Tuesday, December 23, 2008

What constitutes the "bottom of the market"?

I get this question all the time: have we hit the bottom yet? Market by market, that's what's happening across the country. I've been tracking "hot" markets for RealtyTimes.com (http://realtytimes.com/rtpages/manthonycarr.htm) for the last year and I'm seeing very healthy markets across the country in state after state.

The strongest market in the country is nearly any county in Texas. As far as comeback markets, where ever the foreclosures hit the hardest is where you'll see the biggest come back. Prince William County, Virginia (outside Washington, D.C.), many markets in the state of Florida, Los Angeles, Las Vegas, all are in the middle of a recovery.

Now, recovery doesn't immediately mean increasing prices. So when I refer to a "recovering" market, I'm looking more at pending sales; list to sold price; the level and direction of seller subsidies; and sustainability of the market, such as job growth and the housing inventory.

When inventory begins to drop, with pending sales moving upward - that's the beginning stages of a recovering market. That's what's happening all over Northern Virginia, for instance, in the shadow of the White House. In Fairfax County over the last month, pending sales have jumped above last December's levels by more than 50%; sales are up in the 30% range and inventory has dropped by about 35%. This has been happening for most of the year (2008).

Does the mainline media pick up on it? Of course, not, because they think a recovering market means one thing -- prices. Unfortunately, by the time you put in a contract on a home when prices are moving up - your chance for a great deal have already disappeared. Most likely, you'll pay at or above asking price and must bring your own money to the table without the benefit of seller closing costs to help you keep your own cash for redecorating, fix ups, etc.

I recently competed on a foreclosure property in Springfield, Virginia against four other investors. My buyer won, only because we came in closer to asking price more than anyone else and asked for no closing costs at all. We got a good deal, as the houses are selling for more than $100,000 more than what we pulled in on the property -- of course, it needs fixing up.

So as you look around for that "great deal," look at the underlying numbers that reveal the bottom of the market - not the sales price which tells you nothing more than the fact that the bottom's already hit.

Thursday, December 11, 2008

NEWS ALERT: Fixed-Rate Mortgage @ 4.75%

Hey Folks – I don’t normally send emails out to my whole database, but today’s news is unprecedented from the mortgage field. You can refinance your mortgage on a FIXED RATE 30- or 15-year mortgage at 4.75%. For most mortgage holders, this could save you thousands of dollars per year.

I just wanted to pass this on to you and for you to do whatever you want with the information.

To calculate your savings, you can visit http://www.mortgagecalculator.org/. If you need a loan officer I can connect you with someone at our sister company Weichert Financial Services.

That Bounce Sound Was the Bottom of the Market

I met up with a potential buyer last night at a well-priced listing that is seller owned and completely fixed up inside. She was worried the price was too high, we hadn’t hit bottom yet, things could get worse, etc., etc.

She was not unlike many buyers out there in markets across the country that have already started to show signs of recovery. In Northern Virginia – the bottom was hit months ago. It’s a challenge of Myth vs. Reality.

(See this piece from Mortgage News Daily on foreclosures dropping: http://www.mortgagenewsdaily.com/12112008_realtytrac_foreclosures.asp)

For instance, in Fairfax County (just a few miles from Washington, D.C.), the inventory is down 23% while pending sales are up a whopping 60% over the last 30 days. In addition, average prices have leveled off for months now at pre-2004 levels and starting to rebound.

Buyers are now competing on foreclosures with multiple offers and escalating their offers over list price.

Prices are still thousands higher than they were in 2002 and previous. The good news for homeowners who want to move up is that if they purchased before 2002, more than likely, they can sell for a profit and move up for a lot less than they could have just a couple years ago.

The concept that “My house has lost money” is only important when you’re selling. What the consumer should look at is the purchase price vs. the sales price – not the height of the market value vs. today’s value. If you bought for $275,000 and sell at $375,000 – there’s $100,000 in profit – regardless of the fact that your house swelled in value to $450,000 three years ago. Such a seller has NOT lost $75,000, instead, he’s profited $100,000. In addition, he’ll be moving into a good deal in today’s housing and financing market.

Tuesday, November 18, 2008

FW: Fuel Assistance Program Extended until December 1

Hello Friends – If you or anyone you know needs assistance this winter with your heating fuel, please see the program below. My wife sent this to me and I wanted to pass this along. There is an online screening process for applicants to complete. Note the deadline – December 1.

From: DFS PIO [mailto:DFSPIO@fairfaxcounty.gov]
Sent: Monday, November 17, 2008 12:05 PM
Subject: Fuel Assistance Program Extended until December 1

The application deadline for the federally funded Fuel Assistance program has been extended until December 1. The original application deadline had been set for Friday, November 14.

