FHA changes

FHA loans are widely used in the DC housing market.  In the last two years, half of my clients have utilized the lending program.  Before 2009, I never had a client use FHA.  Before 2009 there was also 0% down loans.  Oh how the lending landscape has changed!

An article in the Post's real estate section does a good job of recapping the recent changes.  I've written about some of these changes like the up front insurance premium.  It was 1.75% but earlier this year it was raised to 2.25%.  The article also includes a summary of upcoming changes.  If you're going to use an FHA loan to finance a purchase, this is a must read.

What the..???

This is 1318 Randolph St, NE which is located in the hot, hot neighborhood of Brookland.  It had SEVEN offers! One of them mine.  It was listed for 254K and it is in very good shape.   Yes, the kitchen and bath needed updated but at 254K, that's doable. 

Our offer came in #3 out of the 7.  I should be satisfied but I'm not.  We lost.  Our offer (20% down, conventional loan, almost 40K over list) was strong but my clients have limits.  The winning contract was for over 300K...probably well over 300K.  I suspect it went for 330-350K.  That's 750-100K above the list price.  I could say I'm shocked.  I'm not.  Finding a house in DC in the 250K range is similar to the Nationals having a winning season... almost impossible.  What's been encouraging in the last several weeks is the number of decent houses in this price range.  What's been discouraging is there's always multiple offers. 

For me, the most competitive price ranges in the 2010 DC market have been the single family homes between 250-350K and 750-850K.  It fascinating that the most competitive price ranges are on opposite ends of the spectrum but the circumstances are the same.  There isn't a lot of inventory that's good.  When it's good, there's multiple offers.   I missed the height of the market in 2002-2005 when people sometimes made 4-6 offers before they got a contract ratified.  It's frustrating but exhilarating.  I really hate to lose!  I think the Fall selling season is going to be very interesting.  Stay tuned.

Buying in DC

Purchasing property can be a crazy process.  There's a lot of unfamiliar vocabulary.  You have to become well educated in the language of lending.  I created a cheat sheet for my buyers to help them with the procedures.  So how does one go about the buying a property in DC?  

1.  Talk to a lender.  This is the most important part of buying a property.  Financing can be the most difficult step in a purchase.  Your credit has to be good.  You debt to income ratio has to be just right.  It's VERY important it is to know your limits BEFORE you search.  Once you've spoken to a lender and they have all the info they need (bank statements, payment stubs, financial records, your credit, etc.) you’re pre-qualified and ready to start searching.

 2.  Find a property.  Discovering real estate that you want to purchase involves looking at listings online and visiting houses/condos/coops.  Sometimes a picture can only convey so much.  It’s wise to visit as many properties as possible to determine what appeals to you.  That can take a day or several months.

 3.  Make an offer.   Once you find a property you love, you make an offer.  In DC, we use a Regional Contract and lots of addendums.  The contract, addendums and paper work are 30-40 pages.  It’s very important to review all of the paper work.

4.  Execute the paperwork.  After you offer has been reviewed and ratified, the contract is sent to the lender and the title company.  The title company starts to review the title work.  Their job is to make sure the property is delivered with a clear title.  The lender starts processing your loan.  Meanwhile, you conduct the home inspection and the lender sends out the  appraiser.

5.  Fufill the contingencies.  If the home inspection, appraisal, and financing go smoothly, you go to closing.

6.  Execute final reviews.  Before closing, you do a final walk through to see if the property is still in good shape.  This is also when you check the items that were repaired from the home inspection.  (If any repairs were needed).  You also review the HUD1 (the closing statement) to make sure all your fees are correct.  If everything is in order, you sign the documents.

7.  Complete the documents.  Once all the documents are signed, you're a proud homeowner.  Congratulations!

The entire process of making an offer; its acceptance, ratification, expiration of contingencies to closing the deal usually takes 30 days.  The 30 days starts the day you submit the offer to the listing agent.  The closing date is usually 30 days from the date the contract is written.  If you need a longer period of time for closing, 45 days from the date the contract is written is also acceptable.  If it’s a short sale or a foreclosure, the closing date period will be 45-60 days at a minimum. 

A few definitions:  Ratification means when all parties (the seller and buyer) agree to the terms of the contract.  For example, let’s say a house was listed for 499K.  You decide to make an offer for 450K.  The seller thinks that price is too low so they counter offer (make another offer) at 475K.  475K is an acceptable price to you and to the sellers.  Everyone agrees to the price of 475K and signs the offer.  The contract is ratified.  There are lots of variables to an offer.  All terms stated in the contract are negotiable points:  the price, the closing date, how many days you have for your home inspection, financing contingency and appraisal contingencies.  Once ALL the negotiating points have been agreed upon, the contract is ratified. 

Contingencies are a fulfillment of a condition.  I like to use 3 contingencies in my contracts because they protect the buyer:  the home inspection, financing and appraisal contingencies.  All 3 of these contingencies have to be met before you can close on a property.  There are different reasons to have these contingencies but in essence they protect you from losing your earnest money deposit.

An earnest money deposit (EMD) is the deposit that the brokerage or title company holds in an escrow account.  It goes towards your closing costs.  The earnest money deposit is usually 3-5% of the offer price.  It’s not deposited into escrow account UNTIL the contract is ratified.  If the contract is not ratified, the EMD check is returned to you. 

Closing costs in DC run about 3% of the purchase price.  The two biggest costs covered by the 3% is the title insurance and the recordation tax that goes to DC Gov.  This tax is 1.45% of the purchase price over 400K and 1.1% of the purchase price under 400K.  If you’re using an FHA loan, costs are slightly different.   Since the FHA guarantees the loan, you pay a big chunk of the MIP costs (mortgage insurance premium) upfront.  It’s 2.25% of the purchase price and it's included in the loan amount.  

 As you can see, it's a complicated operation. That's why you need a cheat sheet! 

The Murphy Team on Facebook!

Goodness gracious..The Murphy Team has joined Facebook!!  Add us as a friend to keep up with our latest listings, team shenanigans, and happenings in Foggy Bottom/The West End.  I'm so proud the team has decided to join the social networking world!