We're back with the answers from Friday's open thread. This time our expert on duty is Pam Wye from Sotheby's International Realty who fielded questions about private mortgage insurance, why sellers shouldn't stick around during an open house, and the neighborhood that is DC's current hidden gem for buying a home. Click through for her answers or check back on the previous open threads with Jennifer Myers and Scott Saghirian.
What are the pros and cons of having private mortgage insurance? Can you get rid of it [without negative consequences]?
The downside to private mortgage insurance is that it is an additional cost on top of your monthly mortgage bill. The upside to PMI is that it insurance affords you some potential protection in the event that you default on your loan. PMI is also typically tax deductible. If you want to know when you can ditch PMI on your loan, talk to your lender who will likely confirm an equity requirement.
Are there any areas in DC that are on the rise, downfall, or hidden gems?
One hidden gem is Michigan Park. The quiet residential neigborhood borders Brookland and offers good-sized colonials in the mid to high $300,000s and up. The lots are generously sized with ample yard space and often the properties come with off street parking. The downside to the area is its distance from retail, but if you have a car and square footage is important to you, Michigan Park is worth exploring. One that is on the rise is Brightwood. Over the past year and a half, I've noticed a huge increase in demand for properties in Brightwood. Often overlooked for being far north of downtown DC and perhaps a bit sleepy, many buyers are turning to this neighborhood as a second option to Petworth and Takoma Park, Maryland. [Editor's Note: given that so few houses are on the market there is hardly any neighborhood that can be considered having a true downfall at the moment. There are neighborhoods from years ago that are still struggling, but even those places don't have an abundance of houses for sale].
What are the best way to finance home renovations after a home has been purchased?
The Federal Housing Authority's 203K loan is one of the best solutions. This loan product actually combines the purchase of the property and the renovation/improvement costs in one loan. There are restrictions to the program such as the requirement that the purchaser occupy the property (meaning no investors). If you go this route, be sure to align yourself with a lender that specializes in the 203K program to make sure you understand the guidelines before moving forward.
How many lenders should a newbie talk to before choosing one? How about agents? And should one get worried if an agent is more pessimistic about your price range than your research suggests?
When choosing a lender, think local and reputable. In our very competitive market, the lender you choose is one of the most important decisions you can make, and it is not worth going with one just because they promise a low interest rate. There is no minimum number of lenders that you will have to speak with. A good way to begin your search is by asking a friend or colleague or real estate agent for a list of recommendations.
Here are some other things to keep in mind when lender hunting:
· Unless you are seeking a very specific loan program, nearly all lenders can handle standard FHA and conventional loans.
· Given the competitive nature of DC's market, a lender that can work within competitive time frames for the appraisal and financing contingencies which are incorporated into most offers, is a plus. For example, a lender who can turn around an appraisal and provide a loan commitment within 12 days is going to make your offer more competitive than a lender that will need 30 days.
As for agents, there is no set number that need to be interviewed. Consider meeting with agents until you find the right fit. A good real estate agent will discuss all of the necessary steps in the buying or selling process, be able to answer any questions that a buyer or seller may have, and provide references and materials to review. The relationship and "fit", however, is ultimately one of the most important factors in the success of the transaction.
Should someone with a significant amount of credit card debt even consider buying property?
A buyer with high credit card debt may not have a choice in the matter. Part of the pre-approval process involves a lender assessing a purchaser's debt-to-income ratio. High ratios of debt could make loan approval difficult though not necessarily impossible. Similarly, these ratios can affect the mortgage interest rate ones qualifies for. Even if a lender successfully pre-approves a buyer based on his/her debt, one might consider speaking with a financial planner to assess whether the time is really right to buy. What is right on paper may not be right in practicality.
Best case scenario, how long does it take to close on a house? What are the most frequent reasons the process stalls? [assuming the person is not an all cash buyer and has to go through the lending process].
The typical period of time from the date your offer is accepted and all terms are agreed upon in writing (we call this the "date of ratification") to the date you take possession of the property or "close" is typically 30 days in this market. One common reason for a delay in a transaction's closing date is that the loan has yet to be approved. While financing contingency time frames should be cross checked with your lender to ensure they can be met, some lenders will need extensions of the financing contingency or closing if an issue arises.
Why can't sellers stay during an open house?
Technically, sellers can stay during open houses. Agents often advise against them staying, however, because it can inhibit a potential buyer or visitor from openly expressing how they feel about the property. The open house is a valuable time in which objective feedback can be obtained and that is hard to do when an emotionally invested seller is present.