Tag Archives: mortgage

Get the basics on the extended tax credit

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As part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed new legislation that:

  • Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.
  • Expands the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home between November 7, 2009 and April 30, 2010.

Here is more information about how the Extended Home Buyer Tax Credit can help prospective home buyers become part of the American dream.

 

Who Qualifies for the Extended Credit?

  • First-time home buyers who purchase homes between November 7, 2009 and April 30, 2010.
  • Current home owners purchasing a home between November 7, 2009 and April 30, 2010, who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.

To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

If you or your client purchased a home between January 1, 2009 and November 6, 2009, please see: 2009 First-Time Home Buyer Tax Credit.

Which Properties Are Eligible?

The Extended Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.

How Much Is Available?

The maximum allowable credit for first-time home buyers is $8,000.

The maximum allowable credit for current homeowners is $6,500.

How is a Buyer’s Credit Amount Determined?

Each home buyer’s tax credit is determined by two additional factors:

  1. The price of the home.
  2. The buyer’s income.

Price
Under the Extended Home Buyer Tax Credit, credit may only be awarded on homes purchased for $800,000 or less.

Buyer Income
Under the Extended Home Buyer Tax Credit, which is effective on November 7, 2009,  single buyers with incomes up to $125,000 and married couples with incomes up to $225,000—may receive the maximum tax credit.

These income limits have changed from the 2009 First-Time Home Buyer Tax Credit limits. If you or your client purchased a home between January 1, 2009 and November 6, 2009, please see 2009 First-Time Home Buyer Tax Credit.

If the Buyer(s)’ Income Exceeds These Limits, Can He/She Still Get a Credit?

Yes, some buyers may still be eligible for the credit.

The credit decreases for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income—over $145,000 for singles and over $245,000 for couples are not eligible for the credit.

Can a Buyer Still Qualify If He/She Closes After April 30, 2010?

Under the Extended Home Buyer Tax Credit, as long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.

Will the Tax Credit Need to Be Repaid?

No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount credit will be recouped on the sale.

If you don’t buy a house now, you’re either stupid or broke

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Interest rates are at historic lows but cyclical trends suggest they will soon rise. Home buyers may never see such a chance again, writes Marc Roth By Marc Roth.

Well, you may not be stupid or broke. Maybe you already have a house and you don’t want to move. Or maybe you’re a Trappist monk and have forsworn all earthly possessions. Or whatever.  But if you want to buy a house, now is the time, and if you don’t act soon, you will regret it. Here’s why: historically low interest rates.

As of today, the average 30-year fixed-rate loan with no points or fees is around 5%. That, as the graph above—which you can find on Mortgage-X.com—shows, is the lowest the rate has been in nearly 40 years.

In fact, rates are so well below historic averages that it should make all current and prospective homeowners take notice of this once-in-a-lifetime opportunity. And it is exactly that, based on what the graph shows us. Let’s look at the point on the far left.

In 1970 the rate was approximately 7.25%. After hovering there for a couple of years, it began a trend upward, landing near 10% in late 1973. It settled at 8.5% to 9% from 1974 to the end of 1976. After the rise to 10%, that probably seemed O.K. to most home buyers.  But they weren’t happy soon thereafter.  From 1977 to 1981, a period of only 60 months, the 30-year fixed rate climbed to 18%. As I mentioned in one of my previous articles, my dad was one of those unluckily stuck needing a loan at that time.

Interest Rate Lessons

And when rates started to decline after that, they took a long time to recede to previous levels.  They hit 9% for a brief time in 1986 and bounced around 10% to 11% until 1990.  For the next 11 years through 2001, the rates slowly ebbed and flowed downward, ranging from 7% to 9%.  We’ve since spent the last nine years, until very recently, at 6% to 7%.  So you can see why 5% is so remarkable.  So, what can we learn from the historical trends and numbers?

First, rates have far further to move upward than downward; for more than 30 years, 7% was the low and 18% the high.  The norm was 9% in the 1970s, 10% in the mid-1980s through the early 1990s, 7% to 8% for much of the 1990s, and 6% only over the last handful of years. 

