The Wethman Group’s Real Estate News – October

October 2017

Greetings!

In September we typically see a flurry of market activity following a bit of a lull in August, and this year was no exception. New listings were up over 18% from August, and new pending sales were up from September last year. Inventory remains tight, with the 17th consecutive month of year-over-year decline in active listings. September saw the 12th consecutive month of year-over-year price increases, and the highest September on record in a decade.
As you can see from the table above, the price changes vary greatly by the jurisdiction within the region and then even within neighborhoods within those jurisdictions. Contact us for specific data by zip code or price point to strategize your best approach.
Still thinking of selling this year? Now is the time to act! If you’ve been considering a change, let us work with you on the best strategy to make the most of the current market conditions.
0% Interest Loan Program
NASA credit union is offering a 0% loan program with 0% Private Mortgage Insurance (PMI), even on jumbo loans. This is a great program, and basically anyone can apply, no NASA affiliation required.
Client Appreciation Program and Events 
 
CLIENT EVENT SAVE THE DATES:
Pie Day Party: Tuesday, November 21
Movie with Santa at Tysons: Saturday, December 2
Postcards and email invitations will go out to clients later this month.
LOANER PROGRAM ADDITIONS: You probably remember we have a free moving truck, but we’ve also now added an electric lawn mower and hedge trimmer to our inventory, available for your short-term use. We also have a leaf blower/shredder for Fall cleanups!  Just email us to reserve an item for pickup.
 
Ekko Title Providing Relief in Puerto Rico
We were thrilled to loan the Wethman Group moving truck to help Sara Mendez Rodriguez and Ekko Title with their Puerto Rico donation drive!  They sent two VERY full trucks down to Florida on October 13th. The supplies will be sent on a chartered flight to Puerto Rico this week. Sara, who is from PR, will be going to Florida too, and then on to PR, to oversee distribution of food, water, diapers, cleaning supplies, feminine products, and much more, directly to people who still desperately need help. If you or a group you know could use our moving truck to aid the community or collect donations for this or another worthy cause, we’d love to help!
First Time Home Buyer Classes
 
We are gauging interest for hosting our popular class for first time buyers on a few dates this fall. Curious about the process of searching for your new home? Is buying one of your goals for 2018 but not sure where to start? We cover these topics and more in our class and consistently get rave reviews for the usefulness of the content. Drop us a line to let us know you are interested in attending and we will keep you posted as we add dates.
Love us? Review us! Your reviews drive our business. To show our appreciation, if you share your experience online at Yelp, Zillow, Angie’s List, or on Facebook, and you will be entered into a quarterly drawing for a $100 gift card. Plus, you will instantly receive our deepest gratitude!
As always, if you or someone you know has a real estate need please reach out. We’re here to help!
The Wethman Group
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1031 Exchange

Are you an seller or investor looking to sell a property, buy a new property, but want to avoid paying capital gains or recapture taxes?

Have you heard of 1031 exchange? This is a process where you are redistributing the equity of one property into another investment, to defer additional taxes.

Here are some simple facts on the 1031 process;
1. Sell property & identify new purchase within 90 days.
2. Find a like kind/replacement property you want to acquire. (Must be equal or greater value).
3. Reinvest all equity into the new property OR apply equity to a higher valued property.

This transaction is similar to a trade, where the equity is transferred to a new property, rather than received as proceeds, and taxed.

We have had clients sell a long term investment property, for a new construction investment, sell their investment, and apply the proceeds towards a portion of an investment or, apply the equity of one property to the purchase three new properties.

As part of the exchange process, the purchase property must be identified with in the specified time frame, and the owner may not receive cash or other benefits from the sale.

Using a Qualified Intermediary to complete this process is highly recommended, given the complicated nature and timing of the transactions.

If you have more questions about completing a 1031 Exchange, our team has completed these types of transactions on our personal properties, and for clients. Contact us today, for more info!

