For the past two weeks interest rates have been trending upward. That's the bad news. What's worse is that interest rates will continue to rise throughout 2010 and beyond. Back in January 2009 the Federal Reserve, which is neither Federal nor a reserve, announced that they intend to drive interest rates to 4.5% on 30-year fixed rate loans. Since the Federal Reserve doesn't set mortgage interest rates they did the only thing they can do, which is begin purchasing Mortgage-Backed Securities.
Interest rates on mortgages are determined by the buying and selling of Mortgage-Backed Securities offered by Fannie Mae, Freddie Mac, and FHA. The more of these mortgage bonds that are purchased the lower mortgage interest rates go. However, the converse is true as well. If the mortgage bonds for sale do not get purchased then interest rates will trend up as a result.
Up until August 2007 a great deal of the Mortgage-Backed Securities offered for sale were purchased by foreign investors such as China, Japan, England, Australia, etc... They purchased upwards of 50% to 60% of the mortgage bonds on a fairly consistent basis. However, as the housing and mortgage crisis hit full stride the appetite for Mortgage-Backed Securities began to wane and interest rates began to rise. Foreign participation dropped to about 20% to 30% which hit interest rates pretty hard.
The government and the Federal Reserve knew that a housing and economic recovery was not likely in a higher interest rate environment and that is what prompted the Federal Reserve to come up with its plan to purchase Mortgage-Backed Securities. The strategy worked throughout 2009 but is coming to an end. The program was approved to purchase $1.25 TRILLION in mortgage bonds through March 2010 and year-to-date the Fed has purchased about $1.07 TRILLION. That leaves them with about $180 BILLION of the original amount for purchasing mortgage bonds through March. The Fed has purchased on average $20 BILLION per week and will be scaling that back weekly until the program expires. At the last Federal Open Market Committee meeting the Fed said that they will not be extending the program. That means that unless foreign participation picks back up interest rates will continue to rise to where they should have been all year.
All of this is a long way to warn you that higher interest rates are coming and if you want to take advantage of the current interest rate environment you should move quickly. If you have any interest in refinancing you should call right away before the interest rates move any higher and make it so there is no benefit in refinancing. If you are interested in purchasing a home you should accelerate your home search so you can benefit from both the lower interest rates and the Homebuyer Tax Credit currently available to those that qualify.
Please feel free to contact me with any questions or comments. I can be reached by e-mail at Shawn@YourFavoriteLender.com.
Tuesday, December 29, 2009
Monday, November 9, 2009
The HomeBuyer Tax Credit Gets Extended and Expanded
The Homebuyer Tax Credit jumped its final hurdle on Friday, November 6, 2009, as the President signed a bill to extend the tax credit through June 30, 2010. The bill also opens up opportunities for non-first-time homebuyers as well.
While the tax credit has been extended it now has two deadlines instead of just the one. The first deadline states that the homebuyer has to sign a purchase agreement by April 30, 2010. The second deadline states that the homebuyer must close by Jun 30, 2010.
For those in the armed forces and persons stationed outside the United States on official duty for 90 days during the period from January 1, 2009 and before May 1, 2010 eligibility is extended for binding contracts signed by April 30, 2011 but must close by June 30, 2011.
Although increasing the tax credit to $15,000 was proposed, the maximum allowable tax credit remains at $8,000. Something added to this bill that wasn't there in the two previous bills is a maximum purchase price of $800,000. The homebuyer still has to occupy the property as their primary residence for the three years following the purchase or they must repay the tax credit in full.
Qualifying for the tax credit became a little easier for higher income homebuyers due to an increase in the income restrictions. Previously the income restrictions were $75,000 for single filers and $150,000 for joint filers. Those limits were increased to $125,000 for single filers and $225,000 for joint filers. The tax credit is reduced incrementally above $125,000 and $225,000, respectively and eliminated at $145,000 and $245,000, respectively.
Now that I've addressed the extension of the tax credit, I would like to move to the expansion of the tax credit. Those who currently own a home now and would like to purchase a different home are now able to take advantage of the tax credit. To qualify the current homeowner must have owned and occupied a primary residence for a period of five consecutive years during the last eight years. The tax credit available to a qualified homeowner is $6,500 instead of the $8,000 available to the first-time homebuyer. As a point of clarification, I think it is important to note that the new home does not have to cost more than the current home.
The tax credit remains a credit, which differs from a tax deduction in a very significant way. A tax deduction is a reduction of the amount of income one pays taxes on. A tax credit is a dollar for dollar reduction of the tax owed. If the homebuyer owes less than $8,000 in taxes the homebuyer will receive the difference in a refund (i.e., If your tax bill is $4,000, you will now owe zero and receive a refund of $4,000).
While the tax credit has served to increase homebuying activity since its inception, Congress realized that to allow the tax credit to expire now could slow the momentum enjoyed to this point. The mix of phenominally low interest rates, reduced home prices, home sellers and lenders willing to pay closing costs, and the huge tax credit make this the best time in 10 years to buy a home. Who do you know who could and should take advantage of this awesome opportunity? I would be honored if you would refer them to me. I can be reached on my mobile number at (619)994-1110 or by e-mail at Shawn@YourFavoriteLender.com.
While the tax credit has been extended it now has two deadlines instead of just the one. The first deadline states that the homebuyer has to sign a purchase agreement by April 30, 2010. The second deadline states that the homebuyer must close by Jun 30, 2010.
For those in the armed forces and persons stationed outside the United States on official duty for 90 days during the period from January 1, 2009 and before May 1, 2010 eligibility is extended for binding contracts signed by April 30, 2011 but must close by June 30, 2011.
Although increasing the tax credit to $15,000 was proposed, the maximum allowable tax credit remains at $8,000. Something added to this bill that wasn't there in the two previous bills is a maximum purchase price of $800,000. The homebuyer still has to occupy the property as their primary residence for the three years following the purchase or they must repay the tax credit in full.
Qualifying for the tax credit became a little easier for higher income homebuyers due to an increase in the income restrictions. Previously the income restrictions were $75,000 for single filers and $150,000 for joint filers. Those limits were increased to $125,000 for single filers and $225,000 for joint filers. The tax credit is reduced incrementally above $125,000 and $225,000, respectively and eliminated at $145,000 and $245,000, respectively.
Now that I've addressed the extension of the tax credit, I would like to move to the expansion of the tax credit. Those who currently own a home now and would like to purchase a different home are now able to take advantage of the tax credit. To qualify the current homeowner must have owned and occupied a primary residence for a period of five consecutive years during the last eight years. The tax credit available to a qualified homeowner is $6,500 instead of the $8,000 available to the first-time homebuyer. As a point of clarification, I think it is important to note that the new home does not have to cost more than the current home.
The tax credit remains a credit, which differs from a tax deduction in a very significant way. A tax deduction is a reduction of the amount of income one pays taxes on. A tax credit is a dollar for dollar reduction of the tax owed. If the homebuyer owes less than $8,000 in taxes the homebuyer will receive the difference in a refund (i.e., If your tax bill is $4,000, you will now owe zero and receive a refund of $4,000).
While the tax credit has served to increase homebuying activity since its inception, Congress realized that to allow the tax credit to expire now could slow the momentum enjoyed to this point. The mix of phenominally low interest rates, reduced home prices, home sellers and lenders willing to pay closing costs, and the huge tax credit make this the best time in 10 years to buy a home. Who do you know who could and should take advantage of this awesome opportunity? I would be honored if you would refer them to me. I can be reached on my mobile number at (619)994-1110 or by e-mail at Shawn@YourFavoriteLender.com.