Second, the last time the long-term trends reversed from low to high, it took more than 20 years (1970 to 1992) for the rate to get back to where it was, and 30 years to actually start trending below the 1970 low. 

Finally, the most important lesson is to understand the actual financial impact the rate has on the cost of purchasing and paying off a home.  Every quarter-point change in interest rates is equivalent to approximately $6,000 for every $100,000 borrowed over the course of a 30-year fixed.  While different in each region, for the sake of simplicity, let’s assume that the average person is putting $40,000 down and borrowing $200,000 to pay the price of a typical home nationwide.  

Thus, over the course of the life of the loan, each quarter-point move up in interest rates will cost that buyer $12,000.  Loan Costs Stay with me now.  We are at 5%.   As you can see by the graph above, as the economy stabilizes, it is reasonable for us to see 30-year fixed rates climb to 6% within the foreseeable future and probably to a range of 7% to 8% when the economy is humming again.  If every quarter of a point is worth $12,000 per $200,000 borrowed, then each point is worth almost $50,000. 

Let’s put that into perspective.  You have a good stable job (yes, unemployment is at 10%, but another way of looking at that figure is that most of us have good stable jobs).  You would like to own a $240,000 home.  However, even though home prices have steadied, you may be thinking you can get another $5,000 or $10,000 discount if you wait (never mind the $8,500 or $6,500 tax credit due to run out next spring).  Or you may be waiting for the news to tell you the economy is “more stable” and it’s safe to get back in the pool.  In exchange for what you may think is prudence, you will risk paying $50,000 more per point in interest rate changes between now and the time you decide you are ready to buy.  And you are ignoring the fact that according to the Case-Shiller index, home prices in most regions have been trending back up for the last several months. 

If you are someone who is looking to buy or upgrade in the $350,000-to-$800,000 home price range, and many people out there are, then you’re borrowing $300,000 to $600,000.  At 7%, the $300,000 loan will cost just under $150,000 more over the lifetime, and the $600,000 loan an additional $300,000, if rates move up just 2% before you pull the trigger. 

What I’m trying to impress upon everyone is that if you are planning on being a homeowner now and/or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home.

If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime.

Source: Business Week

New FHA guidelines may help condo sales

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New FHA Guidelines Could Aid Condo Sales New Federal Housing Administration condo-loan guidelines that took effect Dec. 8 could make it much easier for condo buyers to get a loan. Under previous guidelines, half the units in a new condo development had to be sold before the FHA would underwrite a mortgage in the complex. New guidelines cut the requirement to 30 percent and raise the ceiling on FHA loans in a development to 50 percent from 30 percent.

The new rules also allow condo associations to turn down an accepted offer if they agree that it’s too low—unless they will be violating the Fair Housing Act. This is expected to motivate many associations to seek FHA-approved status for their buildings.  Even if they solve the vacancy problem, FHA loans can be a tough sell in some buildings, says Miami-area practitioner Madeleine Romanello, an associate with Douglas Elliman Florida. “An FHA loan still has the connotation of being low-income.

Condo boards say, ‘No, we don’t do FHA.’ They don’t understand that the FHA is the only game in town. We could be moving tons of condos if we could get their buildings FHA-approved,” Romanello says.

Source: Investor’s Business Daily

U.S. regulators close AmTrust and Tattnall banks

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Cleveland, Ohio’s Amtrust Bank was seized by regulators Friday, making it the fourth largest institution to go under in 2009. Five smaller institutions – three in Georgia and one each in Illinois and Virginia – were also shuttered over the weekend.

These latest six closings bring the total number of failed banks for the year to 130, and are expected to cost the FDIC’s already-depleted insurance fund a combined $2.4 billion. As DSNews.com previously reported, the agency’s reserve used to protect consumers’ deposits has slipped into the red – $8.2 billion in the hole at the end of the third quarter.

The failure of Amtrust alone will cost the FDIC an estimated $2 billion. Established in 1889 as The Ohio Savings and Loan Company, Amtrust was a nationwide originator of home mortgages and also offered construction and development loans. But according to a statement from its regulator, the Office of Thrift Supervision (OTS), Amtrust “was in an unsafe and unsound condition because of substantial loan losses, deteriorating asset quality, and insufficient capital.” OTS said a high level of AmTrust’s problem assets was attributable to residential and land acquisition, development, and construction lending concentrated in Florida, California, Arizona, and Nevada.