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Falls Church First Time Homebuyers Program

falls church logoThe City of Falls Church offers closing cost and down payment assistance of up to 20% of the purchase price of a house (less than $450,000) for first time homebuyers. The assistance is a second interest-free loan, with repayment due at the sale or refinance of the home, or if the buyer rents the home out (it is no longer the buyer’s primary residence). One caveat: the City wants an interest in any appreciation in the property for the use of the money. If they loan you 20% of the purchase price of the home and it appreciates, when you sell the home, they want 20% of the new sale price.

Requirements to qualify:

  1. Income restricted to 120% of the area median, which for a household of 1-2 people is $120,000.
  2. Credit score of 620 or better.
  3. Be able to qualify for a 30 year loan.
  4. Be able to contribute at least 2% down.
  5. Buy a home within Fall Church City that is less than $450,000

Ask us for more information about how this program stacks up to others on offer in the area, or a recommendation on getting started in your search or working with a lender.

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Buyer Resources: Arlington’s Moderate Income Purchase Assistance Program (MIPAP)

arlington logo

If you are looking in Arlington and haven’t yet saved up the money for a down payment or closing costs, Arlington County has a program that may help. Arlington’s MIPAP program offers a deferred 0% interest rate loan to first-time homebuyers to help cover a down payment or closing costs of up to 25% of the purchase price. You make no monthly payments on the subordinate loan from the County until you sell or refinance. The County does get a shared interest in any potential appreciation of the property down the road when you go to sell or refinance. At the sale, you split any appreciation, up to 25% (determined by an appraisal), proportionally with the county in addition to paying off the original loan. If the property hasn’t appreciated, you simply repay the original loan, interest free.

Requirements:

  • Moderate income, currently limited to $62,100 for 1 person or $69,920 for a household of 2
  • Property must be located in Arlington County
  • Buyer must contribute at least 1% as a down payment
  • Maximum purchase price is $362,790, maximum loan amount is $90,700.

If you are interested in learning more about this or other programs available to homebuyers, please do reach out. We are happy to help you understand your options and find the right place for you.

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Tax Assessment vs Market Value

Have you ever wondered what the difference is between the tax assessed value of a property, versus the fair market value? And how these two values compare to the appraisal value? You aren’t alone. Many sellers and buyers are confused about these values and how these values are determined and intertwinedimage

First, lets look at the definitions for all three:
Tax Assessment: The amount that your county assigns to your home based on the value of the land, and the building itself. The value is calculated using an algorithm of sales in your neighborhood, and county based on the size of your lot, size of your home, number of bedrooms, bathrooms, and any other major upgrades (additions/decks/garages, etc). This calculated value determines the property taxes you will pay each year.  The assessed value will changed based on how strong or weak the past year’s sales were, so typically it is a lagging indicator of the market, meaning it represents past values.

Market Value: The value at which a buyer is willing to purchase and the seller is willing to sell a home. This value is more subjective, and often linked to supply and demand in the specific area. Condition and upgrades will play a factor in the value, but ultimately the market value is the amount that both parties agreed to in a contract. A buyer may be willing to pay more for a home, if its in a desirable area with limited inventory. Similarly, if there is a surplus of inventory, or the home is located on a major road or has other challenging features, it may be sold at a lower value.

Appraised Value: This value is determined by an appraiser (usually 3rd party) to confirm or validate the market value for home buyer and/or a lender. The appraised value is generally calculated by using like kind properties, within a mile or so radius, looking specifically at sales for the previous three to four months. Adjustments are usually made up/down for more square feet, additional bedrooms, bathrooms, garage spaces and other upgrades. The appraiser may take supply and demand in account, but generally they are looking primarily at the condition/amenities of the home and how it compares to other sales in the immediate neighborhood.

So, while many buyers may not want to pay more than the “assessed value” of a property, the market value is usually higher. Additionally, a seller may order an appraisal before going on the market and refuse to sell for less than the appraised value, even if that may not be the correct market value. Tax assessment values and market values may vary depending on your neighborhood, county and state. While, tax assessments may be lower than market value by $50-$100K in some areas, the assessment and market values may be the same or higher in other areas.

moneyhouse

 

If you have questions about assessed values, vs market or appraisal values, please contact us for more information!