The Fuel Assistance program helps eligible low-income households with the costs of heating their homes.

Applications are also available on the Web from the Virginia Department of Social Services at www.dss.virginia.gov.

FairfaxCounty residents who wish to apply are encouraged to call the Department of Family Services’ energy assistance phone line at 703-324-7604 (TTY: 703-222-9452) or visit any of the department’s four offices:

  • Fairfax - PenninoBuilding, 12011 Government Center Parkway
    703-324-7500, TTY 703-222-9452

  • Falls Church - 6245 Leesburg Pike (Route 7), Falls Church
    703-533-5300, TTY 703-533-5316

  • Reston - LakeAnneOfficeBuilding, 11484 WashingtonPlaza West, Reston
    703-787-4900, TTY 703-707-9346

  • Richmond Highway/Alexandria - SouthCountyCenter, 8350 Richmond Hwy (Route 1)
    703-704-6353, TTY 703-799-3435

The Department of Family Services offices listed above are open from 8 a.m. to 4:30 p.m., Monday–Friday.

Monday, October 27, 2008

D.C. Area Housing Market Booming In Face of Struggling Markets Nationwide

What makes the Washington, D.C. market different than the rest of the country? The job market within the market. While other cities brag about being the headquarters of Fortune 500 companies, we have something none of them will ever have – the Capital City of the United States. I like the way one colleague puts it when explaining to agents from other states: “When you can put the Pentagon, Congress and the White House in your backyard, then you’ll have a housing market like ours.”

It’s been an interesting week on Wall Street and on Pennsylvania Avenue, leaving Main Street wondering what will happen with the housing market. When you look at our numbers around the Washington Monument, and see that the job growth here has moved upward and heating up even more, it doesn’t take a rocket scientist (or political scientist) to see that the inventory is dropping, prices are starting to level and move upward, and buyers are writing contracts at a triple digit rate more than last year.

If you’re looking to move up, this is the year to take advantage of level prices so you can move up without busting your personal budget. In addition, with FHA financing requiring a minimal down payment, first-time buyers are creating a feeding frenzy in the entry-level market in all property types. We’re seeing more parents help their kids buy a house now before they are priced out of the market. Renters are getting out of supporting the landlord and beginning to build their own equity and personal wealth.

So what? What does this mean to you? Real estate is local. Despite job challenges and foreclosures across the country, homebuyers and sellers must make a decision based on the local scene. The number of foreclosures in the area is declining month after month AND they are drawing multiple offers. Traditional sales of homes priced right and in good condition still make up the majority of the market. Is now the time for you to sell or buy? Waiting too long may cause you to say in the future: “You know, I could have …”

Thursday, August 14, 2008

Donald Trump: “This is the time to start looking to buy, you’ll get a great deal.”

Donald Trump, internationally-acclaimed realty guru and multi-billionaire, said on Good Morning America radio August 13, “This is the time to go out and start looking and start buying. Over the course of the next year if you don’t do it you’re going to be very disappointed in the years to come. Now is the best time in years to purchase real estate…especially in the next 12 months to get the best deal.” – Good Morning America, interview with ABC’s Good Morning America, August 12, 2008 (For the whole interview, view online at http://abcnews.go.com/Video/playerIndex?id=5576708.)

We are seeing the rebound in full force in Northern Virginia and surrounding Capital area. Compared to August a year ago, pending sales are up 39% in Northern Virginia (Arlington, Alexandria, Fairfax County); and 52% in Fairfax County alone. In Prince William County pendings are up an astounding 155% (in Manassas, they are up more than 200%). Why?? The prices have hit the psychological barrier where buyers believe they aren’t going to drop any more. In addition, pent up demand over the last three years has built up to an overflow level.

Multiple offers are back and houses are selling close to or at asking price. A Weichert associate recently had 40 contracts on a property in Manassas – multiple offers are not unusual once again.

So what? If you’re looking to move up, purchase an investment property or help your children buy a home – now is the time. Home prices have leveled and are rising in some areas. Investment properties are once again producing positive monthly cash flow and young buyers can now purchase a house for less than what they would pay in rent.

Friday, June 27, 2008

Northern Virginia Turn Around Full Throttle!

Wow! I’ve never seen this kind of turnaround happen so quickly. In just a few months, we have gone from negative numbers in every category to double and triple positives all around Northern Virginia (just outside Washington, D.C.). Here’s what’s happening:

The foreclosure market has created a feeding frenzy for properties priced under $500,000. Nearly 36% of all homes on the market under $500K are foreclosure homes. Only 6% of listings over $500K have that distinction. Thus, prices have reached a psychological barrier point, which has brought out buyers in the thousands around the Capital area. (Stats available at http://www.mris.com/, click Market News.