Monday, October 12, 2009
Do You Really Have Til November 30, 2009 To Benefit From The Tax Credit?
As I've reminded you of many times, the $8,000 First-Time Homebuyer Tax Credit is set to expire on November 30, 2009. I am not trying to beat a dead horse but in order to claim the tax credit, the IRS requires you to close on or before that date. December 1, 2009 is too late. But should that be the date a first-time homebuyer sets his/her/their calendar by?
I would suggest not targeting November 30, 2009. The biggest reason is that there are no do-overs. If you do not close by November 30 , 2009, you lose. If anything goes wrong, as is usually the case in a real estate transaction, you just missed out on $8,000. That's a pretty expensive oops! Making a problem more likely to happen is the fact that recently the County Recorder of San Diego County modified its recording guidelines to eliminate funding a loan and recording the Deed on the same day, except on the last day of a given month. Since every other first-time homebuyer is targeting that date there is a strong chance that many first-time homebuyers will be very dissappointed and wish they had the advance notice you are getting.
The optimal time for closing your home purchase just might be the week of November 16th to build in the proper cushion for potential delays. And the earlier in the week, the better. To further understand why, let's start with the fact that home sales volume is through the roof. New home sales data and existing home sales data have been very strong and first-time homebuyers account for nearly 1/3 of all transactions.
It is reasonable to conclude, threrefore, that with the combination of low homes prices, record low interest rates, and the $8,000 tax credit, buyer interest will remain strong all the way through the November 30, 2009 deadline. You should plan now to avoid the panic of missing out on the tax credit.
Now let's consider the calendar.
This commentary may prove to be completely unnecessary if Congress extends the First-Time Homebuyer Tax Credit, but if Congress elects not to extend the tax credit it may save you $8,000. Good luck and happy house hunting.
I would suggest not targeting November 30, 2009. The biggest reason is that there are no do-overs. If you do not close by November 30 , 2009, you lose. If anything goes wrong, as is usually the case in a real estate transaction, you just missed out on $8,000. That's a pretty expensive oops! Making a problem more likely to happen is the fact that recently the County Recorder of San Diego County modified its recording guidelines to eliminate funding a loan and recording the Deed on the same day, except on the last day of a given month. Since every other first-time homebuyer is targeting that date there is a strong chance that many first-time homebuyers will be very dissappointed and wish they had the advance notice you are getting.
The optimal time for closing your home purchase just might be the week of November 16th to build in the proper cushion for potential delays. And the earlier in the week, the better. To further understand why, let's start with the fact that home sales volume is through the roof. New home sales data and existing home sales data have been very strong and first-time homebuyers account for nearly 1/3 of all transactions.
It is reasonable to conclude, threrefore, that with the combination of low homes prices, record low interest rates, and the $8,000 tax credit, buyer interest will remain strong all the way through the November 30, 2009 deadline. You should plan now to avoid the panic of missing out on the tax credit.
Now let's consider the calendar.
- November 30, 2009 is the Monday after Thanksgiving weekend.
- November 28-29, 2009 is a weekend. No closings on weekends.
- November 27, 2009 is the Friday after Thanksgiving; an unofficial holiday.
- November 26, 2009 is Thanksgiving. No closings.
- November 25, 2009 is the day before Thanksgiving; typically a "half-day."
This commentary may prove to be completely unnecessary if Congress extends the First-Time Homebuyer Tax Credit, but if Congress elects not to extend the tax credit it may save you $8,000. Good luck and happy house hunting.
Friday, October 9, 2009
$8,000 First-Time Homebuyer Tax Credit Extension?
On October 8, 2009 the House of Representatives voted 416 to 0 to pass the Service Members Home Ownership Tax Act of 2009 which extends the current $8,000 first-time homebuyer tax credit for another 12 months for members of the military, Foreign Service, and Intelligence Corps who served at least three months of qualified overseas duty in 2009. The current program is set to expire on November 30, 2009. In my opinion there is definitely justification for extending the credit to members of the military and the like because serving abroad for our country obviously makes it very difficult for those members to look for a house and take advantage of the program.
At the moment the bill has passed only the House of Representatives so it is not law yet. But once the bill or some variation thereof passes the Senate it will be sent on to the President to be signed into law.
As for the current first-time homebuyer tax credit, which is set to expire on November 30, 2009, there are discussions about extending the credit an additional six months. The problem is that there are several versions of the extension of the tax credit being proposed. The first, and most likely to pass, is simply the extension of the existing tax credit for an additional six months. However, there are proposals to extend the tax credit another year, to make the tax credit available to ALL homebuyers, not just first-time buyers and, lastly, to increase the credit to $15,000.
While these other variations are fine to propose, the concern that I have is that they are a distraction from the real issue, which is simply extending the credit so that the momentum in the housing market continues. If the decision is whether or not to extend the existing tax credit then the answer is simply yes or no. What these other proposals do is take the focus off of just extending the tax credit and now create a whole new discussion and debate about whether these other proposals make sense. The $15,000 tax credit proposal has already been voted down in the past as was making the tax credit available to ALL homebuyers.
This economy needs the momentum of the housing market to continue forward otherwise we risk undoing much of the progress that we have made due to the tax credit. The focus should be on 1) whether to extend the tax credit at all, and 2) for how long (i.e., 6 months or 1 year).
I will keep you informed of any developments as I find out about them so stay tuned.
Friday, July 31, 2009
Buy Now or Risk Higher Prices!
As we approach the end of our summer break from school you will likely see real estate activity pick up. There are still a lot of homebuyers out there and most people don't like to move during the school year, especially if their kids have to change schools. People just don't want to disrupt their kids routines and they're absolutely correct. So those interested in buying a home will likely ramp up their efforts to close on that home and get moved in before the new school year begins, which is just 5 or 6 weeks from now for most of us.
This increase in buying activity will also help stabilize the housing market even more. The Case-Shiller Home Price Index, which tracks home prices in 20 of the nation's most populace cities, indicates that for the fourth consecutive month the pace at which home prices declined slowed considerably. What this means to you is that if you now know this information, it is likely that the short sale and foreclosure lenders know it also. This means that we may see lenders less willing to pay a buyer's closing costs because they see a recovery in the works.
That recovery is also evidenced by an ongoing decrease in the inventory of homes for sale. It appears that the combination of low home values, low interest rates and the $8,000 First-Time Homebuyer Tax Credit are working to stabilize the housing market. Let me encourage you to download the report I wrote called "Understanding the First-Time Homebuyer Tax Credit", which explains how the $8,000 Tax Credit works. Read it for yourself and give it to those you believe would benefit from knowing this credit is available to them.
It has been said that over 60% of first-time homebuyers don't even know the tax credit exists and adding to the pick up in activity will be the rush to buy a home prior to the expiration of the tax credit. I have included a countdown timer in the upper right-hand corner of this blog and my website www.YourFavoriteLender.com to remind homebuyers how much time they have left. For those that miss the boat, they will have lost out on an $8,000 gift from the government for doing something they intended to do anyway. Please help me get the word out about the tax credit.
To recap, there are several dynamics in motion right now that make now the best time to buy a home. They are as follows:1) The lowest home prices seen in years
2) The lowest interest rates seen in years
3) The first-time homebuyer tax credit and that it expires November 30, 2009
4) As lenders and sellers perceive that a bottom is forming they will be less inclined to agree to a credit to the buyer for closing costs
5) Decreasing inventory of homes for sale feeds the lenders and sellers belief that the bottom is here leading to #4
6) An abundance of homebuyers competing for a decreasing inventory of homes for sale
These six points show the market moving in a direction that benefits the buyer less and less. It is very likely that months from now or years from now as you look back on this time in the real estate market you will see that this was the best time you could have pulled the trigger on buying a home.