Photo Credit: Newsday.com and epcrossing.org

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Let’s Talk Loans: Conforming Conventional Loans

Many clients are frequently baffled about where to begin the financing process and what they should be looking for in a mortgage. With so many changes over the years, it’s hard to keep up! We decided to simply and effectively lay out the most common loans and their general guidelines over the coming weeks as part of a series “Let’s Talk Loans”.

Conforming Conventional Loans

What is it? “Conforming” loans are the most common loans in the marketplace, and meet the required standards of both Fannie Mae and Freddie Mac (that is, they “conform” to Fannie and Freddie rules), both of which purchase loans from lenders and then package them up to sell on the secondary market. This allows lenders to receive cash up front for you loan, so they can lend to someone else.  Conforming loans can be fixed rate or adjustable rate, and can be 15 year or 30 year.

Why is that important? Investors buy these packaged loans from Fannie and Freddie.  Fannie and Freddie charge a guarantee fee, which is approximately 0.5% more than your interest rate.  Some banks, however, keep these loans in their own portfolio rather than sell them, depending on the market and their own investment objectives.

What are the guidelines? Typically, you need at least a 5% down payment, and good credit.  The conforming loan limit is generally 417,000; however, in more expensive markets of the country, including the DC Metro area, high-value conforming loans up to $625,500 can be found.  But be prepared to have a 10%-20% down payment for these larger loans.  And without 20% down, you can expect to pay private mortgage insurance, as well.

Next Up:  Let’s Talk Loans: FHA

To find out more, or to speak with a home loan expert, contact us!

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Building a Home: Construction Financing

So you’ve decided to purchase a new-construction home. This series of posts will detail the process from start to finish, and hopefully give you a good idea of what to expect throughout the process. In part one, we’ll look at how to get started by securing construction financing and what to expect from the lender.

Financing New Construction

The first thing you should do before embarking on the journey of building a home is to secure financing. Actually, this is true no matter what type of home you’re buying, be it resale or new construction. You need to know how much house you can afford.

You’ll need to shop for lenders. Compare rates and loan terms. Construction loans sometimes have a higher interest rate than a traditional resale mortgage. During construction you may be paying a bit more in interest, but when the project is finished, the construction loan will convert to a long-term note and you should be able to get a lower rate going forward.

Be aware of the time limit on the construction loan. If the loan term is for nine months, be sure the builder can complete construction in that time, or you’ll likely be paying penalties every month that construction drags on (this happened to a member of our team). The penalty will vary from lender to lender, so it’s important to ask about this when shopping around.

Construction financing differs from a mortgage used to buy a resale home in other ways, as well. For starters, the bank has to approve your builder. Some of the larger builders will already be approved by multiple banks, or they may have an in-house or affiliated lender that offers incentives to use them. You might get some discounts if you go with an affiliated lender, and sometimes this is the most cost-effective way to go. But don’t be afraid to comparison shop. Building a home is a huge undertaking, and you want to be diligent every step of the way.

If you go with a smaller builder, then the bank will likely need to check out the company finances before they will give the go-ahead to your project. This protects both you and the lender, and any reputable builder will be happy to provide the necessary paperwork to gain approval. If a builder balks at this, this should raise red flags. The last thing you need is for a builder to go belly up in the middle of building your home.

Another difference with construction loans: The bank holds onto the money and makes payments to the builder in installments, called draws. Before the bank will release a draw to the builder, an inspection will be scheduled to make sure work on the house is progressing in a timely manner and the work is up to par. Some banks require the borrowers’ permission to release the funds. If possible, go to the house yourself to check and make sure the work that has been done is what is in the contract. If there’s a problem, notify the builder and the bank immediately. And consult an attorney before withholding payment.

As with all financing, do your research. Ask questions about the process, fees, terms, etc, so you don’t wind up surprised at any point during the process. Building a home can be stressful, but some of that stress can be reduced if you understand what you’re getting into, starting with the construction financing.

