Hey, here is $7500 bucks. Pay me back interest free  over 15 years (unless you can't sell your house for a profit)

This is deal being offered to first time home buyers with the tax credit that was passed earlier this year. However, no one seems to understand it or appreciate it. 

I just had a VA buyer that was purchasing a home with no money down and receiving a seller concession for the full amount of the closing costs. Now, after he closes, he can expect an additional $7500 in his tax return check. Not a bad deal.

How Does the Refund Work?

It works like this.  If you were going to originally receive a $1000 refund when you file your taxes in 2009 it will now be increased up to $8500 as a qualified first time home buyer. The original $1,000 due + $7,500 from the tax rebate.

 Who is Eligible?

1) You must close between April 9, 2008 Through June 30,2009

2) You must be a first time  home buyer, or not have owned a home in the last three years.

3) You must be buying a primary residence. No investment or second homes allowed.

4) To receive the maximum tax credit of $7500 your modified adjusted income for a married couple must be $150,000 or under. Its $75,000 maximum income for a single buyer. (Partial credits are available if you make more than these limits)

How is It Repaid?

Starting the second tax year after your purchase you have up to 15 years to repay the loan.
 However, if you sell the home before 15 years, and realize no profit on your sale, the loan is forgiven.
Also, if there is a gain, the amount owed can never be more than the original credit allowed.

1986

Most of the Realtors were working at their desks.  I would go into a Real Esate  office and the several Realtors would call me over. "Hey you got time to call this Guy?" ""Bill, I got another one over here!" or "This guy is ready to go"

Then, the Realtor would call a week or two later to set up an appointment for the application . The client was referred based on the trust of the Realtor. The buyers trusted the Realtor therefore they trusted me. In turn, I made sure the client got the best rate and service because I  wanted more referrals from the Realtor and the buyer.

Now, 22 years later, many  Realtors do not even go into the office. Often they work at home  on their websites and send out emails.  Today, I walk into offices with 40 agents and there are 3 people in the office counting the receptionist. It is hard to tell who is still really working.

The buyers are different too. These days  clients take virtual tours of a property before the Realtor has even seen it. They have shopped for their mortgage online. They have been pre-approved by some lender they never heard of before and locked into a rate they may or may not close with. All this is done before I even get to meet them. Its all so impersonal. How do you build rapport with a client that starts the sentence "Can you beat this rate I locked online with First Mountain Bank of Utah?"

So what is a 80's mortgage guy to do to keep up with the times. Sure I have a newsletter I email out. I also do emails about program changes, special programs and rate changes. But where is the human interaction?

 I miss meeting first time homebuyers at their parents house and having coffee and cake after the application. As the years went passed I would see my clients in the supermarket with new families. They would say 'Hey Bill, my best friend will be needing a mortgage can you call him"

I was the friendly neighborhood mortgage guy. I do miss those times.

FHA is looking to end its down payment assistance program and eliminate 100% financing. It is about time!

HUD states the foreclosure rate and resulting losses on these types of loans are 2-3 times greater than traditional FHA loans. These losses contributed to  FHA's total loss of 4.6 billion dollars in 2007 and delinquency rates that were up 12.7%. 

 The down payment assistance works like this. Let's say a buyer needs $7500 for a down payment. The seller can donate that sum plus an administrative fee to a nonprofit organization like the Nehemiah Corporation. Nehemiah Corporation then gifts the buyer back the money and pockets the $400 to $600 administrative fee. HUD reports that 1/3 of the FHA loans originated today have some form of down payment assistance.

 The end result is the buyer can buy a house with no money down. The seller can even pay all the closing costs after covering the down payment. Essentially allowing buyers to walk into property ownership with NO MONEY OUT OF POCKET.

 With none of their own money invested and no equity, there is little incentive for the buyer to weather the storm if they are having trouble making payments. Many strapped homeowners will simply stay in the house and make no payments until the bank finally throws them out.