This increase in buying activity will also help stabilize the housing market even more. The Case-Shiller Home Price Index, which tracks home prices in 20 of the nation's most populace cities, indicates that for the fourth consecutive month the pace at which home prices declined slowed considerably. What this means to you is that if you now know this information, it is likely that the short sale and foreclosure lenders know it also. This means that we may see lenders less willing to pay a buyer's closing costs because they see a recovery in the works.
That recovery is also evidenced by an ongoing decrease in the inventory of homes for sale. It appears that the combination of low home values, low interest rates and the $8,000 First-Time Homebuyer Tax Credit are working to stabilize the housing market. Let me encourage you to download the report I wrote called "Understanding the First-Time Homebuyer Tax Credit", which explains how the $8,000 Tax Credit works. Read it for yourself and give it to those you believe would benefit from knowing this credit is available to them.
It has been said that over 60% of first-time homebuyers don't even know the tax credit exists and adding to the pick up in activity will be the rush to buy a home prior to the expiration of the tax credit. I have included a countdown timer in the upper right-hand corner of this blog and my website www.YourFavoriteLender.com to remind homebuyers how much time they have left. For those that miss the boat, they will have lost out on an $8,000 gift from the government for doing something they intended to do anyway. Please help me get the word out about the tax credit.
To recap, there are several dynamics in motion right now that make now the best time to buy a home. They are as follows:
2) The lowest interest rates seen in years
3) The first-time homebuyer tax credit and that it expires November 30, 2009
4) As lenders and sellers perceive that a bottom is forming they will be less inclined to agree to a credit to the buyer for closing costs
5) Decreasing inventory of homes for sale feeds the lenders and sellers belief that the bottom is here leading to #4
6) An abundance of homebuyers competing for a decreasing inventory of homes for sale
Friday, July 24, 2009
What You Need To Know About The Current Real Estate Market - Part III
Typically, the real estate market is either neutral, controlled by the seller or controlled by the buyer. However, in today's market we are dealing with an anomaly not seen since the early '90s; The Short Sale! In this commentary I will cover details of a market controlled by a new player; The Lender.
In part I of this commentary I described the characteristics of a seller's market, which is what we experienced from about 2002 to 2007. A seller's market typically results in rapid home price appreciation and many buyers are unable to buy because they are simply priced out of the market.
In part II of this commentary I described the characteristics of a buyer's market, which we began to experience in late 2007. But that lasted just a year or so, until lenders became the sole decision maker in a very high percentage of home sales due to short sales and foreclosures.
A lender's market resembles and shares characteristics of both a buyer's and a seller's market, yet has some of its own distinctive characteristics, as evidenced by the following:
1) An abundance of homes for sale, giving buyers greater options
2) An abundance of interested, qualified and active homebuyers
In this case, the dynamics of supply and demand are tilted on their side because there are plenty of homes for sale and plenty of buyers ready, willing, and able to buy them.
3) Real estate agents and lenders tend to list homes for sale for significantly less than the homes actual value in order to generate multiple offers
4) Virtually every home has multiple offers; some as many as 40 offers
5) Homes tend to sell for more, and sometimes significantly more, than the asking or list price
6) Offers to purchase can require multiple approvals; first is acceptance by the seller of the home, and in the case of a short sale, a second approval by the lender(s)
7) Lender approval on a short sale can take several months, leading to a great deal of frustration for the buyer, the real estate agent, and the buyer's lender
8) Homes are offered in "as-is" condition
8a) Termite inspections are routinely excluded
8b) Requests from the buyer for repairs are denied
9) Lenders tend to dictate the terms of the purchase contract
9a) Lenders tend to shy away from FHA and VA offers (I will cover this in more detail in a future commentary)
9b) A disproportionate amount of all cash offers, which tend to be real estate investors either looking to fix up the home and flip it for a profit or hold until the market rebounds
9c) Lenders will entertain a credit to the buyer for closing costs, though there are certain lenders that simply refuse to pay the buyer's costs due to some "company policy"
9d) Lenders rarely entertain contingent offers, which are offers contingent upon the buyer finding a buyer for their own home. This isn't typically a problem in today's market because most home sales are to first-time buyers
9e) Time frames for appraisal and loan approval contingencies, currently 17 days from date of acceptance, are strictly adhered to, if not shortened or removed entirely
9f) Contractual deadlines, while not strictly adhered to, are taken seriously
9g) If contractual deadlines are extended, fines can be imposed and can range from $50 to $200 per day until the transaction closes
9h) Earnest money deposits tend to be increased
10) Whether the home is a short sale or a foreclosure, the buyer's offer must include, at a minimum, a letter of qualification or even approval from a lender, and, in many cases, the buyer is forced to speak with a "preferred lender" of the short sale or foreclosure lender to determine the buyer's ability to perform
There you have it; the major differences between a seller's market, a buyer's market, and, the newly defined, lender's market. While the seller's market and the buyer's market have characteristics almost exactly opposite one another, the lender's market exhibits characteristics of each, but has some very unique characteristics of its own.
My conclusion is that we are currently in a lender's market, but one where the buyer still plays a major role. I hope you found this information helpful.
In part I of this commentary I described the characteristics of a seller's market, which is what we experienced from about 2002 to 2007. A seller's market typically results in rapid home price appreciation and many buyers are unable to buy because they are simply priced out of the market.
In part II of this commentary I described the characteristics of a buyer's market, which we began to experience in late 2007. But that lasted just a year or so, until lenders became the sole decision maker in a very high percentage of home sales due to short sales and foreclosures.
A lender's market resembles and shares characteristics of both a buyer's and a seller's market, yet has some of its own distinctive characteristics, as evidenced by the following:
2) An abundance of interested, qualified and active homebuyers
4) Virtually every home has multiple offers; some as many as 40 offers
5) Homes tend to sell for more, and sometimes significantly more, than the asking or list price
6) Offers to purchase can require multiple approvals; first is acceptance by the seller of the home, and in the case of a short sale, a second approval by the lender(s)
7) Lender approval on a short sale can take several months, leading to a great deal of frustration for the buyer, the real estate agent, and the buyer's lender
8) Homes are offered in "as-is" condition
8b) Requests from the buyer for repairs are denied
9b) A disproportionate amount of all cash offers, which tend to be real estate investors either looking to fix up the home and flip it for a profit or hold until the market rebounds
9c) Lenders will entertain a credit to the buyer for closing costs, though there are certain lenders that simply refuse to pay the buyer's costs due to some "company policy"
9d) Lenders rarely entertain contingent offers, which are offers contingent upon the buyer finding a buyer for their own home. This isn't typically a problem in today's market because most home sales are to first-time buyers
9e) Time frames for appraisal and loan approval contingencies, currently 17 days from date of acceptance, are strictly adhered to, if not shortened or removed entirely
9f) Contractual deadlines, while not strictly adhered to, are taken seriously
9g) If contractual deadlines are extended, fines can be imposed and can range from $50 to $200 per day until the transaction closes
9h) Earnest money deposits tend to be increased
My conclusion is that we are currently in a lender's market, but one where the buyer still plays a major role. I hope you found this information helpful.
What You Need To Know About The Current Real Estate Market - Part II
In my last commentary I posed the question "Who is in control in the current market?" I then described the characteristics typically found in a seller's market and in this commentary I will describe the characteristics typically found in a buyer's market.