The buyers are competing again for properties priced right and in good condition. It is not unusual with the foreclosure market to see 10 or 20 contracts competing. Many of the foreclosures need only cosmetic fixes and some have upgraded kitchens, baths and flooring. More are coming in the next month.

There are plenty of fixer uppers available for those willing to apply “sweat equity” to build wealth.

Prince William County is the county of affordable housing once again. I’m seeing more and more first time buyers back in the market, purchasing single-family homes starting in the $100,000’s. (These homes are also enticing for investors!)

Prices are now holding. If you are buying, more than likely you’ll be paying closer to asking price now than was possible just a few months ago. Buyers on average are paying 97% of list price.

So what? What does that mean to you? If you purchased your home in 2005 or earlier, then now is the time for your move up. Real estate is local and all the signs are lining up: shrinking inventory, increasing demand, holding prices, lower interest rates. Move up into that larger home (or your first home!) before the prices or interest rates make it out of reach!

Until next month…

Thursday, June 19, 2008

It's a REAL Spring Market - Northern Virginia Real Estate

Days on market have dropped. My team members and I are hitting up against multiple offers on listings. Listings in the office are selling. Traffic at open houses are up by 40% in some communities. And the number of contracts written in our market are outpacing last year’s levels. What’s more important to home owners, we are seeing pocket markets that are starting to appreciate.

When looking at the last two springs, this spring market has really taken off. The market has turned around and it starts in the Capital city of Washington, D.C. and is moving out from there (as it has year after year). What’s more important is that the latest financing regulation changes have included the Washington, D.C. as a high-priced region. This means that conforming loan limits around your home will be at the highest level possible -- $729,750. Before this latest move, loan limits for conforming loans were at $417,000.

So what? What does that mean to you? If you’re looking to sell, it now means more buyers may have been brought into the level it would take to purchase it. In addition, it means better loan programs with lower interest rates – in essence, money just got cheaper.

Monday, April 07, 2008

Should You Invest In Foreclosures?

Periodically I hear from readers who want to make $1 million in real estate -- quickly and with no money down. Usually they want to know more about real estate foreclosures -- how to buy them and how to profit from such homes. I've participated in a couple of these deals, and I'm now working on my second million -- I gave up on the first.

Foreclosure properties can be a good place to invest for exponential growth (or loss). There are some deals out there for little or no money down, but potential investors should take precautions because foreclosed properties can involve significant risks.

There are various ways to invest in foreclosure properties. The first and probably most popular is to purchase a property, fix it up and then rent it out, hopefully creating a positive monthly cash flow. The investor then becomes a landlord, with all the responsibility of an investment property owner.

The second way to invest is to seek out foreclosures or "handyman" specials, buy them, invest more money to fix them up and then sell them, taking -- hopefully -- a profit once the house is sold.

A third approach is to purchase a foreclosure that is underpriced and selling it immediately at a higher value.

One way to sell homes for a higher value is to take back a mortgage. For example, let's say a house worth $100,000 is sold at a foreclosure to an investor for $50,000. The investor may put down 10 percent and assume or create a new mortgage for $45,000. The investor then advertises the property at a discount, say $80,000, offering 100-percent seller financing (remember, we're figuring that like houses are worth $100,000).

The owner hopes to create a sense of urgency by underpricing the house and pulling in buyers.
If successful, the investor takes a promissory note from the new purchaser for $80,000. He has now created a $35,000 note for himself (The difference between the $80,000 sale price and the original $45,000 mortgage). The new buyer makes payments to the investor for an $80,000 loan and the investor makes payments on the original loan for $45,000. In real numbers, here's what it would look like.

If the original loan is for $45,000 at 8 percent over 30 years, the principal and interest is $366.88. When the second buyer takes a note for $80,000, the investor may charge a bit higher interest since he's offering 100 percent financing.

Let's say he offers an $80,000 loan, 9.5 percent over 30 years. The monthly payment is $672.68, creating a positive cash flow of about $306 per month.

If the borrower stays in the house for 30 years, the investor will make $88,295 in interest and $30,000 in capital gains after he's paid his own interest on the first note for a total return of $118,295. Not a bad return on a $5,000 downpayment.

Keep in mind that not all mortgages allow an owner to "wrap" a second mortgage onto original loan. Most loans today contain a "due-on-sale" clause, meaning if the property is sold, the first trust must be paid off immediately. Wraparound financing is popular when investors purchase foreclosed Veterans Affairs (VA) properties as the VA allows wrap-around loans in such cases.
Before you go out, checkbook in hand and ready to bid away, take some advice first.
If you're deciding to invest in foreclosure properties with a spouse or with other investors, be sure that everyone understands this form of investing. You are about to enter a world of high finance, property management, calls in the night from tenants and other risks that regular homeowners never experience.

