DC Transfer and Recordation Taxes Explained

calculator

calculatorThough less complicated than Maryland, DC recordation taxes (a.k.a. transfer taxes) are two-tiered.  Buy a house for under $400,000 and you pay roughly 1.1%.  At $400,000 and above the rate jumps to 1.45%. Each.  Buyers and Sellers both have the privilege of paying this tax.*

So, if you are buying a house in the District for $350,000 the math works like so: $350,000 x 1.1% = $3,500.  Both the buyer and seller will pay $3,500 for a total of $7,000 going to DC.

If you are purchasing something for $600,000, the math works like so: $600,000 x 1.45% = $8,700.  Both sides pay the tax, with a total of $17,400 paid to DC.

Big difference.  If you’re looking to purchase property right around $400,000, try to keep it just under the $400K mark.  It’ll save you @ $1,400.

For certain borrowers whose income allows it, there are tax abatement programs in DC that can save Read more

How ’bout those Rising Interest Rates…

doom and gloom

doom and gloomThe talk of the town these days is rising interest rates, and what it all means for home buyers and sellers.  In the last month or so interest rates on a 30-year fixed mortgage rose 3/4 – 1% within a 9 day period.  That’s a pretty astonishing hike, not to mention fast.

In the simplest terms, for those purchasing a $500,000 home with a 20% down payment, you will now pay @$4,000 more per year on your mortgage than you would had you settled on your home in May.  That’s $333 extra a month.

While a lot of folks are screaming doom and gloom, I’m not so sure it’s a bad thing.  Historically, rates haven’t dipped below 5% in the last 40 years until about 2008- the start of our latest recession.  The housing crisis along with low rates created opportunities for many buyers previously shut out of the market.  With the housing market (especially in our local market) decidedly in recovery mode, the feds are raising rates.  They can’t prop up the housing industry forever.

Freddie Mac Chart

Anyone familiar with the close-in DC marketplace knows that we’ve seen the return of “irrational exuberance”.  Those wishing to purchase property in the “under-$1-million” range are seeing an abundance of competition and multiple bids.  If the rising interest rates tamp down the degree to which homes are being overbid, then this is a good thing for buyers.

It may not happen all at once.  We continue to suffer from a lack of inventory, with absorption rates under a 2-months supply (a 5-6 month supply is considered healthy and balanced). But over time I would expect things to even out a bit more, making it a friendlier place for buyers.

Sellers, have fun while it lasts! Buyers, too!

Housing Affordability Best In Years

Housing Affordability Reaches Record High

According to the National Association of Realtors via the Daily Real Estate News/Tuesday, May 15, 2012, home affordability is at an all time high:

“Housing affordability conditions for all buyers reached a milestone in the first quarter, according to the National Association of REALTORS®.

NAR’s composite quarterly Housing Affordability Index rose to a record high of 205.9 in first quarter, based on the relationship between median home price, median family income and average mortgage interest rate. The higher the index, the greater the household purchasing power. This is the first time the quarterly index broke the 200 mark; record keeping began in 1970.

NAR President Moe Veissi said market conditions are optimal for home buyers. “For those with good credit, we’ve never seen better housing affordability conditions or market opportunities than we see at present,” he said. “Although home prices are stabilizing and sales are rising, some buyers still have to jump through a lot of hoops to convince a lender that they are creditworthy, even for a mortgage that would be well within their means. This is especially true for self-employed buyers.”

Veissi noted home sales would be much higher if lending standards would return to normal (my take: What’s normal?  2005 normal? Do we really want that? Isn’t that what got us into trouble in the first place???)

The index shows the median-income family, earning just under $61,000, could afford a home costing $325,500 in the first quarter, which is more than double the national median existing single-family home price of $158,100. The median monthly mortgage principal and interest payment for a median-priced home would take only 13.5 percent of gross income.

A companion index measuring the ability of first-time buyers to purchase a home also set a record, with the first-time buyer index reaching 135.8 in the first quarter.