A buyer's market is typically characterized by the following:
1) An abundance of homes for sale, giving buyers greater options
2) A limited number of interested, qualified, and active homebuyers
In this case, the dynamics of supply and demand puts the buyer in charge because there are a lot of home sellers competing for a limited number of homebuyers.
3) Multiple offers on a home for sale is either very rare or non-existent
4) Homes tend to sell for less than the asking or list price
5) Homes tend to sit on the market for an extended period of time
6) The buyer tends to dictate the terms of the real estate purchase contract
6a) Sellers will entertain any and all offers, whether FHA, VA, or conventional
6b) Seller credits to cover the buyer's closing costs are very common
6c) Sellers will entertain contingent offers, which are offers contingent on the buyer finding a buyer for their own home
6d) Time frames for appraisal and loan approval contingencies are typically extended beyond the contractual 17 days or not removed until closing, although a seller can still cancel the transaction and keep the buyer's deposit
6e) Earnest money deposits can be minimal
6f) Contractual deadlines become more of a guideline or target than a hard fast rule
6g) The extension of contractual deadlines, if necessary, tend to be granted without penalty
7) Requests for repairs can be both lengthy and costly to the seller
While this list is meant to be exhaustive, it certainly doesn't cover every circumstance that constitutes a buyer's market. In the next commentary I will describe characteristics of a new player in the real estate market. One that is changing the dynamics of the market and frustrating a lot of people in the process.
A buyer's market is typically characterized by the following:
2) A limited number of interested, qualified, and active homebuyers
4) Homes tend to sell for less than the asking or list price
5) Homes tend to sit on the market for an extended period of time
6) The buyer tends to dictate the terms of the real estate purchase contract
6b) Seller credits to cover the buyer's closing costs are very common
6c) Sellers will entertain contingent offers, which are offers contingent on the buyer finding a buyer for their own home
6d) Time frames for appraisal and loan approval contingencies are typically extended beyond the contractual 17 days or not removed until closing, although a seller can still cancel the transaction and keep the buyer's deposit
6e) Earnest money deposits can be minimal
6f) Contractual deadlines become more of a guideline or target than a hard fast rule
6g) The extension of contractual deadlines, if necessary, tend to be granted without penalty
Wednesday, July 22, 2009
What You Need To Know About The Current Real Estate Market - Part I
This is the first in a series of related commentaries I am writing about the current real estate market, which will be chock full of valuable, enlightening, and relevant information you need to know regardless of whether you are buying, selling, or neither.
Let's begin by asking a question. "Who is in control in the current market?" In other words, Are we in a seller's market or a buyer's market? The best way to answer these questions is to first consider the signs of each of these markets.
A seller's market is typically characterized by the following:1) A limited number of homes for sale
2) A large pool of interested, qualified, and active homebuyers
In this case, the dynamics of supply and demand puts the seller in charge because there are a lot of buyers fighting over a limited supply of homes.
3) Virtually every home seller entertains multiple offers
4) Homes tend to sell for more than the asking or list price
5) Homes tend to sell rather quickly
6) The seller is the decision maker and tends to dictate the terms of the real estate purchase contract
6a) Sellers are reluctant to consider FHA and VA offers (I will cover this in more detail in another commentary)
6b) Sellers are unwilling to agree to a credit to the buyer for closing costs
6c) Sellers are less willing to entertain contingent offers, which are offers contingent upon the buyer finding a buyer for their own home
6d) Time frames for appraisal and loan approval contingencies, currently 17 days from the date of acceptance, are shortened or removed entirely
6e) Earnest money deposits tend to be increased
6f) Contractual deadlines tend to be strictly adhered to and, if not met, the transaction can be canceled and buyers' deposit becomes the property of the seller
6g) If contractual deadlines are extended, fines can be imposed and can range from $50 to $200 per day until the transaction closes
7) Requests from the buyer for repairs are denied as properties tend to sell "as-is"
While this list is meant to be exhaustive, it certainly doesn't cover every circumstance that constitutes a seller's market. In the next commentary I will cover the characteristics of a buyer's market.
Let's begin by asking a question. "Who is in control in the current market?" In other words, Are we in a seller's market or a buyer's market? The best way to answer these questions is to first consider the signs of each of these markets.
A seller's market is typically characterized by the following:
2) A large pool of interested, qualified, and active homebuyers
4) Homes tend to sell for more than the asking or list price
5) Homes tend to sell rather quickly
6) The seller is the decision maker and tends to dictate the terms of the real estate purchase contract
6b) Sellers are unwilling to agree to a credit to the buyer for closing costs
6c) Sellers are less willing to entertain contingent offers, which are offers contingent upon the buyer finding a buyer for their own home
6d) Time frames for appraisal and loan approval contingencies, currently 17 days from the date of acceptance, are shortened or removed entirely
6e) Earnest money deposits tend to be increased
6f) Contractual deadlines tend to be strictly adhered to and, if not met, the transaction can be canceled and buyers' deposit becomes the property of the seller
6g) If contractual deadlines are extended, fines can be imposed and can range from $50 to $200 per day until the transaction closes
Monday, July 13, 2009
What is a "Short Sale?"
There appears to be a lot of confusion out there about short sales so I thought I would take a few minutes and explain what a short sale is.
I believe the confusion stems from people in the real estate industry using industry "lingo" or terminology in conversations with people outside the real estate industry. Every industry has its own lingo and each of us needs to be aware of that as we talk with others about our respective industries. To be fair though, it isn't limited to just industry. Have you tried to communicate with a teenager via text message? I'm not even sure they are using letters in the English language.
Anyhow, contrary to popular belief, a short sale has nothing to do with a particular time frame. In fact, if you've ever been involved in a short sale you can attest to the fact that a short sale is anything but short. A short sale can take anywhere between 60 - 180 days, and that's if it happens at all.
A short sale, quite simply, is any home for sale where the total combined mortgages or loans on the property exceeds the current value of said home and the seller is unable to pay the shortage. For example, a homeowner that has a first mortgage for $300,000 and a second mortgage or home equity line of credit for $100,000 owes a total of $400,000 on the home. If he/she decides to sell the property and it is determined that the current value is $325,000 the seller of the property would have to write a check for $75,000 plus the real estate commissions ad closing costs. If the seller was unable to raise that kind of money then he/she would approach the current owner of the outstanding loan(s) on the property and ask that one or both lenders accept less money than is actually owed to them in order to allow the seller to complete the sale of the property. Not only would the lender(s) be accepting less money but they would be paying the real estate commissions and the closing costs.
That is the definition of a short sale in a nutshell.
I believe the confusion stems from people in the real estate industry using industry "lingo" or terminology in conversations with people outside the real estate industry. Every industry has its own lingo and each of us needs to be aware of that as we talk with others about our respective industries. To be fair though, it isn't limited to just industry. Have you tried to communicate with a teenager via text message? I'm not even sure they are using letters in the English language.
Anyhow, contrary to popular belief, a short sale has nothing to do with a particular time frame. In fact, if you've ever been involved in a short sale you can attest to the fact that a short sale is anything but short. A short sale can take anywhere between 60 - 180 days, and that's if it happens at all.