Second, get educated. Reading this column does not constitute preparing the first-time investor to start bidding on properties. There are plenty of real estate agents and auctioneers who do this on a daily basis and would be happy to educate you in the world of foreclosure properties. Also, visit the bookstore for guides by reputable authors who know investment intricacies.

  • Third, be realistic.
  • Not all foreclosures are good deals.
  • Not all foreclosed properties are available at discount.
  • If you take back a loan your buyer could default.
  • Most loans today prohibit wraparound financing.
  • Repairs might be far more than you expect.
  • Not all tenants pay their rent on time -- or at all.
  • Some renters damage property.
  • Changing interest rates could impact your bottom line.
  • It may not be possible to re-sell the property without extensive -- and costly -- repairs.
  • Not every deal yields a profit.
  • If you have a profit you may face taxes.
  • If you only look at foreclosures you may miss other investment opportunities.

The list of potential downers goes on...and on and on.... Think of it this way: If making money with foreclosures was both easy and a sure bet every time, no one would bother with IPOs -- or jobs.

Fourth, get professional help from brokers, lenders, attorneys, accountants, home inspectors, and others.

Monday, March 31, 2008

Whew! The market's turning

We are ahead of last March at this time by about 10%. Foreclosures are the hot commodity right now, drawing multiple offers left and right. This week, we were involved with two foreclosures -- one had 10 offers; another 13.

Prices are stabilizing and moving upward in some areas in the DC market. I'm seeing the same thing happening around the eastern seaboard. See my piece on http://www.realtytimes.com/ (http://realtytimes.com/rtpages/20080305_condotrends.htm) about the bottoming out of many markets across the country.

Friday, March 07, 2008

Report: Best Time To Buy In 4 Years

By Tim McLaughlin

According to a report released by CNN this past week, it may be the best time to buy a house in more than four years.

Valuations on home prices (the difference between what a home should cost and its actual price) are the lowest they've been since 2004, according to the report.

The Cleveland-based bank National City Corp, together with financial analysis firm Global Insight, revealed Tuesday that more than 88% of the 330 housing markets surveyed showed improved affordability during the last three months of 2007.

"Housing valuations are almost back to long-term norms," said National City's chief economist, Richard DeKaser. He called current affordability "the best in the past four years."

The report compares actual median home prices with what the authors determine are proper home values based on population density, relative income levels and interest rates, as well as historically observed market premiums or discounts, to determine whether markets are over or under valued. The report also factors in market intangibles that make some areas more desirable places to live, and more expensive.

The survey covered home valuations during the last three months of 2007, but DeKaser pointed out there's reason to believe that valuations are even more favorable for buyers today Interest rates, although they have inched up lately, have been steady or lower compared to late last year, and are certainly lower than historical norms.. There have even been wage gains; personal income rose 0.5% in December.

Takeaways: With the spring market upon us, economists and industry experts appear to be in agreement regarding the current value proposition regarding residential real estate and the strength in buying opportunities vs. any point in the foreseeable past. The home of your dreams in well within reach and more obtainable today than ever before. Fair market prices, affordable interest rates, and the most knowledgeable team of financial consultants can make that dream a reality. At Weichert Financial, with an array of product options and the expertise to assist, we are here to help. What can we do for you? It pays to ask.

Tim McLaughlin is senior vice president of secondary marketing for Weichert Financial Services.

Wednesday, March 05, 2008

Whose Fence Is It Anyway?

By M. Anthony Carr
Property line issues have suddenly cropped up in the emails I've received in the past few weeks. It appears that homeowners are more aware of their property lines (specifically if a neighbor is violating it) during the spring and summer months than at other times. As we get out there and trim limbs (from the neighbor's big oak tree), mend the fence (which is actually the neighbor's), and try to clean up unsightly encroachments on the line, we become aware that the guy next door hasn't kept up with his property and now the problem is personal.

Keeping up with local fence laws, good neighbor regulations, even your local home owners' association rules can keep relations between you and your neighbors a lot more healthy.
One reader wrote that he spent "a weekend helping [my neighbor] take down and erect a new fence. After that he asked me to pay for half the fence, stating that all his other neighbors on the other sides of his property had pitched in to pay as well for their respective sides."

He was now worried that he had just signed up for some sort of legal liability if someone got hurt on the fence, the fence got knocked down by a tree, etc., now that he "owns half" of the fence.
Local jurisdictions have funny rules about fences, trees, etc., and who's responsible for them in case of damage or destruction. That's when I go to FindLaw.com to do some real estate research.
On this particular issue, they actually have a whole section on dealing with neighbors and the property lines under their real estate section. As far as the fence is concerned, "Unless the property owners agree otherwise, fences on a boundary line belong to both owners when both are using the fence. Both owners are responsible for keeping the fence in good repair, and neither may remove it without the other's permission," according to the site.

