It goes without saying that financing is the most important element of purchasing a home. Most people come into the marketplace as buyers when they realize the rent they are paying is equivalent to a mortgage payment in this low-interest rate environment. What is typically missing is the cash for the down payment.
Some purchasers are fortunate to have family members help them. Some save for years or realize a windfall to help them with the 10 or 20 percent required. In the last few years, those without those resources and those who are current homeowners needing to move up, have realized little appreciation in their homes. Federal programs have supported low down payments, which would allow you to buy a home with a loan up to $729,000 with only 3.5 percent down.
This FHA program was ideal for new buyers with high incomes but limited cash. In the New Year, new restrictions on mortgage lending will shrink the number of properties eligible for the small down payment and therefore impact home buying within the beltway. In D.C. and in the inner suburbs, prices are higher and can average above $700,000. Currently, FHA loans allow buyers purchasing homes up to $750,000 or more to have only 3.5 percent in down payment money. After Jan. 1, 2013 the loan limit will drop to $629,000. For sellers in the $700,000 price range, that means there will be fewer eligible buyers for their properties.
If you are buyer that is not a veteran or current service member, you will need to come up with 10-20 percent down payment for properties priced above about $650,000. Lenders are also going to be looking for improved credit scores. So my words of advice if you are thinking about buying is to talk to a lender sooner rather than later. If you need names of lenders I am happy to provide them. Have them review the loan programs that are available to you. Keep in mind that each lender offers different programs. Some cater to high-end buyers and others to first-time buyers.
Review your credit history and look for ways to improve your credit score. Also, start exploring neighborhoods where prices trend below $650,000. My advice to all buyers is that you may need to explore areas that are a little farther out, look at properties that are not in top condition or go with a smaller size to stay under $650,000.
If you are a seller deciding where to list your property and your home will fall somewhere in the $650,000-$700,00 price range you will want to skew pricing down toward $650,000 in order to expand the market of buyers.
Will the improved economy help buyers to come up with more money to close? Will sellers be willing to pay closing costs for cash strapped buyers? It remains to be seen. The New Year will bring new opportunities and new challenges to the real estate market. If you are thinking of buying or selling be prepared for changing circumstances. If you would like to discuss your options, I am happy to help at any time. Happy holidays and happy New Year!
Sue Goodhart is the top-producing agent at McEnearney Associates in Alexandria and is licensed in D.C., Maryland and Virginia. Reach her at 202-507-7800 or firstname.lastname@example.org.