A short sale, quite simply, is any home for sale where the total combined mortgages or loans on the property exceeds the current value of said home and the seller is unable to pay the shortage. For example, a homeowner that has a first mortgage for $300,000 and a second mortgage or home equity line of credit for $100,000 owes a total of $400,000 on the home. If he/she decides to sell the property and it is determined that the current value is $325,000 the seller of the property would have to write a check for $75,000 plus the real estate commissions ad closing costs. If the seller was unable to raise that kind of money then he/she would approach the current owner of the outstanding loan(s) on the property and ask that one or both lenders accept less money than is actually owed to them in order to allow the seller to complete the sale of the property. Not only would the lender(s) be accepting less money but they would be paying the real estate commissions and the closing costs.
That is the definition of a short sale in a nutshell.
Friday, June 12, 2009
"Monetizing" the First-Time Homebuyer Tax Credit
After much ado, on May 29, 2009, the Department of Housing and Urban Development issued Mortgagee Letter 2009-15, which opens the door for homebuyers who are eligible for the $8,000 First-Time Homebuyer Tax Credit to use the tax credit as a down payment, to buy down the interest rate, or pay closing costs.
Before you start the celebration, let me explain how this will work. There are two methods for converting the $8,000 First-Time Homebuyer Tax Credit into "cash."
The first method is via secondary financing (second mortgage) equal to the tax credit. The following conditions apply:
a) The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the homebuyer;
b) The second mortgage may not exceed the total amount needed for the down payment, closing costs, and prepaid expenses;
c) Secondary financing may be "soft" (silent) or require a monthly payment. Soft or silent means that no repayment is necessary if certain conditions are met;
d) If a payment is required, it must be included in the homebuyers qualifying debt ratios and ,when combined with the first mortgage, cannot exceed the homebuyers' reasonable ability to pay;
e) Payments must be deferred for at least 36 months to not be included in the qualifying debt ratios;
f) The secondary financing may not require a balloon payment before ten years.
For the tax credit to be eligible to be used as any portion or all of the down payment it must be via secondary financing provided by state or local housing finance agencies, government agencies, or certain FHA-approved non-profit groups. Unfortunately, as of the typing of this blog post there is no agency or non-profit organization providing the secondary financing for California. I will notify you via another blog post if I hear of any agency or non-profit providing secondary financing but I wouldn't get my hopes up. For one, the First-Time Homebuyer Tax Credit is set to expire on December 1, 2009. And two, I predict that it will work like other programs of this nature, which is on a first come, first served basis, be underfunded, and require the homebuyer to be in escrow prior to applying for the tax credit advance.
The second method method allows FHA-approved lenders and FHA-approved non-profit organizations as well as Federal, state, and local government agencies to purchase the tax credit from the homebuyer and works a lot like a payday advance. A fee will likely be charged to access the tax credit advance. The following conditions apply:
a) The amount of money provided on behalf of the homebuyer may not exceed the anticipated tax credit due the homebuyer based on the computations of IRS Form 5405;
b) The homebuyer must submit a signed certification that the tax credit is not subject to or obligated to some other unpaid indebtedness (i.e., another debt owed to the government);
c) Any fees charged by an organization or agency for the purchase of the tax credit are to be no more than 2.5% of the anticipated tax credit (i.e., $8,000 to be refunded, with all fee considered, the homebuyer should receive not less than $7,800 for the sale of the tax credit);
d) The tax credit funds may not be used to meet the 3.5% minimum down payment, but may be used as additional down payment, buying down the interest rate, or other closing costs.
Under this option, the homebuyer must still come up with the required minimum 3.5% down payment using their own funds, a gift from a family member, or a combination of the two. Unfortunately, as stated above, as of the typing of this blog post there is no agency or non-profit organization purchasing the tax credit for California. I will notify you via another blog post if I hear of any agency or non-profit purchasing the tax credit.
By the way, non-profits that receive fees from sellers cannot provide down payment assistance under this program.
I hope this blog post brings a little clarity to the circumstances in which the First-Time Homebuyer Tax Credit can be utilized to aid in the purchase of a home versus waiting to receive the tax credit months after purchasing a home.
Before you start the celebration, let me explain how this will work. There are two methods for converting the $8,000 First-Time Homebuyer Tax Credit into "cash."
The first method is via secondary financing (second mortgage) equal to the tax credit. The following conditions apply:
a) The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the homebuyer;
b) The second mortgage may not exceed the total amount needed for the down payment, closing costs, and prepaid expenses;
c) Secondary financing may be "soft" (silent) or require a monthly payment. Soft or silent means that no repayment is necessary if certain conditions are met;
d) If a payment is required, it must be included in the homebuyers qualifying debt ratios and ,when combined with the first mortgage, cannot exceed the homebuyers' reasonable ability to pay;
e) Payments must be deferred for at least 36 months to not be included in the qualifying debt ratios;
f) The secondary financing may not require a balloon payment before ten years.
For the tax credit to be eligible to be used as any portion or all of the down payment it must be via secondary financing provided by state or local housing finance agencies, government agencies, or certain FHA-approved non-profit groups. Unfortunately, as of the typing of this blog post there is no agency or non-profit organization providing the secondary financing for California. I will notify you via another blog post if I hear of any agency or non-profit providing secondary financing but I wouldn't get my hopes up. For one, the First-Time Homebuyer Tax Credit is set to expire on December 1, 2009. And two, I predict that it will work like other programs of this nature, which is on a first come, first served basis, be underfunded, and require the homebuyer to be in escrow prior to applying for the tax credit advance.
The second method method allows FHA-approved lenders and FHA-approved non-profit organizations as well as Federal, state, and local government agencies to purchase the tax credit from the homebuyer and works a lot like a payday advance. A fee will likely be charged to access the tax credit advance. The following conditions apply:
a) The amount of money provided on behalf of the homebuyer may not exceed the anticipated tax credit due the homebuyer based on the computations of IRS Form 5405;
b) The homebuyer must submit a signed certification that the tax credit is not subject to or obligated to some other unpaid indebtedness (i.e., another debt owed to the government);
c) Any fees charged by an organization or agency for the purchase of the tax credit are to be no more than 2.5% of the anticipated tax credit (i.e., $8,000 to be refunded, with all fee considered, the homebuyer should receive not less than $7,800 for the sale of the tax credit);
d) The tax credit funds may not be used to meet the 3.5% minimum down payment, but may be used as additional down payment, buying down the interest rate, or other closing costs.
Under this option, the homebuyer must still come up with the required minimum 3.5% down payment using their own funds, a gift from a family member, or a combination of the two. Unfortunately, as stated above, as of the typing of this blog post there is no agency or non-profit organization purchasing the tax credit for California. I will notify you via another blog post if I hear of any agency or non-profit purchasing the tax credit.
By the way, non-profits that receive fees from sellers cannot provide down payment assistance under this program.
I hope this blog post brings a little clarity to the circumstances in which the First-Time Homebuyer Tax Credit can be utilized to aid in the purchase of a home versus waiting to receive the tax credit months after purchasing a home.
Wednesday, June 10, 2009
The Credit Cardholders' Bill of Rights and YOU
The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 is now law and it puts forth some very valuable protection for credit card holders. While no person or business forces another person or business to apply for and open a credit card account, credit card companies have been taking advantage of the fine print in their contracts and charging cardholders outrageous fees and making "anytime, any reason" interest rate increases for far too long.
While I am a staunch free market capitalist and I believe that both people and businesses should accept the consequences of their decisions, whether good or bad, the introduction of the Universal Default Clause, among other tactics, has opened the door to a $15 Billion goldmine of fee income that most cardholders aren't even aware of. I think you'll agree that the following list of guidelines in the new Credit Card Act is both JUST and long overdue.