The part of this story that has the reader upset is that he wasn't asked to pay for the fencing until after the neighbor had already picked out the wood, style, etc., and paid for it, thus locking him into a certain price range and style of improvement to the property.

Keep in mind, your local laws may be different. Visit the local building code office to find out your responsibility before hammering away at your neighbor's fence or expecting your neighbor to help pay for a replacement fence.

Another reader has a problem with a backyard property that's nearly 100 years old and just looks really bad. "Our issue is that the neighbor that shares the other side of this wall has 2 different constructions that are not only viewable from our yard, but also have additional roofing or siding that attaches to our side of the wall."

In essence, the neighbor just kept tacking on to the existing aged structure that was already there. Both the residences had purchased these properties with these structures in tact -- so if it's that old, is it violating the law or not? Is there a statute of limitations on really ugly fencing?
Again, FindLaw points out a couple of laws you may have on your side to keep badly constructed or really ugly fences from continuing to plague your community.

"As long as a fence doesn't pose a threat of harm to neighbors or those passing by, it probably doesn't violate any law just because it's ugly. Occasionally, however, a town or subdivision allows only certain types of new fences -- such as board fences -- in an attempt to create a harmonious architectural look. Some towns also prohibit certain materials -- for example, electrically charged or barbed wire fences."

"Even without such a specific law, if a fence is so poorly constructed that it is an eyesore or a danger, it may be prohibited by another law, such as a blighted property ordinance. And if the fence was erected just for meanness -- it's high, ugly and has no reasonable use to the owner -- it may be a "spite fence," and you can sue the neighbor to get it torn down."

What's not talked about here is the fallout from one neighbor forcing another neighbor to rebuild, repair, or tear down an existing structure. In a subdivision environment with quarter-acre plots and less, we would like to think that all neighbors would keep up their properties to a certain standard. If they don't you have to make a decision on whether a clear view out your kitchen window is worth the relationship that may be damaged through the process.

However, it never hurts to ask, point out the law and see how they react.
M. Anthony Carr
Weichert Realtors
Manager, Burke/Fairfax Station
9299 Old Keene Mill Road
Burke VA 22015
(703) 569-7870 ext. 160
Change Your Thoughts, Control Your Life.
Click for Anthony's Latest Blog Entry

Friday, February 22, 2008

Mortgage Limits Increase Provide Buyers Opportunity

By M. Anthony Carr

Congress has spoken on the economic stimulus package and that means most of us are going to get a nice little check in the bank – complements of yourself (it’s your money anyway, right?) Included in the package is a section that will increase the loan limits for conforming home mortgages. Without getting all financialezey on you, it means that higher loan amounts will come with lower interest rates. That will help more people to purchase in high-priced areas like here.

Where the loan limit used to be $417,000 for the Washington, D.C. metro area, it looks like it will move upwards to $562,500. (They will go into effect March 14, 2008.) Any mortgage below this amount is called a “conforming” loan – it conforms to established guidelines so that the mortgage can be sold on the secondary market (usually on Wall Street). Loan amounts above the $562,500 will now be considered “jumbo” loans, which are subject to more stringent underwriting guidelines and potentially higher interest rates. By raising this limit, loan amounts that were previously jumbo now come under the more affordable guidelines, making it easier for buyers purchasing in high-cost areas such as Northern Virginia.

When you’re talking interest rates of under 6%, you’re talking a lot of savings for many, many buyers. The catch is (and there’s always a catch!) you must apply for the new mortgage BEFORE December 31, 2008.

So what? What does that mean to you? Three things:

1) if you’re considering a move up or refinance, you MUST have your application signed, sealed and submitted before the end of the year.

2) If you need to sell your house first, before taking advantage of these new features in the market, now is the time to fix it up and prepare for the selling process. And,

3) government-backed programs (FHA and VA) are also following these new loan limits.

Blog: http://commonsenserealestate.blogspot.com/

BTW: MILITARY RESIDENTS: Are you or a colleague preparing for your next PCS? Weichert Financial can get you VA financing up to $700,000 for qualified buyers. Call me for help alleviate the stress of the pre-listing/pre-purchasing process.

Thursday, February 07, 2008

Multi-Layered Loans Lower Down Payment, PMI

by M. Anthony Carr

If you're in the market to buy a home but have little down and want to avoid private mortgage insurance, you might want to look at the multi-layered financing options which have become increasingly available.

With these programs, there's a first loan equal to 80 percent of the purchase price, and a second loan for 10 or 15 percent of the remaining costs. The remaining money, 10 percent or 5 percent, is the buyer's down payment.