In an FDIC-assisted transaction, New York Community Bank in Westbury, New York agreed to acquire all of Amtrust’s $8 billion in deposits, wholesale borrowings of approximately $3 billion, and “certain assets,” Community Bank said in a press statement. According to the New York institution, these assets, totaling $11 billion, include performing single-family mortgage and consumer loans of approximately $6 billion which are subject to a loss-share agreement with the FDIC; cash of approximately $4 billion; and securities of approximately $1 billion.

Community Bank, though, was quick to point out that it declined to take on any non-performing loans serviced by AmTrust Bank or any other REOs; construction, land, or development loans; private-label securities, or mortgage servicing rights. The FDIC said it will retain these assets for later disposition.

The FDIC also transferred to New York Community Bank all qualified financial contracts to which AmTrust was a party, and said as part of the overall transaction, Community Bank has issued it a cash participant instrument, which the FDIC has until December 23 to exercise, allowing it to obtain shares of common stock in Community Bank.

Georgia leads the nation with the most bank collapses in 2009. Regulators closed three more institutions in the state on Friday, bringing that total to 24 for the year.

The Buckhead Community Bank in Atlanta, Georgia was acquired by State Bank and Trust Company of Macon, Georgia. The Buckhead Community Bank had six branches in Georgia operating under various names. State Bank also assumed all of the failed institution’s $838 million in deposits and total assets of $874 million. The FDIC estimates the cost to its deposit insurance fund will be $241.4 million.

State Bank and Trust Company also took over the operations of First Security National Bank in Norcross, Georgia. First Security had four branches, deposits of $123 million, and total assets of $128 million. The FDIC said it expects First Security’s failure to cost $30.1 million.

The Tattnall Bank of Reidsville, Georgia was acquired by HeritageBank of the South. in Albany, Georgia. The Tattnall Bank had two branches, $47.3 million in deposits, and total assets of $49.6 million. Its failure is expected to cost the FDIC $13.9 million.

Illinois is second in the nation when it comes to failed banks, with 20 in 2009. Benchmark Bank in Aurora, Illinois is the latest institution to join that list. Chicago’s MB Financial Bank agreed to take over Benchmark’s five branches, its $181 million in deposits, and purchased approximately $139 million of its $170 million in assets. The cost of Benchmark’s collapse is estimated at $64 million.

Greater Atlantic Bank in Reston, Virginia was also closed by the OTS. The FDIC brokered a deal with Sonabank of McLean, Virginia, to acquire the failed institution’s five branches, its $179 million in deposits, and total assets of $203 million. The FDIC expects Greater Atlantic’s closure to cost its insurance fund $35 million.

Info Source: dsnews.com

Government Tax Credit EXTENDED AND EXPANDED!!

Buyers, Financial/Mortgage Industry, First Time Home Buyer, For Sale, National, Real Estate News, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

tax_credit

President Obama is expected to sign a bill passed by Congress today extending and expanding the first-time homebuyer tax credit to homes under contract before May 1.

The credit, equal to 10 percent of a home’s purchase price, remains capped at $8,000 for first-time homebuyers, but income limits have been raised.

Congress also approved an expansion of the credit to allow homeowners who have been in a principal residence for at least five of the last eight years to claim a tax credit of up to $6,500 if they sell that home and buy another.

That will provide an incentive not only for entry level, but move-up buyers — a goal supported by real estate industry groups.

An extension of the existing tax credit — currently set to expire at the end of the month — was controversial, as it will cost an estimated $10.8 billion over 10 years. Critics said most of those who have claimed it would have bought a home anyway.

Earlier this year, former real estate broker Sen. Johnny Isakson, R-Ga., introduced a standalone bill that would have raised the ceiling on the tax credit to $15,000 and lifted first-time homebuyer and income restrictions.

In the end, lawmakers who supported an extension of the tax credit were forced to add it as an amendment to a bill extending federal unemployment benefits, HR 3548, to gain passage.