1) Credit card issuers must notify cardholders in writing at least 45 days prior to any change in the annual percentage rate (APR). If the cardholder elects to cancel the account before the effective date of the increase, the cancellation cannot be considered a default on the account and cannot trigger an obligation to immediately repay the account in full.
2) Credit card issuers are prohibited from increasing APRs that apply to existing balances unless specific conditions apply. An APR may be increased only if a) the index on which the rate is based changes, b) it is a promotional rate that has expired, c) a cardholder fails to comply with a hardship workout plan, or d) the account falls 60 days past due.
3) If a rate increase is triggered by a cardholder falling 60 days past due on the account, the cardholders' APR will be restored to what it was before the increase once the cardholder has made timely minimum payments for six consecutive months.
4) If different APRs apply to separate portions of an outstanding balance, the amount of any payment beyond the minimum payment due must be applied to the portion of the balance with the highest APR.
5) Credit card issuers can no longer increase a cardholders' interest rate on an existing balance on credit card "A" due to negative activity on credit card "B", as is currently the case.
6) Credit card issuers are prohibited from imposing interest charges on any portion of a balance that is paid by the due date.
7) Credit card issuers are required to mail credit card statements at least 21 days before the bill is due (current requirement is 14 days).
8) Cardholders must be given the option of having a fixed credit limit that cannot be exceeded and credit card issuers cannot charge over-the-limit fees on cardholders with fixed limits. This makes the ability to exceed an established credit card limit and opt-in election.
9) Credit card issuers are prohibited from charging interest on credit card transaction fees, such as late fees and over-the-limit fees.
10) If the payment due date is a date when a credit card issuer does not receive or accept payments by mail (e.g., weekends and holidays), the creditor cannot treat a payment received on the next business date as a late payment.
11) Credit card issuers are prohibited from charging a fee to allow a cardholder to pay a credit card debt, whether the payment is made by mail, telephone, electronic transfer, or otherwise.
12) Credit card issuers are required, when soliciting persons under the age of 21, to obtain an application that contains either a) the signature of a parent, guardian, or other qualified individual willing to take financial responsibility for the debt, b) information indicating an independent means of repaying any credit extended, or c) proof that the applicant has completed a certified financial literacy or financial education course.
There is more to the bill than listed here but I have chosen to cover the more beneficial elements. To read the full text of the bill click here. The only unfortunate thing about the bill is that it doesn't take effect for 9 months after its passage on May 27, 2009.
While I am a staunch free market capitalist and I believe that both people and businesses should accept the consequences of their decisions, whether good or bad, the introduction of the Universal Default Clause, among other tactics, has opened the door to a $15 Billion goldmine of fee income that most cardholders aren't even aware of. I think you'll agree that the following list of guidelines in the new Credit Card Act is both JUST and long overdue.
1) Credit card issuers must notify cardholders in writing at least 45 days prior to any change in the annual percentage rate (APR). If the cardholder elects to cancel the account before the effective date of the increase, the cancellation cannot be considered a default on the account and cannot trigger an obligation to immediately repay the account in full.
2) Credit card issuers are prohibited from increasing APRs that apply to existing balances unless specific conditions apply. An APR may be increased only if a) the index on which the rate is based changes, b) it is a promotional rate that has expired, c) a cardholder fails to comply with a hardship workout plan, or d) the account falls 60 days past due.
3) If a rate increase is triggered by a cardholder falling 60 days past due on the account, the cardholders' APR will be restored to what it was before the increase once the cardholder has made timely minimum payments for six consecutive months.
4) If different APRs apply to separate portions of an outstanding balance, the amount of any payment beyond the minimum payment due must be applied to the portion of the balance with the highest APR.
5) Credit card issuers can no longer increase a cardholders' interest rate on an existing balance on credit card "A" due to negative activity on credit card "B", as is currently the case.
6) Credit card issuers are prohibited from imposing interest charges on any portion of a balance that is paid by the due date.
7) Credit card issuers are required to mail credit card statements at least 21 days before the bill is due (current requirement is 14 days).
8) Cardholders must be given the option of having a fixed credit limit that cannot be exceeded and credit card issuers cannot charge over-the-limit fees on cardholders with fixed limits. This makes the ability to exceed an established credit card limit and opt-in election.
9) Credit card issuers are prohibited from charging interest on credit card transaction fees, such as late fees and over-the-limit fees.
10) If the payment due date is a date when a credit card issuer does not receive or accept payments by mail (e.g., weekends and holidays), the creditor cannot treat a payment received on the next business date as a late payment.
11) Credit card issuers are prohibited from charging a fee to allow a cardholder to pay a credit card debt, whether the payment is made by mail, telephone, electronic transfer, or otherwise.
12) Credit card issuers are required, when soliciting persons under the age of 21, to obtain an application that contains either a) the signature of a parent, guardian, or other qualified individual willing to take financial responsibility for the debt, b) information indicating an independent means of repaying any credit extended, or c) proof that the applicant has completed a certified financial literacy or financial education course.
There is more to the bill than listed here but I have chosen to cover the more beneficial elements. To read the full text of the bill click here. The only unfortunate thing about the bill is that it doesn't take effect for 9 months after its passage on May 27, 2009.
Saturday, March 7, 2009
Making Home Affordable Is Law
The Making Home Affordable Program has been passed into law and an expected 7 to 9 million homeowners should benefit from it. There are two ways for at-risk homeowners to benefit. The first is the Home Affordable Refinance and the second is the Home Affordable Modification.
The Home Affordable Refinance program will be available to homeowners with a good payment history on their existing Fannie Mae or Freddie Mac mortgage. Under this program homeowners will be eligible to refinance up to 105% of their current home value to today's lower mortgage rates. This program ends in June 2010.
For those that don't qualify for the Home Affordable Refinance program there is the Home Affordable Modification Program. The servicers of these loans are encouraged to work with homeowners to modify their mortgages so that at-risk homeowners can better afford their payments. Institutions that received TARP (Troubled-Asset-Relief-Program) money are required to work with homeowners whose loans they service.
The modification program is available to those who live in their homes and took out their mortgage prior to January 1, 2009. Modifications can be done through this program until December 31, 2012 and a homeowner can only modify his or her loan once.
The loan servicer will first seek to reduce the interest rate (subject to a rate floor of 2%). Then, if necessary, the lender will seek to extend the term of the mortgage up to a maximum of 40 years. Finally, as a last resort, the lender can forgive a portion of the mortgage owed in order to achieve a goal of a mortgage payment that represents 31% of the homeowners' gross monthly income.
Key distinctions to remember are as follows:
The Home Affordable Refinance program will be available to homeowners with a good payment history on their existing Fannie Mae or Freddie Mac mortgage. Under this program homeowners will be eligible to refinance up to 105% of their current home value to today's lower mortgage rates. This program ends in June 2010.
For those that don't qualify for the Home Affordable Refinance program there is the Home Affordable Modification Program. The servicers of these loans are encouraged to work with homeowners to modify their mortgages so that at-risk homeowners can better afford their payments. Institutions that received TARP (Troubled-Asset-Relief-Program) money are required to work with homeowners whose loans they service.
The modification program is available to those who live in their homes and took out their mortgage prior to January 1, 2009. Modifications can be done through this program until December 31, 2012 and a homeowner can only modify his or her loan once.
The loan servicer will first seek to reduce the interest rate (subject to a rate floor of 2%). Then, if necessary, the lender will seek to extend the term of the mortgage up to a maximum of 40 years. Finally, as a last resort, the lender can forgive a portion of the mortgage owed in order to achieve a goal of a mortgage payment that represents 31% of the homeowners' gross monthly income.