Assumptions for the first-time buyer index include a lower-income, at 65 percent of median family income, a starter home costing 85 percent of the median price, and a down payment of 10 percent. This index means the typical entry-level buyer could afford a home costing $182,500, which is well above the overall median price.

“It’s never been easy to buy a first home because of the cash required for down payment and closing costs, but conditions for first-time buyers who are able to get a mortgage have never been better,” Veissi explained.

Most first-time buyers choose a loan with a lower down payment, often an FHA-insured loan with 3.5 percent down, and some use the VA program with no down payment.

Both home prices and mortgage interest rates are expected to edge up modestly as the year progresses, but housing affordability will remain very favorable with the median-income household well positioned to afford a median-priced home. For all of 2012 the index is projected to set an annual record, averaging 191 for the year.”

Source: NAR (National Association of Realtors)

 

Local Lenders… A Buyer’s Best Friend

Buyer beware.  There’s a tempting mortgage rate being dangled in front of your eyes, and it just might come from an e-lender (gasp!) or an out-of-town lender.  Here’s why we will always advise you to opt for the local guy/gal:

  • Appraisals.  Local lenders know who to call upon for accurate appraisals.  Banking laws have changed a bit, so an individual appraiser can’t be assigned to your “case”.  However, local banks can arrange for a pool of hand-picked, talented, accurate and regional appraisers to handle all of their business.  Although one of the “pool” will be randomly assigned to your loan, no matter who you end up with, chances are your appraisal will properly reflect current and local values.  Our local banks pay top dollar for appraisals and because of this the folks that work for them can turn things around quickly. Work with an out-of-town/big box lender, and you’ll likely end up with an appraiser who lives 60 miles out-of-town and is willing to accept half the standard fee (somebody else keeping the other half). In other words, you’ll be assigned someone randomly.  Trust me, this appraiser doesn’t know that school district A homes command considerably more than school district B.  And because the volume of real estate sales is down, appraisers have to work twice as hard for the money- often venturing outside of their comfort zone.  Travel costs can eat considerably into their already reduced fees, so a distant appraisal might not get you placed on the top of their list. It’s luck of the draw. Do you really want that puppy mill appraiser placing a value on the home you just fell in love with?
  • Accountability.  Ever been frustrated with your phone provider (I won’t name names)?  One can get the same treatment in the mortgage world.  Only, it’s not over a couple hundred bucks, it’s over the biggest purchase of your life!  Don’t get me wrong, they aren’t all bad.  But if you keep it local, and work with someone who comes highly recommended (hopefully by me), then we have someone to turn to if something goes wrong.  I recently slogged my way through a loan with a New Jersey lender where things were delayed by over 2 weeks, costing my client thousands of dollars.  Trust me, that New Jersey lender doesn’t care what I think.  They aren’t trying to win my business, or impress me.  The loan officer who took the application and wrote the pre-approval letter checked out of the deal the minute it went to Underwriting. And guess how much Underwriting cares…
  • Timeliness.  Jumbo loans can be difficult.  And DC/Bethesda/Chevy Chase is a jumbo loan kind of market.  Our local lenders are quite accustomed to getting these loans through in a timely manner (actually adhering to the terms of the contract!).  Our friends in New Jersey have been good at letting us know how lucky we are just to be talking to them.  One of the loan processors actually said to my client “oh, you have a jumbo loan.  I haven’t seen one of those go to settlement on time in I don’t know how long…”  What!  A delayed settlement can jeopardize your purchase.
  • Theater of the Absurd.  I once had a lender tell me that the sellers had to get rid of a 2nd refrigerator in their house because it was considered “personal property” and had to be removed from the premises prior to settlement.  You can’t make this stuff up.  Was this a Big box lender following some absurd guideline?  You got that right.

My rant is done.  I fear I’ve been a little snarky.  No doubt, there are economies to be had by working with the big guys.  But it’s served up with a side of crazy.  Buyers… I’m begging you… keep it local! It will save you energy, time, possibly money, and certainly your sanity.*

*We’ve got a long list of tried and true lenders.  Give us a call and we’ll happily share.