- The Washington Times - Friday, August 8, 2008

Reports claim that 2008 is a home buyers’ market, leading them to believe they can make a deal and grab a bargain, but prices have not plummeted equally in all neighborhoods in the Washington area. Another concern is that financing may be more difficult to obtain.

Generally, prices remain stable or have even risen slightly within the city and in some close-in suburbs. Home prices have softened more in the areas hardest hit by foreclosures such as Prince William and Loudoun counties in Virginia.

RealtyTrac (www.realtytrac.com) reported 497 foreclosed properties in Loudoun County, or 1 in every 197 homes in May. In Prince William County, 1,177 foreclosures were listed, or one in every 111 homes.

“Prices in Loudoun County have definitely come down, so it is much easier for first-time buyers to get into the market,” says Tanya Johnson of Tanya & Co./Keller Williams Realty in Sterling. “There are plenty of homes that are affordable for first-time buyers, particularly foreclosed, bank-owned properties which have low prices. Many of those get multiple contracts, but if a buyer loses out on one, there are plenty of others in their price range.”

Mrs. Johnson says that detached single-family homes in Loudoun are priced 15 to 20 percent lower than in 2007, and she estimates that over the past two years, prices have dropped by 20 percent to 30 percent.

Elaine Sawyer, president and broker of Sawyer & Associates Real Estate Inc. in Temple Hills, says that prices are lower in many areas, but it depends on the neighborhood.

“On Capitol Hill, most homes have retained their value and the market has stayed strong, but in southern Prince George’s County, buyers can find a lot of good deals on homes that are priced considerably lower than they were a few years ago,” says Ms. Sawyer.

In Montgomery County, broker John Burgess with Realty Executives Premiere in Burtonsville, says buying a first home is “doable,” if not necessarily easy.

“The main thing is that there are choices,” says Mr. Burgess. “In July, 26.5 percent of the single-family homes in Montgomery County were listed at under $400,000. These homes have at least three bedrooms and two baths. So, a first-time buyer right now could look at 850 single family homes in the county priced under $400,000.”

Mr. Burgess says that 65 percent of the single-family homes in Prince George’s County are priced below $400,000, with 3,528 single-family homes listed under that price in July.

Dana Wilson, a Realtor with RE/MAX Allegiance in the Franconia area of Fairfax County, says first-time buyers will find plenty of single-family homes in the county priced from $450,000 down to $275,000, usually for a foreclosure.

Harry Moore, a Realtor with Long & Foster Real Estate in Washington, says first-time buyers will find buying a home easier in some ways and harder in others.

“Certainly buyers will find substantially more inventory available than in the past,” says Mr. Moore. “Prices have stabilized in most of the close-in suburbs and in the city, but I have been working with buyers looking in south Arlington and have found foreclosures available for $400,000, which is about $100,000 to $250,000 less than a few years ago.”

Mr. Moore says the availability of so many homes makes this an excellent market for first-time buyers.

“There are plenty of choices, and buyers can negotiate more easily with sellers than in the past,” says Mr. Moore. “But buyers need to negotiate reasonably and work within the confines of the market. They need to understand it is a good market, but not a feeding frenzy. There are plenty of houses that are still selling close to the asking price.”

Ms. Sawyer says that besides the volume of homes on the market and the stabilizing or softening of prices, the existence of motivated sellers should help first-time buyers.

“Buyers need to be prepared to pay closing costs in addition to a down payment, but many sellers are willing to negotiate to help the buyers pay closing costs,” says Ms. Sawyer.

The most motivated sellers are those facing a potential foreclosure, attempting what is called a “short sale,” which means putting their home on the market and negotiating with the lender to accept a loan payoff of less than is owed on their home.

Banks selling foreclosures are also motivated sellers. The circumstances of buying short sales and foreclosures varies from the normal process of buying a home, but most real estate agents agree that as along as first-time buyers understand the process and work with professionals, these are viable properties to consider.

“First-time buyers should look at everything,” says Mrs. Johnson, of Sterling. “If a home is a foreclosure, they need to understand the property is sold ‘as is.’ The bank selling the home may not even know what condition the home is in.”

Mrs. Johnson points out that in Loudoun County the majority of homes on the market are fairly new and therefore less likely to need extensive repairs.

“Even with a foreclosure, buyers can and should do a home inspection,” says Mrs. Johnson. “Even though the bank won’t fix anything, it is better to know the extent of any problems and then choose whether to go ahead with the purchase or not.”