Key distinctions to remember are as follows:
- The loan must be a Fannie Mae or Freddie Mac loan.
- All refinances or modifications require full documentation of income.
- The home must be occupied by the homeowner. No investment properties allowed.
- Loan payments must be current with no past late payments allowed.
Monday, March 2, 2009
California Comes Up With Its Own Homebuyer Tax Credit
Not to be outdone by the Feds, the Governator, Arnold Schwarzenegger, signed into law California's own homebuyer tax credit. There are several distinctive differences between the two homebuyer tax credits as I will point out.
The California Homebuyer Tax Credit is open to ALL homebuyers, not just first-time homebuyers. However, it is limited to homebuyers purchasing a home that has never been occupied. In other words, NEW CONSTRUCTION ONLY. The credit is available on purchases made between March 1, 2009 and March 1, 2010.
The tax credit is equal to 5% of the purchase price with a maximum credit of $10,000. However, the California tax credit can ONLY be used to offset your actual tax bill. Additionally, the credit is paid in three equal and annual installments of $3,333 for the first three years of homeownership and can never exceed the tax owed. For example, if you owe $4,000 in tax, your credit is $3,333 and you still owe the other $667. However, if you owe $2,333, then the credit is $2,333 and you lose the other $1,000 because at the time of this update there is no carryover provision. No repayment of the tax credit is necessary as long as the home purchased is the homebuyer's primary residence for at least two years. The Federal Homebuyer Tax Credit allows the homebuyer to receive the credit whether taxes are owed or not, but any tax owed must be paid first and the homebuyer must live in the property for three years.
There is NO income restriction like there is in the Federal program, which has a phase out of the credit for singles making more than $75,000 and married couples making more than $150,000.
First-time homebuyers purchasing a new construction home in California would be able to take advantage of both tax credits for a total credit of $18,000 provided they met both state and federal limitations.
Personally, I think this is a bad idea. It is really nothing more than the Governor pandering to the home building industry. The home builders want this credit so they can unload all of the homes they built that didn't sell before the correction. But they also want to use it as a means to finish building the tracts that they started and couldn't finish before the correction.
Who stands to benefit from adding more homes to an already overbuilt state? This is a simple supply and demand issue and keeping builders building when we need to clear out the overabundance of home we have now makes no sense. I guess the good news is that some in the construction field can go back to work but the credit should be made available to all if the goal is to get the economy back on its feet.
The California Homebuyer Tax Credit is open to ALL homebuyers, not just first-time homebuyers. However, it is limited to homebuyers purchasing a home that has never been occupied. In other words, NEW CONSTRUCTION ONLY. The credit is available on purchases made between March 1, 2009 and March 1, 2010.
The tax credit is equal to 5% of the purchase price with a maximum credit of $10,000. However, the California tax credit can ONLY be used to offset your actual tax bill. Additionally, the credit is paid in three equal and annual installments of $3,333 for the first three years of homeownership and can never exceed the tax owed. For example, if you owe $4,000 in tax, your credit is $3,333 and you still owe the other $667. However, if you owe $2,333, then the credit is $2,333 and you lose the other $1,000 because at the time of this update there is no carryover provision. No repayment of the tax credit is necessary as long as the home purchased is the homebuyer's primary residence for at least two years. The Federal Homebuyer Tax Credit allows the homebuyer to receive the credit whether taxes are owed or not, but any tax owed must be paid first and the homebuyer must live in the property for three years.
There is NO income restriction like there is in the Federal program, which has a phase out of the credit for singles making more than $75,000 and married couples making more than $150,000.
First-time homebuyers purchasing a new construction home in California would be able to take advantage of both tax credits for a total credit of $18,000 provided they met both state and federal limitations.
Personally, I think this is a bad idea. It is really nothing more than the Governor pandering to the home building industry. The home builders want this credit so they can unload all of the homes they built that didn't sell before the correction. But they also want to use it as a means to finish building the tracts that they started and couldn't finish before the correction.
Who stands to benefit from adding more homes to an already overbuilt state? This is a simple supply and demand issue and keeping builders building when we need to clear out the overabundance of home we have now makes no sense. I guess the good news is that some in the construction field can go back to work but the credit should be made available to all if the goal is to get the economy back on its feet.
Saturday, February 28, 2009
The Homebuyer Tax Credit of 2009
In the new stimulus package President Obama signed into law, among other things, is a new version of the homebuyer tax credit for 2009. There are some very noteworthy improvements as compared to the 2008 credit.
The 2008 tax credit, which was part of the Housing and Economic Recovery Act, gave first-time hombuyers a $7,500 tax credit if they purchased a home between April 9, 2008 and June 30, 2009. The new tax credit, which is part of the American Recovery and Reinvestment Act of 2009, increases the tax credit to $8,000 and is for home purchases that take place between January 1, 2009 and November 30, 2009.
The 2008 tax credit was an interest free loan from the government which would be repaid in $500 installments over 15 years. The 2009 tax credit does not have to be repaid. There is no change to the first-time homebuyer requirement. To take advantage of the credit a homebuyer must not have owned a home in the last three years, with few exceptions.
The remaining provisions are essentially the same. The homebuyer must occupy the home as their primary residence for at least three years, with few exceptions. There is still a phase out of the tax credit for singles making more than $75,000 and married couples making more than $150,000 and no tax credit for singles making $95,000 and couples making $170,000.
The tax credit is just that, a credit. A tax credit differs from a tax deduction in a very significant way. A tax deduction is a reduction of the amount of income one pays taxes on. A tax credit is a dollar for dollar reduction of the tax owed. If the homebuyer owes less than $8,000 in taxes the homebuyer will receive the difference in a refund (i.e., If your tax bill is $4,000, you will now owe zero and receive a refund of $4,000).
The homebuyer tax credit is an amazing move on the part of the government to stimulate the housing market. This credit should provide more than enough incentive for aspiring homeowners sitting on the fence about buying a home. The mix of phenominally low interest rates, reduced home prices, home sellers and lenders willing to pay closing costs, and the huge tax credit make this the best time in 10 years to buy a home. Who do you know who could and should take advantage of this awesome opportunity? I would be honored if you would refer them to me. I can be reached on my mobile number at (619)994-1110 or by e-mail at Shawn@YourFavoriteLender.com.
The 2008 tax credit, which was part of the Housing and Economic Recovery Act, gave first-time hombuyers a $7,500 tax credit if they purchased a home between April 9, 2008 and June 30, 2009. The new tax credit, which is part of the American Recovery and Reinvestment Act of 2009, increases the tax credit to $8,000 and is for home purchases that take place between January 1, 2009 and November 30, 2009.
The 2008 tax credit was an interest free loan from the government which would be repaid in $500 installments over 15 years. The 2009 tax credit does not have to be repaid. There is no change to the first-time homebuyer requirement. To take advantage of the credit a homebuyer must not have owned a home in the last three years, with few exceptions.
The remaining provisions are essentially the same. The homebuyer must occupy the home as their primary residence for at least three years, with few exceptions. There is still a phase out of the tax credit for singles making more than $75,000 and married couples making more than $150,000 and no tax credit for singles making $95,000 and couples making $170,000.
The tax credit is just that, a credit. A tax credit differs from a tax deduction in a very significant way. A tax deduction is a reduction of the amount of income one pays taxes on. A tax credit is a dollar for dollar reduction of the tax owed. If the homebuyer owes less than $8,000 in taxes the homebuyer will receive the difference in a refund (i.e., If your tax bill is $4,000, you will now owe zero and receive a refund of $4,000).