Questions about building a home or financing? Contact us! We’ll be happy to help.

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Preparing to Buy a Home

Buying a home in 2013? If so, here are some tips for preparing to buy a home.

Save your cash. You’re going to need it for your down payment and closing costs. Save at least 3% of the purchase price to put toward closing costs, even if you’re asking the sellers to chip in. The lower the price of the home, the higher the percentage you should save. For your down payment, you’ll need at least 3.5% for an FHA loan, and for a conventional loan, you’ll want at least 10% down. If you can put 20% or more down, that’s even better and will go a long way toward getting you the best rates and terms from your lender. To help you save, consider setting up a separate “home” savings account into which you make regular deposits with each paycheck and from which you make no withdraws. Ever.

Do your research. Part of preparing to buy a home is research, research, research. By the time you’re ready to get in the car and start looking at homes, you should have logged hours of internet research. From financing to home prices and from neighborhoods to local real estate agents, you’ll need to learn about all of it. By being informed, the process will be more manageable and won’t seem so intimidating.

Check your credit. Go to AnnualCreditReport.com to get your free credit report from all three credit bureaus. You can’t get a free score from the site, but you can at least check the information that’s in their files and ensure it’s correct. If there are errors, get them fixed BEFORE you apply for a mortgage as it can sometimes take a while to get things straightened out. Also, now is NOT the time to open new accounts, close old ones, or to make any large purchases (cars, boats, furniture, etc).

Check your budget. Now IS the time to crunch numbers and see where you stand financially. It’s important to know how much money you have coming in and going out each month. This will help you set a target for your mortgage payment so you don’t overextend yourself financially.

Talk to a Realtor and a lender. If you don’t know any real estate agents, you can start by asking friends, relatives, and colleagues for recommendations. You can also search online. A couple of sites provide reviews of agents in your area. Start by looking at Zillow and Yelp. Trulia is also helpful. Talk to several agents and set up a meeting. You want to be compatible with the agent you choose. After all, you’ll be spending a lot of time together while you’re looking for a home. To get a feel for how we can help you buy your new home, come to our first-time home buyer’s class, being held Tuesday, January 29th at 7pm. We’ll walk you through the home-buying process and give you an overview of current market conditions. This no-obligation class is FREE, and you can register here.

Once you choose an agent, they can provide recommendations for a lender. Talk to several lenders and shop for the best rates and loan terms.

Preparing to buy a home is a lot of work. Contact us to help you get started!

 

 

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FAQ: Can my Parents Give Me a Gift to Help with my Down Payment?

I work with a lot of first time buyers in the DC area, which is a very expensive market and thus many clients have their parents help out either with down payment assistance or co-signing the loan. The most important thing is to get a trusted lender involved very early in the process. Lenders sometimes have different sets of guidelines by bank and also by loan product. It’s important to choose an appropriate product (e.g., 30 year fixed FHA, or 30 year fixed conventional) early in the process. Sometimes gifts can be ‘seasoned’ in the recipient’s account and used as a down payment, but if it arrives too late in the process it may cause problems with the loan approval.

There’s a big misunderstanding about gift taxes. For gifts below a certain amount, no filing is due to the IRS, and for above a certain amount a filing is due BUT taxes may or may NOT be due! It depends on the amount of the gift, how many recipients there are, and whether the giver has reached his or her lifetime exclusion. Parents often mistakenly assume they will be taxed on every gift above the reporting threshold, and thus want to structure it as a loan but that is one of the worst things they can do. If it’s structured as a loan then the lender will count it as debt and it will affect the recipient’s debt-to-income ratio and could very well result in a rejection by the lender. The key is to speak with your tax preparer early to determine whether the gift is taxable, and then speak to a trusted lender.

Need a recommendation for a CPA or a lender? Contact us.

Other Resources:

Attend a free first time home buyer class

Choosing a Lender

Search the entire Multiple Listing Service

 

 

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