Katie Wethman, CPA, MBA, REALTOR® - Northern Virginia & DC Real Estate

How much do I need for a downpayment?

It depends. (Come on, you knew I was going to say that.)

There are some rules of thumb though. First, you can bet you need a heck of a lot more than buyers did a few years ago, or even one year ago. There are lots of influencing factors: type of financing, amount financed, type of home (condo/townhouse/detached house), and whether it’s an investment property or you intend to occupy it.

To understand downpayments, we really need to understand the Private Mortgage Insurance (PMI) industry. These are the guys who ‘insure’ the loan for the bank. If you have less than 20% equity in the property (whether via a downpayment or appreciation), any lender will require you to buy PMI. PMI premiums are paid by the borrower, but the beneficiary is the lender. So in other words, if the borrower defaults, then the PMI policy will pay the lender.

Up until recently, banks would issue a “second trust (mortgage)” rather than requiring the borrower to pay for PMI. So a borrower would have a first mortgage for 80% of the value, then a second mortgage for somewhere between 5% and 20% of the value—so the borrower needed as little as 0%. The mortgage interest on the second trust was deductible (a win for the borrower), there was less downpayment needed (another win for the borrower), and the bank got a second loan at a higher interest rate than the first (a win for the bank, or so they thought at the time, AND they held the home as collateral, which couldn’t possibly fall below the value at which it was purchased, right??) The only people that lost out were the mortgage insurance folks.

Fast forward to the default wave of the last two years. Banks are now holding two bad loans instead of one, and no insurance policy to collect on. PMI folks were just fine with that, as they had their hands full anyway with all of their own defaults. In today’s lending world, you can’t find a bank who’s willing to do a second trust that takes the total loan-to-value (LTV) ratio above 80%. So basically: no second trusts. And it’s really tough to find a PMI firm who will insure a loan without meeting certain conditions.

To really know what downpayment you need, you need to talk to a lender and find a program that works for you. But here are some rules of thumb:

- Conventional loans, count on needing 10 to 20%

- FHA – will require 3.5% (as of 01/01/09)

- VA loans – this is about the only program going where you can still get 100% financing, so if you’re a vet, look into it!

- Investment properties – 30%

There ARE special programs out there, though, like HPAP in the District and VHDA in Virginia. So, again, talk to a lender. I can recommend some great ones. You also need to keep your realtor in the loop. Often certain property types don’t work well with certain loan programs, or may trigger additional downpayment requirements.

If you’re confused about where to start your search and understanding how much you can afford, send me an email. I’m happy to work with you to see what types of homes and program combinations will work best for you.

Contact Katie Wethman, CPA, MBA, REALTOR® at (703) 655-7672 or via email to list your property for sale or to purchase a property in the Washington, DC, Arlington, Alexandria, Fairfax County, Fairfax City, or Falls Church City areas. Copyright © 2008 by Katie Wethman, All Rights Reserved. Visit my website to find out more about my services and read more on my blog.

Can't believe November is already here, and real estate continues to be newsworthy. Here's the roundup:

The election is upon us (finally!) and with it, an influx of a new administration and all its staff. What does this mean for our local housing market? Check out my blog post here.

Do you know someone relocating to or from our area as a result of the election? Please forward them my contact info and this email so they can check out my brief relocation guide. I'd love to help them with their real estate needs!

Investors are starting to emerge. Even Prince William County saw a home buying "spree." And it's no wonder -- take a look at the falling median home prices on these charts for Prince William and other counties in VA, MD and DC.

I was interviewed by the Washington Post/Express for their Fall Homebuyer's Guide, and noted that, though prices are attractive, obtaining financing as an investor may be more difficult than you think. Here's another great blog post on obtaining financing for investment properties. I'm currently working with several investors, so if you're thinking about purchasing an investment property, contact me to discuss the market.

Changes in FHA loan programs continue to evolve: As of January 1, 2009, borrowers will need 3.5% down (versus the current 3%), and the upper limit in our area will be $625,000 (down from the current $729,750.) Nonetheless, due to the tight credit markets, FHA remains the most viable option for many borrowers.

Worried about the economy? Here's a bit of good news: DC and Arlington were namin our ared two of the top ten places to live during a recession. And another piece of good news for our local area: the bailout will be a boon to our local economy. Another boon from the bailout: the $5000 tax credit for DC first time home buyers was included in the bill! Not buying in DC? You can still take advantage of the $7500 first time buyer "credit" (really an interest free loan) until July 9, 2009.

I am scheduled to teach another “First Time Home Buyer” seminar at Arlington County’s Central Library September 17. Please invite your friends and colleagues who currently rent to join me for this session where we will cover a recap of the market, current trends and market stats including days on market, average sales prices, and inventory levels.

We'll also look forward to Fall and Winter, the home purchase process and common pitfalls, financing basics (including interest rates, points, fees, and closing costs), and a how to get started checklist.

Details are as follows: Date(s): Wednesday, September 17 registration required

Logistics: 7:30 – 8:30 pm

Arlington Central Library, 2nd floor meeting room

1015 N. Quincy St Arlington, VA

Metro: Orange Line/Ballston

Cost: There is no obligation, and the session is FREE, but registration is required by emailing me at Katie@katiewethman.com or leaving me a voicemail at (703) 847-3336. Seating is limited.

North Arlington Condo Market Update

Zip Code 22201 and 22203 (includes Ballston, Virginia Square, Clarendon)

Click here to see the previous North Arlington Condo Market Update

Contact Katie Wethman, CPA, MBA, REALTOR® at (703) 847-3336 or via email to list your property for sale or to purchase a property in the Washington, DC, Arlington, Alexandria, Fairfax County, Fairfax City, or Falls Church City areas.

Copyright © 2008 by Katie Wethman, All Rights Reserved.

Visit my website to find out more about my services or search the MLS for Arlington and Washington, DC, properties and read more on my blog.

Source: MRIS data as of 04/23/2008. All data deemed reliable but not guaranteed.