The bill was amended in the Senate last week and approved Wednesday in a unanimous 98-0 vote.

House lawmakers passed the bill today in a 403-12 vote, with all 12 no votes cast by Republicans.

The Obama administration had previously indicated it would support the more limited extension of the homebuyer tax credit included in HR 3548 (see story).

Although income limits for claiming the credit will be raised from $75,000 to $125,000 for individuals and from $125,000 to $225,000 for couples, homes purchases exceeding $800,000 will not be eligible.

Real estate industry groups hailed the extension of the credit as a necessary step to sustain a fragile recovery in housing markets.

“At a time when we are finally starting to see some signs of life in the housing and mortgage markets, extending and expanding the homebuyer tax credit is a critical step to keeping the momentum,” Robert E. Story Jr., chairman of the Mortgage Bankers Association, said in a statement. 

Tax Credit Comparison Chart

FHA Loan Limits

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fha_updateFHA Loan Limits As a result of the passage of the American Recovery and Reinvestment Act of 2009, on February 25, 2009, HUD published changes to FHA’s single family loan limits . Given that most of the loan limits decreased for 2009, most areas will revert to the higher 2008 mortgage limit. On October 29, 2009, House and Senate passed legislation to extend the current loan limits for FHA and Freddie Mac and Fannie Mae (the government sponsored enterprises, or GSEs) through December 31, 2010. These loan limits, set at 125% of local area median home price and capped at $729,750, would have expired on December 31, 2009 in which case loan limits would have been reduced in many markets.

HERE ARE A FEW LINKS AS A REFRESHER IN FHA FINANCING:

FHA Quick Reference Guide

FHA Lender Locator

FHA Mortgage Limits

This Month In Real Estate – October 2009

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Each month, This Month in Real Estate provides expert opinion and analysis on real estate trends across the nation. The aim of the consumer-oriented segments is to provide real information on real estate.
[youtube=http://www.youtube.com/watch?v=-Oq3bdOA2J8]

Congress clears way to rent foreclosures

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080618-foreclosureOverview-hmed-343p_hmediumHere are two questions getting a lot of attention on Capitol Hill and from the Obama administration: When homeowners lose their houses to foreclosure, should they be able to stay in the property, leasing it at fair market rent from the lender?

Should they also get an option to purchase the house from the bank at the end of the lease term, assuming they have the income to afford it?

Before leaving for their August break, Democrats and Republicans in the House took a rare, unanimous stand on both questions by passing the Neighborhood Preservation Act by voice vote.  The bill was co-sponsored by Reps. Gary Miller, R-Diamond Bar (Los Angeles County), and Joe Donnelly, D-Ind. The bill would remove legal impediments blocking federally regulated banks from entering into long-term leases – up to five years – with the former owners of foreclosed houses.  It would also allow banks to negotiate option-to-purchase agreements permitting former owners to buy back their houses.

The idea, said Miller, is, “at no cost to the taxpayer,” to “reduce the number of houses coming into the housing inventory and preserve the physical condition of foreclosed properties,” which ultimately should help stabilize values in neighborhoods with large numbers of distressed sales and underwater real estate. 

If the bill is approved by the Senate, participation by banks would be purely voluntary.  But the legislation might encourage banks to calculate whether they would do better financially taking an immediate loss at foreclosure, or by collecting rents and then selling the property at a higher price in four or five years.

Though it was not opposed by banking lobbies, the bill quickly attracted critics.  The Center for Economic and Policy Research, a think tank based in Washington, said a key flaw is to leave decisions about leasebacks solely to banks themselves.  “If Congress does want to give homeowners the option to stay in their homes as renters,” said the group, “it will be necessary to pass legislation that explicitly gives them this right.”

Some private-industry proponents of short sales – where the bank negotiates a price that’s typically less than the owners owe on their note – say turning banks into landlords won’t work well, either for the banks or foreclosed owners who want to stay in their houses. 

