeing to upgrade the intersection of Ashburn Village Boulevard and Route 7, donating a 20-acre tract for an elementary school and reducing the number of residential units. But with 3 million square feet of office space, up to 700,000 square feet of upscale retail space and over 900 homes on 358 acres, the developer has a lot (of money) at stake and obviously thought the "sacrifice" was worth it.

Related Articles: Leaders Break Ground On One Loudoun Project – LoudounExtra.com/The Washington Post, One Loudoun Press Release – Miller and Smith

(photo courtesy of One Loudoun)

Crash Course In Loudoun County Foreclosures, Short-Sales and REO

As foreclosures, short sales and REO (Real Estate Owned/Bank Owned) properties increase, so do the number of investors.  Loudoun County has seen a sharp increase in "distressed" properties and more and more investors are popping up, as well as buyers trying to get a "great deal" on their new home by "buying a foreclosure". Before all you investors and buyers get too excited, make sure you understand exactly what’s involved and whether it’s really worth it.

Pros

• You can get a 5 to 15 percent discount, possibly more on the property
• Your choices and opportunities increase daily as the number of distressed properties increases every day
• If you are a handyman or contractor or have a connection to one, you can do all the needed work at much less than the market value of your improvements and potentially sell the property for a profit or have equity built in

Cons

• You must know how to search for them
• You have to be very patient – banks can take up to 2 months to give you a response back to your offer (yes, you read that correctly and yes, it really happened)
• You need to fully understand what it means to buy a property "as is". Those two little words have a huge impact on you
• You have to be a bit of a gambler. No matter how good you are with numbers, budgeting or forecasting, you never know what may happen with the market and whether you’ll be able to clear a profit or end up losing money in the end, even with getting a 5 to 15 percent discount

Did we mention that you also have to learn a new language? Yup, you sure do. And new words and acronyms are added daily so you really have to stay on top of it. No, there’s no official dictionary and yes, it’s a pain. (Some, including myself, think that it’s done to further confuse, not only real estate professionals new to the biz, but consumers in order to not let anyone new into "the circle")

Rather than taking up another 100 lines of space here on Loudoun Stats, I would like to refer you to an excellent post by Frank Llosa entitled "SOL Homes: Virginia MLS Foreclosures, REO, Short Sales Defined + Email Alerts". The article goes over terms, acronyms and definitions, and touches upon other things such as auctions and market conditions.

If you still wish to explore the world of foreclosures, short-sales, REO, etc., feel free to contact Tony or myself for more information. We’d be glad to help out whichever way we can.

How To Save 30 Percent on Title Insurance When Buying A Home or Refinancing

All home buyers have fees to pay associated with the purchase of property of which Title Insurance is a part. And it’s expensive. Based on a $450,000 property (the median sales price of a home in Ashburn, Virginia), the cost is around $2,000 (about $1300 for the lender’s policy and $700 for the owner’s policy).

Would you like to keep some of that $2,000 in your pocket? You may be able to if you can get the re-issue rate on the owner’s policy, which is 30 percent less than the regular cost.

In order to get the re-issue rate, the Owner’s Title Insurance policy that the current owner has can not have been issued more than 10 years ago. If seller doesn’t have an Owner’s Title Insurance policy or if it’s more than 10 years old, you’re out of luck.

To make sure that you don’t lose out on the savings, write it into the purchase offer. If you’re in Northern Virginia and using the "Regional Sales Contract"*, you can add the appropriate verbage in "Other Terms" (paragraph 34). If you’re curious as to the proper verbage to use, check with your agent or real estate attorney.

If using a real estate agent, your agent should have already checked if the sellers bought the house less than 10 years ago and if so, addressed this with you prior to submitting your offer. If they haven’t mentioned it, bring it up.

A few minutes worth of work. A few hundred dollars saved. Not a bad hourly rate!

Note – You also get the reissue rate if you’re refinancing so don’t forget to double check on this with your settlement agent prior to closing on your refi.

*The "Regional Sales Contract" is widely used by real estate agents in Northern Virginia. Your specific agent and/or area may use different forms.

Warning To Sellers: Having A Ratified Contract Does Not Mean You’ll Actually Sell Your House

If you’re a home seller in Loudoun County who has a ratified contract on their property, you’re probably elated. Buyers are getting harder and harder to come by, let alone getting one to buy your particular house. But don’t rejoice quite yet. Just because you have a ratified contract, even if all the contingencies are removed, don’t be shocked if your prospective buyer(s) walks away from the deal even if it means possibly losing their earnest money deposit. 

In fact, according to a recent survey of mortgage brokers, one-third of home buyers who had signed a purchase agreement (aka ratified contract) in August ended up cancelling. At the top of the list of why – mortgage related problems.

To help avoid this happening to you, make sure you do your homework prior to accepting an offer. For starters, you and/or your real estate agent should check out these 3 things:

1. Does the loan officer they’re using work for a retailer, wholesaler or correspondent lender? Make sure that the lender is a retailer (has money and underwriters within and does not have to fund the loan through an outside source).
2. Is the letter a lender letter of just a pre-approval letter? Make sure that it’s a lender letter meaning that the buyers have filled out the necessary paperwork, credit and assets/liabilities have actually been verified and that final loan approval is contingent upon a ratified contract, title work, appraisal and final underwriting.
3. Is the buyer’s lender letter dated within the last 7 days? Conditions change very quickly in today’s financial world so the buyer may or may not still be eligible for the same rate and/or loan program as before.