Mrs. Johnson also recommends new construction as a good option for first-time buyers, since many builders are offering extensive incentives to bring in buyers.

Mr. Moore, of Washington, says that while foreclosures are a good option for first-time buyers and usually are well-priced, short sales are a more frustrating proposition.

“Short sales can be very difficult because they essentially require you to negotiate twice,” says Mr. Moore. “First you have to negotiate a price and conditions with the owner, and then wait, sometimes for two or three months, for the bank to weigh in with whether they will accept that contract or require further negotiations. Short sales can work out well sometimes, but buyers need to be ready to be patient and careful.”

While plenty of inventory, lower prices and motivated sellers are all positive changes to the real estate market for first-time buyers, they may find a less rosy scenario when it comes to their financing options.

“There may be a plethora of homes, but there isn’t a plethora of loan programs out there,” says Mr. Burgess, of Burtonsville.

“There really aren’t any 100 percent loan programs anymore. The best option for buyers right now is an FHA loan, which requires only 3 percent as a down payment. FHA rules also allow for up to 6 percent in closing-cost assistance.”

Conventional loans require a minimum of a 5 percent down payment, with most requiring 10 percent, 15 percent or 20 percent down, depending on the individual borrowers’ circumstances.

FHA (Federal Housing Administration) loan limits were raised earlier in the year, which has made this loan program viable for local buyers.

In the past, these loans were only available on inexpensive properties, but these government-backed loans are now available on homes priced at up to $729,750 in the Washington area. VA loans, named for the former Veterans Administration, are available for veterans and their families and have programs similar to FHA loans.

Mr. Burgess suggests the first-time buyers gather funds for a down payment, check on and, if necessary, improve their credit scores and get their financial paperwork in order, then visit a reputable local lender. A few years ago, loans were frequently processed as “no-documentation” loans, with borrowers not required to prove their income or assets. Income and asset verification is now required for the majority of loans.

“First-time buyers should start by having a buyer consultation with a Realtor who can refer them to a mortgage professional,” says Mr. Burgess. “It’s important that buyers have as close as possible to a loan commitment before they begin looking for a home. Buyers who are prepared get a better deal from the seller than those who are not, and they have more flexibility when looking because they understand what they can and cannot afford.”

Besides preparing themselves with a loan commitment, buyers can ask for gift assistance for the down payment from friends and relatives, which are allowed by FHA loans. The FHA’s Nehemiah Program allows sellers to provide down-payment and closing-cost assistance to buyers. This program can be helpful to first-time buyers with good credit but little cash.

“First-time buyers with bad credit should meet with a lender and go through all their credit issues because lenders can make recommendations which help them position themselves to qualify for a loan,” says Ms. Sawyer. “Lenders can tell you which debts to pay first and find other ways to improve your credit score.”

Mr. Burgess says that FHA loans require a minimum credit score of 600. The higher the credit score, the easier it is for consumers to qualify for a larger loan and better rates.

Ms. Sawyer says buyers need to understand whether they can comfortably afford to purchase a home.

“Buyers need to factor in their debts and look at their budget to determine whether they can make their loan payments,” says Ms. Sawyer. “The current rule of thumb is that house payments should be about 30 to 40 percent of your gross income.”

Mr. Burgess says that FHA loans are a little more lenient and will allow mortgage payments, including taxes and insurance, principal and interest, to go as high as 41 percent of the household gross income. He says the general rule is that home payments should be 36 percent of the gross household income.

“The bottom line is that buyers need to have some money and verifiable income, but they can still get into a house with just 3 percent down if they choose an FHA loan,” says Mr. Moore. “Some of the down payment can even be gift money from relatives or friends, and, if they can negotiate with the seller for closing-cost assistance, they can get into a home with very little cash.”

Besides concern about obtaining financing, many buyers are wary of purchasing a property that could drop in value.

“Buyers are often waiting, hoping to hit the bottom of the market, but it is very, very hard to time the bottom of any market,” says Mrs. Johnson. “If we are not at the bottom right now, we are very close. Prices will start to increase at some point, so as long as you are close to the bottom, the price will go up at some point after you have purchased the home.”

As long as buyers have good credit, verifiable income and a least some cash, they should be able to obtain financing and then begin weeding through the plethora of available homes in their price range.

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