Al Hackman, a San Diego realty broker with extensive experience in commercial transactions, argues that leasebacks with options to buy are the way to go – but not if banks run the show. Hackman and a partner, Troy Huerta, have recently begun putting together what they call “seamless short sales” as alternatives for banks and property owners.  Their short sales and leasebacks are “seamless” because the financially distressed homeowners remain in their properties, before and after the settlement.

Here’s how they work:

First, the bank agrees to a short sale to a private investor, just as they often do now. In the seamless version, however, the investor is contractually bound to lease back the house on a “triple net” basis – the tenants pay taxes, insurance and utilities – for two to three years. The former owners only qualify if they have sufficient income to afford a fair market rent and can handle the other expenses, including maintaining the property. The deal comes with a preset buyout price after the leaseback period. That price is higher than the short-sale price paid by the investor, but lower than the original price of the house paid by the foreclosed owners.

Hackman and Huerta already are doing seamless short-sale transactions.

Here is one that Hackman says is moving toward escrow:
A family purchased a house for $725,000 with 20 percent down in 2005, then made substantial improvements with the help of an equity line of $72,500. The house now is valued at about $500,000, but is saddled with $625,000 in mortgage debts. Enter the seamless short sale: Hackman has brought in a private investor who is willing to buy the house at current value, all cash. As part of the deal, the investor has agreed to lease back the house at $25,000 a year, triple net. In three years, assuming they’ve been good tenants, the original owners have the option to buy back the property for $550,000.

Hackman says the internal rate of return to investors can be raised or lowered based on rents and the buyback price, but typically are in the 8 percent to 10 percent range.  “It’s a win-win,” he says. “The owners stay in their houses.  Private investors get a moderate return on what should be a safe investment.”  Plus the banks are out of the equation.

Source: San Francisco Chronicle

New Regulation Z of The Truth in Lending Act

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Regulation Z of The Truth in Lending Act (TILA) has undergone important changes that you need to know about when talking to your clients. These changes take effect for all new applications taken on July 30, 2009 and after, apply to ALL types of mortgage loans in ALL 50 states plus the District of Columbia, and could impact the overall timeline of the mortgage loan origination process.

Here are the four key parts of the new regulation you need to know:

  • Initial Disclosures. Under the new rules, initial disclosures must be provided to the borrower for all loan types within three (3) business days of when an application is taken or received. Initial disclosures include: the Good Faith Estimate (GFE), Truth in Lending Statement and state-specific disclosures.
  • Collection of Up-front Fees. The new regulations prohibit lenders from collecting many up-front fees prior to when the borrower receives the initial disclosures.
  • Re-disclosures. If there are changes to a borrower’s loan program, loan terms, and/or Annual Percentage Rate (APR), the initial disclosure package must be re-disclosed to the borrower, and it must be received by the borrower at least three (3) business days prior to closing.
  • Timing of Loan Closings. Prospect cannot schedule the loan closing until at least seven (7) business days after the initial disclosures are mailed to the borrower. If re-disclosures are needed because of changes to the loan program, terms or APR, the loan closing cannot be scheduled until at least six (6) business days after the re-disclosures are mailed to the borrower.

When will the housing market rebound?

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MarketWhen will the housing slump finally end? Even the experts’ crystal balls are hazy. The Wall Street Journal, which Thursday reported its latest quarterly survey of housing data, says it depends on which city or part of the country you’re talking about. Home sales were up compared to last year in Washington, D.C., and Northern Virginia, Orlando, Minneapolis, Southern California, and the San Francisco Bay area, according to findings from research firm MDA DataQuick as well as reports from local real estate practitioner organizations. Sales declined in New York City and nearby Long Island, Chicago, and Charlotte, N.C., and the outlook was particularly bleak in Miami-Fort Lauderdale and much of Florida, Detroit, and Las Vegas. But Jody Kahn, an analyst at John Burns Real Estate Consulting, a research organization, points out that there are variations even in the hardest-hit metro areas with the most attractive neighborhoods continuing to thrive. Employment is the most telling factor, says Mark Zandi, chief economist at Moody’s Economy.com. “If people don’t have jobs or fear losing their jobs, then buying homes is out of the question,” he says.

Source: The Wall Street Journal, James R. Hagerty (07/23/2009)