The homebuyer tax credit is an amazing move on the part of the government to stimulate the housing market. This credit should provide more than enough incentive for aspiring homeowners sitting on the fence about buying a home. The mix of phenominally low interest rates, reduced home prices, home sellers and lenders willing to pay closing costs, and the huge tax credit make this the best time in 10 years to buy a home. Who do you know who could and should take advantage of this awesome opportunity? I would be honored if you would refer them to me. I can be reached on my mobile number at (619)994-1110 or by e-mail at Shawn@YourFavoriteLender.com.
Friday, February 6, 2009
New Homebuyer Education Workshop Is A Hit!
On January 31, 2009, I hosted my first Homebuyer Education Workshop. I have contended for a long time that the current "housing crisis" is really an affordability issue. Lenders were so crazy and loose with the lending guidelines that virtually anybody and everybody who ever considered owning a house bought one even if it was only to flip it a short while later.
All of that competition flooding the market, known as high demand, caused house prices to go through the roof. It didn't take long for house prices to become unaffordable for the remaining interested buyers and the spiral downward began.
Now house prices have become very affordable again for many aspiring homeowners and word is finally getting out that it is time to buy. There are many amazing deals to be had out there. However, so we don't have a repeat of this housing crisis I have created a Homebuyer Education Workshop. In this workshop I provide attendees everything they need to know to confidently buy their own home. The real estate and mortgage markets have changed significantly in the last year and will continue to change going forward.
I know that buying a home can be complicated, which is why I designed this workshop. Anyone who chooses to attend will have a clear understanding of the current real estate market and gain answers to the following questions:
I intend on hosting a Homebuyer Education Workshop each month and ultimately every two weeks. I believe anybody interested in buying a home should go through this type of educational workshop. If more people did maybe we wouldn't have the housing problems we're having right now.
If you have any family members, friends, or work associates that are interested in becoming homeowners I would be honored if you would refer them to my FREE Homebuyer Education workshop. I will let you know when the next one is as soon as I set the date, time and location.
All of that competition flooding the market, known as high demand, caused house prices to go through the roof. It didn't take long for house prices to become unaffordable for the remaining interested buyers and the spiral downward began.
Now house prices have become very affordable again for many aspiring homeowners and word is finally getting out that it is time to buy. There are many amazing deals to be had out there. However, so we don't have a repeat of this housing crisis I have created a Homebuyer Education Workshop. In this workshop I provide attendees everything they need to know to confidently buy their own home. The real estate and mortgage markets have changed significantly in the last year and will continue to change going forward.
I know that buying a home can be complicated, which is why I designed this workshop. Anyone who chooses to attend will have a clear understanding of the current real estate market and gain answers to the following questions:
- Can you qualify for a loan? If so, what are the steps?
- How does owning a home compare to renting?
- What are the significant tax advantages to owning a home?
- Are tax advantages the only reason to own a home?
- How does the $7,500 government incentive for first-time buyers benefit you?
- What loan programs are available today?
- How much of a down payment do you need?
- Why is your credit score worth thousands of dollars and how you can improve and protect it?
- and much, much, more!
I intend on hosting a Homebuyer Education Workshop each month and ultimately every two weeks. I believe anybody interested in buying a home should go through this type of educational workshop. If more people did maybe we wouldn't have the housing problems we're having right now.
If you have any family members, friends, or work associates that are interested in becoming homeowners I would be honored if you would refer them to my FREE Homebuyer Education workshop. I will let you know when the next one is as soon as I set the date, time and location.
Friday, January 30, 2009
Can You Benefit From Refinancing?
Unless you've been on another planet the last few weeks, chances are you've heard the buzz about mortgage interest rates dipping to record lows recently. Finally, something to help us, the average American right? Maybe. Let me set the stage.
The good news is interest rates are very low right now. The bad news is qualifying for a mortgage has changed dramatically over the last two years. In order to qualify for the lowest rates available you need to meet all of the following criteria:
Are interest rates going to go lower? Should you wait to refinance?
One thing I know for sure is that if you try to "hit the bottom," you will miss it. We only know what the bottom was when we're looking back at it.
Unfortunately loans have gotten more expensive than before. It is virtually impossible to do a zero point loan today. All of the government intervention and regulation has taken its toll on the mortgage industry and it is only going to get worse.
The process of obtaining a loan has changed. You will certainly have a different experience than you've had in the past. As I mentioned earlier, qualifying for a mortgage today is much stricter these days so you will have to provide more documentation than you did before.
The value of your home will most likely be the wild card. While I can certainly get an estimate of the value prior to moving forward, until the actual appraisal is complete I won't know if I can complete the refinance. Unfortunately, you may have to pay for an appraisal and find out you cannot obtain a loan after all.
Most importantly, 70% of the people who used to be in the mortgage industry are gone. What that means is there is a big capacity problem right now - there aren't enough processors, underwriters, doc drawers, closers, etc... to handle the volume that has come in lately. Transactions that used to take 30 days are taking closer to 60 days.
I will do everything I can to make this a painless experience but I will need your help. We need to move forward quickly. Interest rates will not stay this low for very long. They are artificially low right now because the Fed is buying mortgage bonds, which it vows to do until June 2009. Once the Fed stops buying mortgage bonds interest rates will go up. Call me at (619)574-6545 so we can discuss your specific situation.
The good news is interest rates are very low right now. The bad news is qualifying for a mortgage has changed dramatically over the last two years. In order to qualify for the lowest rates available you need to meet all of the following criteria:
- Credit score of 740 or higher
- At least 20% equity
- Income documentation (NO "state income" loans anymore)
- To take cash out, you must have at least 30% equity
Are interest rates going to go lower? Should you wait to refinance?
One thing I know for sure is that if you try to "hit the bottom," you will miss it. We only know what the bottom was when we're looking back at it.
- The "chatter" several weeks ago was that interest rates were going to hit 4.5% on a 30-year fixed mortgage. That hasn't happened and there is no guarantee that it will.
- Let's get on the phone and discuss the specifics of your situation to determine what, if anything, can be done to improve your situation.
- Interest rates are very volatile right now. The wild swings you are seeing in the stock market are also happening in the bond market, which drives mortgage rates. The interest rate dips that we see usually last only hours, so if you are not ready you'll miss it.
Unfortunately loans have gotten more expensive than before. It is virtually impossible to do a zero point loan today. All of the government intervention and regulation has taken its toll on the mortgage industry and it is only going to get worse.
The process of obtaining a loan has changed. You will certainly have a different experience than you've had in the past. As I mentioned earlier, qualifying for a mortgage today is much stricter these days so you will have to provide more documentation than you did before.
The value of your home will most likely be the wild card. While I can certainly get an estimate of the value prior to moving forward, until the actual appraisal is complete I won't know if I can complete the refinance. Unfortunately, you may have to pay for an appraisal and find out you cannot obtain a loan after all.
Most importantly, 70% of the people who used to be in the mortgage industry are gone. What that means is there is a big capacity problem right now - there aren't enough processors, underwriters, doc drawers, closers, etc... to handle the volume that has come in lately. Transactions that used to take 30 days are taking closer to 60 days.
I will do everything I can to make this a painless experience but I will need your help. We need to move forward quickly. Interest rates will not stay this low for very long. They are artificially low right now because the Fed is buying mortgage bonds, which it vows to do until June 2009. Once the Fed stops buying mortgage bonds interest rates will go up. Call me at (619)574-6545 so we can discuss your specific situation.
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