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Home shoppers purchase two products when they buy a house – the property itself and a mortgage. The difference between the two is the house price is advertised in living color online, on postcards, in QR codes, etc. The loan pricing, however, is a little less dramatic.

The house listed in today’s market in Northern Virginia, while listed at $500,000, may actually sell for $515,000 or there abouts. The mortgage price, on the other hand, is measured in interest rates.

How will it effect your buying power? Take a look at the chart below and you can actually measure the power of your  monthly payment by watching rates move up and down. About a month ago, rates were around 3.5% – now they are roughly a full percentage point ahead of that mark (yes – 4.5%).

What’s the phrase? You snooze you… Oh well – 4% rates are STILL REALLY GOOD RATES. Give us a call if we can help you talk with a loan professional or see how these moves in the market affect your buying power. (703) 821-8300.

What can you buy for $2,000 per month?

I met up with a potential buyer last night at a well-priced listing that is seller owned and completely fixed up inside. She was worried the price was too high, we hadn’t hit bottom yet, things could get worse, etc., etc.

She was not unlike many buyers out there in markets across the country that have already started to show signs of recovery. In Northern Virginia – the bottom was hit months ago. It’s a challenge of Myth vs. Reality.

(See this piece from Mortgage News Daily on foreclosures dropping:

For instance, in Fairfax County (just a few miles from Washington, D.C.), the inventory is down 23% while pending sales are up a whopping 60% over the last 30 days. In addition, average prices have leveled off for months now at pre-2004 levels and starting to rebound.

Buyers are now competing on foreclosures with multiple offers and escalating their offers over list price.

Prices are still thousands higher than they were in 2002 and previous. The good news for homeowners who want to move up is that if they purchased before 2002, more than likely, they can sell for a profit and move up for a lot less than they could have just a couple years ago.

The concept that “My house has lost money” is only important when you’re selling. What the consumer should look at is the purchase price vs. the sales price – not the height of the market value vs. today’s value. If you bought for $275,000 and sell at $375,000 – there’s $100,000 in profit – regardless of the fact that your house swelled in value to $450,000 three years ago. Such a seller has NOT lost $75,000, instead, he’s profited $100,000. In addition, he’ll be moving into a good deal in today’s housing and financing market.

by M. Anthony Carr

If you’re in the market to buy a home but have little down and want to avoid private mortgage insurance, you might want to look at the multi-layered financing options which have become increasingly available.

With these programs, there’s a first loan equal to 80 percent of the purchase price, and a second loan for 10 or 15 percent of the remaining costs. The remaining money, 10 percent or 5 percent, is the buyer’s down payment.

Described as “80/10/10” and “80/15/5” financing, buying with multiple loans allows purchasers to avoid the up-front costs and monthly expenses associated with private mortgage insurance (PMI).

Private mortgage insurance is a policy taken out by borrowers who lack big downpayments. Statistics show that buyers who purchase with less than 20 percent down have a higher risk of default than those who purchase with a downpayment of 20 percent or more.
If you buy with less than 20 percent down, lenders will generally require that you purchase with PMI when financing with a conventional loan. In the event of default, the policy kicks in to protect the lender.

(It’s also possible to buy without PMI. In these cases, the lender self-insures — you don’t pay PMI, but you do pay a somewhat higher interest rate.)

Insurance coverage requirements for government programs such as VA and FHA loans are somewhat different.

With FHA, there is a “mortgage insurance premium” or MIP. FHA loans have a 1.5 percent up-front fee plus a monthly premium equal to .5 percent of the outstanding loan balance. FHA programs generally allow homes to be purchased with 3 percent down. The up-front fee can be financed as an addition to the loan amount.

First-time VA borrowers do not pay a monthly premium, however they do face an up-front “funding fee” equal to 2 percent of the loan amount in most cases. Many VA loans are for more than 100 percent of the value of the house, since Uncle Sam allows military veterans to finance closing costs.

Multi-layered loans are for people who want to buy with conventional financing, don’t have 20 percent down, don’t want to pay PMI, and don’t want to wait for years to acquire a massive downpayment. In such cases they obtain a first mortgage equal to 80 percent of the purchase price. There is no PMI requirement here because there is a 20 percent gap between the amount borrowed and the purchase price.

The borrowers then obtain a second loan equal to 10 to 15 percent of the purchase price. Combine the 80 percent first loan with financing equal to another 10 to 15 percent of the purchase price, and the borrower must now bring 5 to 10 percent of the purchase price to closing as a downpayment. If you’re looking at purchasing a house with a second trust, there are a couple of nuances about a second mortgage of which you should be aware.

The interest rate for the second loan is going to seem a bit higher than what you will be quoted for a regular mortgage. For instance, if you’re paying 7 percent on the first trust, don’t be surprised if interest on the second mortgage is considerably higher. Shop and compare rates for both loans, and look at your total monthly costs.

The interest rate for the second loan is going to run higher because the loan has more risk to the lender. In case of a default, the first trust holder may foreclose to receive payment on the loan while the second mortgage holder doesn’t get a cent until the first-trust holder is paid completely. In addition, the amount of the loan is so small that the lender/investor must charge a higher interest rate to receive ample compensation.

Second trusts typically last for 5 to 15 years. Because they have a short term, they require big monthly payments to be quickly re-paid — or they have low monthly payments and at the end of the loan term the borrower faces a big single payoff, a so-called “balloon” payment. If you can’t pay or refinance the balloon payment, the property can be foreclosed.

The mortgage insurance industry argues that multi-layed loans, so-called “piggyback” financing, may be less attractive than the combination of a bigger first loan plus PMI. (See this calculator here from to see if it makes sense for you.)

But whether you prefer multi-layered financing or a big loan plus PMI, the fact is that both options allow you to buy with little down, both have costs, and both have risks. Each option should be reviewed with care to see which works best for you.




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