Though these three things will help, they are not a guarantee that the buyer won’t walk-away. Sometimes, it’s just a crap shoot. Do what you can to cover yourself, throw in a little luck and you should be able to breathe a sigh of relief once settlement is over.

Further Reading:

One-Third Of Home Buyers Fail To Close In August – Even Higher Percentage For Subprime Buyers – real/diaBlog

Thursday Poll – Will the Fed Lower Rates?

Next Tuesday the Federal Reserve Open Market Committee will meet to discuss the economy.  It is widely anticipated that they will make a change to the Fed Funds Rate.  What do you think they will do?

The Carnival of Real Estate – Resources And Info About Real Estate From Top Real Estate Bloggers Across The World

The Carnival of Real Estate (CoRE) was created in order to bring together the best real estate bloggers from around the country (and world) to share information about what we’re all passionate about: real estate. Each week, a different blog hosts the latest edition of CoRE and highlights the best posts submitted that week. The posts cover everything from market reviews and buyer/seller tips for consumers to web 2.0 tools and blogging advice for industry professionals.

The current (58th) edition of CoRE is being hosted by real/diaBlog (one of our other blogs also written by Tony and I) and the verdict is out on the best posts for this week. There were some really good posts for us to choose from – check them out when you have a chance.

If you’re a real estate blogger or write about real estate in general and would like to submit a post to future CoRE editions, there are links to the submission form at the bottom of the post on real/diaBlog as well as on CoRE’s blog.

Condo Owners-You Still Need Your Own Insurance

If you’re a condo owner and think that the master insurance policy provided by your condominium association provides you with all the protection you need, you may want to read the fine print. Master insurance policies cover "limited common elements" and "general common elements", but do not cover your personal belongings nor improvements. You still need your own insurance to protect your valuables and any improvements you’ve done within your home.

So what exactly does the master insurance policy cover? It covers problems and issues relating to "limited common elements" and "general common elements". Here’s the definition of each:

• "Limited common elements" refers to space outside your unit that is not accessible to everyone living in the condominium property, and is reserved exclusively for use by one or more, but less than all, of the unit owners in the condominium. Examples include balconies, roof decks, parking spaces and storage areas.
• "General common elements" refers to those portions of the property used by all the unit owners in general. Everything that is not a unit (the space where each owner lives and owns) or a limited common element is a general common element. Examples include foundations, roofs, slabs, boiler rooms, laundry rooms, perimeter walls, common stairs, building lobby, trash areas, water mains, utility rooms and the land the condominium property is on.

As you can see, nothing in either definition mentions your personal property or improvements being covered.

For example, let’s say water flooded into your property, damaged your walls, ruined your newly-installed hardwood floors and your 42-inch plasma and you had to rent temporary housing while the repairs were made. The damage to the walls would be covered by the master insurance policy, but your newly-installed hardwood floors, 42-inch plasma and temporary housing would be your own problem to deal with (and pay for).

To cover yourself, you need an insurance policy knows as an "HO-6". This a separate policy that cover personal losses. It should also cover things that your master insurance policy does not such as vandalism, theft in your property and personal liability coverage.

The cost or an HO-6 policy? Generally between $250 and $350 per year. That’s a small price to pay considering what typical replacement costs are for items such as floors, tv’s, computers, appliances and temporary housing.

If you don’t have your own insurance already, the first step is to take a close look at the terms and conditions of your master insurance policy (your condo association can provide you with that) and see what is and what isn’t covered. Then talk with your insurance agent to see what kind of supplemental coverage you need in the form of an HO-6 policy.

Don’t be like most and wait until something bad happens. With an HO-6 policy being relatively low in cost yet, covering so much, it’s well worth it and every condo owner should have one.

***Tip - When looking for HO-6 policy providers, start with the company that issued the master insurance policy for your condominium property. The reason to start there is because, should a claim on both the master insurance policy and the HO-6 policy be made, the same company covers both claims rather than two different companies having to litigate the issue of who covers what.

Thursday Poll: Pick an Agent

In the last 12 to 18 months, the Internet has surpassed print advertising as the number one source of real estate marketing in many areas of the country.  Loudoun County is no exception.  The print ads in the local papers keep dwindling and the number of websites offering listings to search keeps growing.

And with that shift, there are many more online resources available for buyers and sellers of real estate to use in their search for a real estate agent.  However, these resources are not as obvious or informative as some of the sites that show properties for sale.  It takes a little more creativity and investigation to research a real estate agent.  Unfortunately a photo of an agent isn’t going to tell you what you want to know the way a photo of a kitchen will.  And there is no single resource available that can give you answers to questions like expertise, marketing resources, neighborhood knowledge, negotiating skills, etc.

But there are ways to use the internet to get a better picture of an agent than "They have a nice sign" or "They helped by aunt and uncle find a house 6 years ago". 

So this weeks poll asks the question (multiple choice):

A lot of these choices are easy to use and can be very helpful in getting a better picture of an agent and their business.  Others, however, are a bit more elusive.  But there is a new website that will allow and agent to provide a wealth of information to prospective buyers and sellers.  Here is a link to my profile on this new site, clipREAL.com