Described as "80/10/10" and "80/15/5" financing, buying with multiple loans allows purchasers to avoid the up-front costs and monthly expenses associated with private mortgage insurance (PMI).

Private mortgage insurance is a policy taken out by borrowers who lack big downpayments. Statistics show that buyers who purchase with less than 20 percent down have a higher risk of default than those who purchase with a downpayment of 20 percent or more.
If you buy with less than 20 percent down, lenders will generally require that you purchase with PMI when financing with a conventional loan. In the event of default, the policy kicks in to protect the lender.

(It's also possible to buy without PMI. In these cases, the lender self-insures -- you don't pay PMI, but you do pay a somewhat higher interest rate.)

Insurance coverage requirements for government programs such as VA and FHA loans are somewhat different.

With FHA, there is a "mortgage insurance premium" or MIP. FHA loans have a 1.5 percent up-front fee plus a monthly premium equal to .5 percent of the outstanding loan balance. FHA programs generally allow homes to be purchased with 3 percent down. The up-front fee can be financed as an addition to the loan amount.

First-time VA borrowers do not pay a monthly premium, however they do face an up-front "funding fee" equal to 2 percent of the loan amount in most cases. Many VA loans are for more than 100 percent of the value of the house, since Uncle Sam allows military veterans to finance closing costs.

Multi-layered loans are for people who want to buy with conventional financing, don't have 20 percent down, don't want to pay PMI, and don't want to wait for years to acquire a massive downpayment. In such cases they obtain a first mortgage equal to 80 percent of the purchase price. There is no PMI requirement here because there is a 20 percent gap between the amount borrowed and the purchase price.

The borrowers then obtain a second loan equal to 10 to 15 percent of the purchase price. Combine the 80 percent first loan with financing equal to another 10 to 15 percent of the purchase price, and the borrower must now bring 5 to 10 percent of the purchase price to closing as a downpayment. If you're looking at purchasing a house with a second trust, there are a couple of nuances about a second mortgage of which you should be aware.

The interest rate for the second loan is going to seem a bit higher than what you will be quoted for a regular mortgage. For instance, if you're paying 7 percent on the first trust, don't be surprised if interest on the second mortgage is considerably higher. Shop and compare rates for both loans, and look at your total monthly costs.

The interest rate for the second loan is going to run higher because the loan has more risk to the lender. In case of a default, the first trust holder may foreclose to receive payment on the loan while the second mortgage holder doesn't get a cent until the first-trust holder is paid completely. In addition, the amount of the loan is so small that the lender/investor must charge a higher interest rate to receive ample compensation.

Second trusts typically last for 5 to 15 years. Because they have a short term, they require big monthly payments to be quickly re-paid -- or they have low monthly payments and at the end of the loan term the borrower faces a big single payoff, a so-called "balloon" payment. If you can't pay or refinance the balloon payment, the property can be foreclosed.

The mortgage insurance industry argues that multi-layed loans, so-called "piggyback" financing, may be less attractive than the combination of a bigger first loan plus PMI. (See this calculator here from goodmortgage.com to see if it makes sense for you.)

But whether you prefer multi-layered financing or a big loan plus PMI, the fact is that both options allow you to buy with little down, both have costs, and both have risks. Each option should be reviewed with care to see which works best for you.

Wednesday, January 30, 2008

Careless Buyers Making Deal-Killer Mistakes

by M. Anthony Carr

It's every homebuyer's nightmare -- write the contract, get it ratified, go through the excruciating mortgage application process, get approved, and then at the last minute a hang-up turns your American Dream into a nightmare. What's most frustrating is when it's your own fault.

Just this week I've talked with agents where a buyer has made some not so wise choices in their home-buying process. The first story was about a buyer who just got cold feet, plain and simple. The second one sabotaged himself financially by taking a vacation with the money that was supposed to be used for closing.

For many cases in this area, the buyers market has people getting nervous and some taking unnecessary risks. In the Washington DC market about 5 percent of properties in the MLS mention either "short sale" or "third-party approval" in the remarks. This is the language of pre-foreclosure. With that said, it can be frustrating in the negotiations to be talking with an agent who doesn't understand the short-sale transaction, a seller who wants to sell but who really doesn't have the final word and a bank employee who's just trying to clear his desk of old cases, preparing for the new ones coming in the door.

When everything comes together, as in the case of this one short-sale buyer, it's even more frustrating when that buyer gets cold feet at the last minute. The buying agent had lined up everyone. The seller had priced it right, the short-sale executive had agreed to the terms of the contract, including a home inspection and closing costs.

The buyer had gotten a full commitment from the bank and then it happened -- she dropped her feet into an icy vat of buyers' remorse. She just couldn't do it. Instead, when the final initial was needed to seal the deal -- she sealed, alright, with her landlord.

