First, a few clarifications. Both buyers and sellers have closing costs in a transaction; the sellers’ are typically much higher (because they pay both real estate brokers) than the buyers’. These fees are typically paid at closing—they come out of the sellers’ proceeds, and the buyer can either pay cash, or can negotiate to have their portion of the closing costs paid by the seller (read more here.)

For this post, I’ll focus on the buyer’s fees. A lender should provide you with a Good Faith Estimate (GFE) when you apply for a loan. This GFE is essentially an estimate of your “HUD-1” form, which you will receive at closing. Each lender has their own preferred format, but you should be able to compare apples-to-apples by looking at the section headers, or, even better, the line item numbers. It’s important to note, though, that lenders only control certain sections, while others may be simply based on their own experience. When comparing lenders, it’s important to focus only on the line items that the lender actually controls.

The fees vary by jurisdiction, broker, and settlement attorney, but a good way to categorize them would be:

• Prepaids – These are generally required by the lender, and may include prepaid insurance, prepaid property taxes, and prepaid interest. Another common prepaid item is condo/HOA fees. These vary based on the day of the month that you close, since they are pro-rated between buyer and seller.
• Points – A point represents 1% of the loan balance and are charged by lenders. This, along with the fees, can easily amount to thousands and thousands of dollars, so it’s important to discuss this with your agent and your lender.
• Fees – These are fees charged by real estate brokers, settlement attorneys, and lenders, and are the toughest to judge for “reasonableness” without experience. These vary widely, particularly among lenders. Some real estate agents will pay their broker’s fee on your behalf—be sure to ask them. For lenders, whose fees can be substantial, it’s important to know early in the process what they’ll charge. These fees can generally be found on your Good Faith Estimate in the 800 section, but look in the 1300 “Additional” section too. Broker’s and attorney’s fees are scattered throughout the closing statement sections.
• Title Insurance – This is paid by the buyer and, depending on the policy, can amount to thousands of dollars. It’s a one time charge that covers you in the event of a problem with the chain of ownership. See my post on how to save some money with title insurance here. This is in the 1100 section.
• Government and Transfer Charges – Paid to the local jurisdiction. These can be quite substantial—for example, in the District of Columbia, the transfer (paid by the seller) and recording taxes (paid by the buyer) are 1.1% each. Northern Virginia sellers just had big increase (from $1 per $1000 in value to $5 per $1000) in their transfer taxes.

The IRS has stated that eligible taxpayers must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2011. If a binding contract is entered into by that date, the taxpayer has until June 30, 2011, to close on the purchase.  Members of the uniformed services, members of the Foreign Service and employees of the intelligence community are eligible for this special rule. It applies to any individual (and, if married, the individual’s spouse) who serves on qualified official extended duty service outside of the United States* for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.

*Only one spouse must be overseas to qualify.

So if you’re a member of the military currently serving overseas, you have an extra year to take advantage of the $8000 home buyer credit.  If you’re going to be PCSing to the Washington, DC, or Northern Virginia area and would like to start looking for a home, please contact us.

It’s officially passed the House and Senate, and is now awaiting the President’s signature. Along with the extension of the $8000 First Time Buyer credit (now applies to any buyer under contract by April 30, 2010 and settling by June 30, 2010), there is now a new credit category: long-time residents of the same principal residence which has been given the shorthand name of “move up buyers”–though in reality it could just as easily apply to “move down buyers.”

If a homeowner has owned and used the same residence as their principal residence for any five consecutive years in the last eight (as of the date of purchase of a subsequent residence), then they are treated as a “first time home buyer” eligible for a (up to) $6500 tax credit when they file their next return. Other key points:

• This credit applies to purchases under contract between December 1, 2009 and April 30, 2010.
• Income limits are higher than with the previous credit: $125,000 AGI for a single individual and $225,000 AGI for a married couple (and then phases out until $145k/$245k).
• Homes purchased for more than $800,000 are ineligible.
• Thanks to all the fraudsters out there, purchasers must now submit documentation of purchase along with their tax return.

Some other restrictions apply (e.g., must keep the home for at least a year), but the key points are above. Update 11/14: here’s a nice summary article that appeared in the Washington Post. Some other FAQs that have since been answered:

• There is no requirement that you sell your current home. You can rent it out, or sell it later. BUT you must occupy the new home as a primary residence
• Many types of dwellings are eligible: new construction, existing homes, condos, mobile homes, or boats that function as a primary residence BUT in no case can it cost more than $800,000 or the property is ineligible.
• If you close between Nov 6 and Dec 31 of 2009, you can claim the credit on your 2009 return or even amend your 2008 return (important to know if your income has changed, making you ineligible in 2010!)

And there are some special provisions for military buyers: If you or your spouse served on qualified official extended-duty service outside the country for at least 90 days between Jan. 1, 2009, and April 30, 2010 then you qualify for an additional year (through April 30, 2011)!

This is key news for our area, which has seen a dramatic drop in housing inventory, especially at the first time buyer price point–this could well create demand in the next category up (up to $800,000 that is) of homes, and will create some breathing room, inventory wise, for the continuing first time buyer demand.

This could be the ideal time for these move-up or move-down buyers:

1. Prices for inventory at the first time buyer price point are stable or even rising
2. Interest rates are still at historic lows
3. Upper end homes have dropped (and are continuing to drop) in price

Combine these three points and you get “sell high” and “buy low”. If you’re thinking of selling your home to “move up” or “move down” and want more information on the tax credit, please contact me.

Read More: Why is the $6500 tax credit important?

*************

Read more: How Do I Protect Myself if I Buy and Sell a Home at the Same Time?

Sign up for a free MLS Market Snapshot to see what’s been going on in your neighborhood (Northern Virginia, DC, and Maryland only)

Read more: Six Myths About Choosing a Listing Agent

Read more: Marketing Your Home

*****************

Atlanta, GA – 45.3% higher in DC

Dallas, TX – 44.7% higher in DC

Denver, CO – 44.1% higher in DC

Fayetteville, NC – 61.2% higher in DC

Philadelphia, PA – 25.2% higher in DC

San Diego, CA – 11.2% higher in DC

Wichita, KS – 76.2% higher in DC

There ARE a few places more expensive though…

Honolulu, HI – 5.9% lower in DC

New York, NY – 12.2% lower in DC

San Francisco, CA – 9.3% lower in DC

With such a high cost of living, the cost of housing often creates ‘sticker shock’ in those relocating.   The lengthy commute times, along with school district quality, are big drivers of housing prices.  If you can be flexible on either of those it will go a long way towards finding affordable housing.

Don’t despair about the high cost of living though — DC is a great area to live!   We have mild weather with four seasons, plenty of cultural activities, a central east coast location with plenty of transportation options, and an ethnically and culturally diverse area.  Plus all the politics you could want! (wait… is that a ‘pro’ or a ‘con’??)

Need help or looking for more information on your relocation to the DC or Northern Virginia area?  Contact us – we’re happy to help!