2019 Finance Summit Explains Financing Options, Market Conditions, Amazon Updates and More
THE REALTOR® IS THE QUARTERBACK of the entire transaction, Tan Tunador of Atlantic Coast Mortgage explained to attendees at the 2019 NVAR Finance Summit.
It’s the Realtor’s® role to call the play, make the plans, communicate with the client, and share relevant information with the lender, Tunador said. As the star players, it’s important for Realtors® to be aware of alternative financing options for buyers, as well as market conditions in Northern Virginia, in order to advise their clients with confidence.
On June 7, 2019, panelists and presenters at the Finance Summit explored loan products available for a wide range of borrowers. The event featured an updated 2019 market forecast, an Amazon HQ2 overview, as well as information about how to work with a lender and choose a building contractor.
Renovation loans allow borrowers to purchase “equity finders” and renovate up-front, which increases the property’s value and in turn helps the community, Rick Eaheart of Embrace Home Loans said. Eaheart mentioned several renovation loans, including the FHA Full 203(K) loan, the FHA Streamline 203(K) loan and Fannie Mae’s HomeStyle renovation loan.
“As an agent, you can look like a hero to your clients when you introduce them to this type of loan product,” Eaheart said.
For Realtors®, showing properties that need some “TLC” could be a solution to limited inventory, because it allows agents to show properties that weren’t originally on a client’s radar, said Kevin Darcey of US Bank, vice chair of the NVAR Real Estate Finance and Settlement Forum and an event moderator.
Eaheart emphasized the value of the Streamline 203(K) loan versus the Standard 203(K) in that the lender works directly with the contractor instead of a third-party consultant. This product is a good option for first-time buyers and is the same rate as an FHA loan – a “win, win,” Darcey said.
CONSTRUCTION TO PERMANENT LOANS
David Le of US Bank said he works with many builders and Realtors® to help clients build homes, tear down or look for lots to build new homes. Most of Le’s clients are interested in major renovations, such as add-ons, or are looking for homes priced at over $1 million and can’t find the right property. Unlike projects that use 203(K) loans, Le’s projects are not bound by FHA loan limits.
An advantage of Construction to Permanent Loans, Darcey added, is that it is a one-time close, which means clients aren’t being hit by multiple closing costs, and they can lock in their interest rate.
VHDA FINANCING (COMMUNITY LENDING)
VHDA’s typical borrower is a first- time homebuyer, which VHDA defines as someone who has not owned a home as a primary residence within the past three years. Regina Pinkney of VHDA said that VHDA has many products in place to overcome hurdles for first-time homebuyers, such as their down payment grant, closing cost grant and subsidized rates in different localities. Pinkney advised Realtors® to educate their first-time homebuyer clients about a Mortgage Credit Certificate (MCC) prior to closing. The MCC converts 20 percent of the borrower’s mortgage interest to a dollar-for-dollar tax credit on their federal income taxes every year, Pinkney said.
“After they go to closing, they are no longer a first-time homebuyer and are no longer eligible for the MCC,” she said. “It is a once-in-a-lifetime opportunity.”
Wes Lincoln of Washington Capital Partners said most of his clients are real estate investors that fix and flip a property or buy and hold it as a rental property. These clients are buying in the name of a business entity, and therefore the loan is technically a commercial loan, he said. Whereas other loans discussed at the summit were lent based on the borrower’s qualifications, Lincoln said Washington Capital Partners bases its loans and interest rates on the property by performing an “as-is” and an After Repair Value (ARV) appraisal.
NON-QUALIFIED MORTGAGE (NON-QM) FINANCING
Although a common misconception is that Non-QM means subprime, Non-QM loans are actually those that do not fit in a “Fannie or Freddie traditional box,” Dudley Delbridge of Angel Oak Mortgage Solutions said. Dudley explained that Angel Oak’s loans are considered Non-QM primarily due to the difference in points and fees, and that Angel Oak’s number one product is for self-employed borrowers that don’t qualify based on an IRS Form 1040. He said Angel Oak works with first-time buyers with some exceptions, such as borrowers who do not have any rental history.
MARKET FORECAST AND AMAZON HQ2
According to Dr. Terry Clower, director of George Mason University’s Center for Regional Analysis, the Washington MSA has gained 29,800 jobs since April of 2018, and almost all job growth in the region is happening in Northern Virginia. Although the number of jobs is increasing, the level of growth is slowing down, he added.
By year end in Fairfax County, Clower forecasted a 7 percent gain in median sales price, a 10.2 percent drop in inventory and an 11.1 percent drop in number of units sold.
“Our constraints in the market now are just because there is no inventory, and at some point, you can’t sell more,” he said.
Median prices of homes sold in Arlington County are expected to grow 17.2 by year end, which Clower said is a market response to the announcement that Amazon’s HQ2 is coming to the county. He noted his concern about the number of ownership-to-rental conversions in the future, as residents stay in place and consider extracting higher rent or converting their property to rental in preparation for Amazon. According to Clower, Arlington inventory has “fallen off a cliff,” and is expected to be down 18.8 percent at year end. The number of homes in Alexandria is also expected to drop, by 37.5 percent at year-end.
“Three quarters of your job is managing expectations,” Clower said. “Remember we’ve had some of this action over an announcement.”
Amazon has only hired 10 people to-date, and while the region will see a gradual effect through the remainder of the year, the true effect of Amazon’s new employees is still to come, Clower said. By the end of 2019, Amazon is expected to have added 400 jobs, but it will take Amazon about 12 years to get to 25,000 jobs, said Christina Winn, director of Arlington Economic Development.
Winn and Stephanie Landrum, president & CEO of Alexandria Economic Development Partnership, explained the collaboration between Arlington and Alexandria to pitch Northern Virginia as a site to Amazon for its HQ2. Winn said they felt confident in putting forth the “National Landing” proposal, because the development opportunity and transportation system was ideal for Amazon. Another selling point was the tech talent of the region and the promise to increase that tech talent pipeline, Landrum said.
Virginia Tech’s Innovation Campus in Potomac Yard is a key component in increasing that tech workforce. The 1 million-square-foot graduate campus will consist of 300,000 square feet of educational buildings, and the remainder will be residential and retail. The residential buildings will include some multi-family rental and address a likely demand for condos, Landrum said.
“This is definitely a market for you to pay attention to,” Landrum said. “What we’ve been able to do is put two catalysts at either end of this market. Amazon is up at the top of National Landing and Virginia Tech is down at the bottom and then in between we still have 15 million square feet of development that our communities already approved .... The likely use for a lot of that is residential.”
Moving forward, Landrum said the state and local counties are investing in affordable housing and transportation to enhance the accessibility and infrastructure of the region.
As the initial shock wave over the Amazon “big win” starts to fade and Amazon’s employees gradually move to the region, Realtors® will start to see the true impact of Amazon in Northern Virginia.
How to Choose a Contractor: in 3s
Advice from Steve Scholl, BOWA
Three types of renovation projects:
2) Pull and replace
Three types of contractors:
1) The “handyman” who wears many hats in his or her business
2) The specialty contractor who does one thing and does it really well
3) The design bid or build contractor
Scholl’s advice: Choose a contractor that has a matching skillset to the level of sophistication of the project. (For example, a handyman shouldn’t be building an addition.) Have three people come pitch their ideas, find out what a normal project is for the contractor, and find tailored solutions to fit your individual needs.
Three components of a renovation budget:
1) Scope (level of complexity)
2) Level of finish (cost of materials)
3) The remodeler you choose
“The person you decide to work with is the most important piece,” Scholl said. “It’s not the paint; it’s not the light fixture; it’s not the color of the hardwood.”