Media reports of sub-prime mortgages, dropping sales prices and rising inventories put the fear of failure in her mind that this wasn't a good decision, so she bailed. But if one were to take a look at the regional numbers, a different story arises: inventory is dropping, days on market have tumbled compared to a year ago and in her market area sales prices are up 3 percent compared to the same time in 2006. The stars were aligned, but her feel-goodometer, wasn't engaged.
The second buyer catastrophe was a matter of over exuberance and celebrating too early. The house was situated just across the street from this renter. The family was so excited to stay in the same neighborhood, get a foreclosure property that barely needed any repairs and get the house for thousands under the going rate. The mortgage was in place and settlement date was approaching -- so why not celebrate?

One vacation and final verification later, and the deal was hosed when the buyer spent the reserve money necessary for the house to go to settlement.

Buyers can get great deals in today's market, but they must not be overcome with unnecessary fear, or make financial decisions that could harm their financial standing.

I once had a buyer who was going to purchase his first home. He and his wife had borne three sons while living in the same apartment over 23 years. He could have used his Veterans Affairs status to purchase a property for no money out of his pocket whatsoever, but he didn't understand how it worked.

So once he did, he went after the house with a vengeance. Then he did it. One week before settlement he bought a truck -- for the move, you understand. It nearly wrecked his buying power and the deal almost fell through.

When the contract is signed, the money is approved and settlement's on the way -- buyers should stand in place until the fat lady sings. Worrying about your decision and celebrating too early, can both ruin your dream.

Friday, January 25, 2008

Pocket Markets Reveal Pent-Up Demand

Here’s the Big Real Estate Story – Interest rates are headed in the 5-ish range again and prices have leveled. That’s it. End of story. Sign here. In fact, the market is actually turning around. Despite what the two dailies have reported, homeowners and shoppers must look at pocket markets to determine how they’re doing as far as the equity in their homes and in determining if it’s time to hold or get sold.

In the Washington, D.C. area, headlines from The Washington Post and The Washington Times would make any mere human shake in their household boots – “Region’s Home Prices Continue to Fall; Some Pockets Thrive,” and “Overvalued Homes Discourage Buyers.” The statistics tell a different story. Consider these numbers from http://www.mris.com/ (the local MLS web site):

December 2007 home sales prices of single-family homes compared to December 2006:

Washington, D.C.: +22%

Arlington County (VA): +21%

Alexandria City (VA): +12%

Fairfax County (VA): Even

So what? What does that mean to you? Answer these questions:

Ü When do you want to buy that move up property?

Ü Now, while the prices are low and interest rates drive down your monthly payment?

Ü While sellers are willing to provide buyers with thousands in closing costs?

Ü While there are plenty of great looking houses with new flooring, new kitchens and baths?

Ü Or when the prices start up, the seller subsidy evaporates and the monthly payment inflates because of higher interest rates?

It starts inside the beltway and moves outward from there. Where do you want to be in 2008?

For more information on Commonsense Real Estate Advice, visit Anthony’s blog at http://commonsenserealestate.blogspot.com/.

Tuesday, January 22, 2008

The Rental Game: What Are The Rules?

by M. Anthony Carr

What do you do when the dishwasher has spewed soapy water across the kitchen floor and leaked down on your neighbor below? Who's responsible? The landlord or the tenant? Across the country, tenant law differs as much as the geography. Nevertheless, some principles remain the same regardless of the local nuances of tenant and landlord rights. One of the first places to visit is the landlord/tenant area posted online by Cornell University's Law School.

Commonly speaking (because the biggest problem I find with legal websites is that they don't speak in such basic terms) there are certain rights reserved for the landlord and certain rights reserved for the tenant. Tenants, says Cornell, have "a property interest in the land...for a given period of time." The lease reflects the length of the landlord/tenant agreement and what the tenant is allowed to do with the property. "The lease," says Cornell, though not historically or strictly a contract, may be subject to concepts embodied in contract law."

"Basic to all leases is the implied covenant of quiet enjoyment. This covenant ensures the tenant that his possession will not be disturbed by someone with a superior legal title to the land including the landlord," according to the site. Now, I bring Cornell's Web site to the forefront as it is an official sounding, and at most of all, reputable place, for all of us to seek out what the law says. However, a site based in Cleveland puts the responsibilities of landlords and tenants into simple language.

NeighborhoodLink is a product of Levin College of Urban Affairs, a part of Cleveland State University. An easily navigable site with plenty of information on rental laws in Cleveland, the site also includes form letters for tenants who must deal with unresponsive landlords. (This is a very cool part of the site -- check it out.

Nevertheless, the lists of landlord and tenant duties found here give a simple approach to who's responsible for what in a lease agreement and are generally relevant across the country.

Here are a few sample landlord duties from the site:

  • Keep the premises fit and habitable.
  • Keep the common areas safe.
  • Comply with building, housing, health, and safety codes.
  • Keep all systems in good working order -- plumbing, electrical, heating, etc.
  • Maintain all required appliances and equipment.
  • Provide, in most cases, running water and reasonable amounts of hot water and heat.
  • Provide garbage cans and trash removal.
  • Give adequate notice, at least 24 hours in some jurisdictions, before entering a tenant's unit -- except in emergencies. Enter only at reasonable times.

And what about tenants? The school says that tenants have an obligation to:

  • Keep the premises safe and sanitary.
  • Dispose of rubbish in the proper manner.
  • Keep the plumbing fixtures as clean as their condition permits.
  • Use electrical and plumbing fixtures properly.
  • Comply with housing, health, and safety codes that apply to tenants.
  • Refrain from damaging the premises and keep guests from causing damage.
  • Maintain appliances supplied by the landlord in good working order.
  • Permit landlord to enter the dwelling unit if the request is reasonable and proper notice is given.
  • Comply with state or municipal drug laws in connection with the premises and require house-hold members and guests to do likewise.

Oh -- who is responsible for that leaky dishwasher? Most likely, the tenant has an obligation to limit the damage by shutting off the machine and drying the floor. The landlord who supplied the appliance should have it repaired or replaced as soon as possible.

Keep in mind, tenant laws differ by jurisdiction. For details regarding your area, speak with local realty brokers, attorneys, and housing offices.

For more information on real estate investing, resources and news, check out my Commonsense Real Estate Blog at http://commonsenserealestate.blogspot.com/.

Originally Published: May 4, 2001

Wednesday, January 09, 2008

Are You Reading The Signs?

By M. Anthony Carr

I’m in the middle of jury duty. As you approach the courthouse entrance there is obviously a very long line to check in. In a post 9/11 world, those of us in the Washington, D.C. area have become accustom to security forces rifling through our bags, computers and the like for entrance into any public place, including courthouses and ball games. It’s just a matter of life, these days. Yesterday, there were hundreds of us answering the cattle call from the district court. We had to walk through the metal detectors. You know the drill…open your bags, empty your pockets, remove your belt, turn on your computer-pda-cell phone.

As we came through the check-in, there were hundreds of us in line. We passed by signs in various languages directing those with cell phones that have cameras to turn them in to a sheriff’s deputy for safekeeping. No phones with cameras allowed. Period. So by the time anyone got up to the metal detector you have read the signs and there have been plenty of verbal instructions from the security team that phones with cameras must be turned in. The security team was also directing people who were not potential jurors that they may not need to be in the long line, but could use another, shorter entrance to get to court.

So let me set the stage – signs – about 3 x 5 feet big – were hanging in the hallway; deputies (2 – 3 at a time) were constantly giving verbal direction to us all of these instructions. However, you would have been amazed at how many people were “surprised” when they were turned back from the metal detector to the cell-phone station or had their phones confiscated because they didn’t read the signs about the limitations of camera phones. Were they illiterate? No, couldn’t be – otherwise how would they be there with the Juror Summons in their hands? Could they not understand the instructions because of a language barrier – not with what I could observe. Were they just tuning out anything that they had no interest in? Ahhh – that’s what it was. They weren’t paying attention.

The same is happening with those on the side lines of the real estate market.

Let me ask you something – as a buyer or seller are you doing the same thing when it comes to the state of the real estate market? Are you ignoring the signs that are there screaming that now is the time to buy?

Fact: The number of existing homes sold rose 0.4 percent nationally in November. (buyers are out there)

Fact: Month-to-Month prices have stabilized in most markets across the country. (Yes, they are down if you look year to year, but when you want to buy, you want to know when prices have hit bottom, not how much less they’re selling for than last year.)

Fact: Job growth continues (meaning more wealth)

Fact: Population is still growing (more need)

Fact: Interest rates are still at historic lows (cheap money)

Fact: Inventory is dropping steadily across the country (Houses are selling, sellers are taking them off the market, builders aren’t building as many houses)

Fact: Seller are providing buyers with closing costs so that buyers can move in with little or no money down (This is a temporary situation!)

Now let me ask the agents: Are YOU ignoring the signs? Do you see more buyers coming out to opens; more calls at the front desk; discussion coming up in social events…but are you armed to respond? Do you know the message? Do you know where you stand in your market? Can you answer immediately the condition of your individual market? Sales are down 11 percent for the year, but prices are at the same level? Can you say that? If not, you’re not the agent of change necessary to help buyers get the best deal they’re going to get in the next decade.

For more information on real estate investing, resources and news, check out my Commonsense Real Estate Blog at http://commonsenserealestate.blogspot.com/.