 So when the bank does foreclose, it is stuck with a property that has more liens than value. Let's say a house is bought for $250,000 and is currently worth $215,000. Now, tack on $48,000 in missed mortgage payments. The resulting  $83,000 in negative equity forces the bank to sell at a loss, a short sale. FHA is liable to the bank for these losses since it insures the loan.

 By eliminating down payment assistance and 100% financing programs, the FHA could limit these situations in the future. Hopefully they will. Because, if the FHA keeps racking up these losses it will either go under or require yet another government bailout financed by us the taxpayer

Conventional Loan Guidelines Keep Tightening

2008 THE YEAR OF FHA

 

REASONS FHA WILL BE HUGE IN 2008


REASON #1 : T0 AVOID HIGHER RATES

Your clients can avoid the new Risk Based Pricing* now being charged for Conventional Loans .


* The following Risk Based Pricing is now being charged on Conventional loan with less than 30% down:

1. Credit Score below 620 add 2 points or about 7/8% higher to the rate

2. Credit Score 620-639 add 1.75 points or about 3/4% to the rate

3. Credit Score of 640-659 add 1.25 points or about 1/2 % to the rate

4. Credit Score of 660-670 add .75 to points or about 1/4% to the rate

FHA still does not increase interest rates for clients with lower credit scores.

Select Mortgage Corporation is a direct underwriter for FHA. Call me with your scenarios. I can pre-flight them before you take your clients out

Friday, November 30, 2007

WHEN RATES FREEZE OVER

 

Finally, there is some good news for the troubled mortgage market. The Wall Street Journal reported that the White House and the mortgage industry are close to a deal that would temporarily freeze interest rates for some sub-prime home loans on primary residences. Right now they are talking about a rate freeze for up to 7 years. The negotiations are on going.


Deutsche Bank reported on Friday that Henry Paulson's plan would cover homeowners who are facing their first adjustable rate increase and have some equity in the property. This group would include 1.2 million loans valued at $258 billion or about one third of outstanding "first-lien" sub-prime loans. Hopefully, this will allow homeowners to weather the storm.


The next hurdle is to get the investors who bought into funds of bundled sub-prime loans to accept this rate freeze. In my opinion, these investors do not have many options. I have read estimates that each foreclosed home could cost these investors between $50,000 and $100,000. Therefore, it would better for the investors to accept a loss from a rate freeze than risk having these loans go into total default.

I will keep you informed of the latest developments

WAITING ON A FRIEND

 

I thought I would share this real life scenario.

I have a friend that is planning to rent a home even though he is more than qualified to buy . However, he wants to "wait out the market"

So, I started to think about the cost of rent, the tax write offs he would be missing, and the lost opportunity for equity growth, and thought, why wait?

I entered his data into a rent versus buy calculator on Yahoo to see what the results would be.

Here are the facts I entered:

 For Renting

Rent is going to be $1600 a month with an additional $300 for rental insurance and an estimated average annual rental increase of 5%.

For Buying

The purchase price of the home he is looking is $300,0000. He plans to put 20% down. His mortgage of $240,000 can be locked in at 6 1/4%. The taxes are $3600, homeowners insurance is $600 and annual maintenance cost are $2000.
I also had to input his tax rate of 25% , a 3.5% estimated inflation rate, and a estimated tax return on savings of 6% before taxes .

The Results Are.........

My friend would save $611,606 in today's dollars by buying instead of renting!

Here is the link to the calculator. Maybe it will help your buyers that are still waiting for the "right time" to buy.
http://finance.yahoo.com/calculator/real-estate/hom-06

Monday, November 12, 2007

Are Option Arms a Ticking Time Bomb?


A CNN Money article refers to the Option Arm as "ticking time bombs". However, I believe for the right client, this loan makes sense. First let's explain how they work: Every month you get four payment options:

1) The Payment Cap Rate- This is lowest payment. However, it does not even cover the interest accruing. So, the loan amount actually gets bigger instead smaller. This is called negative amortization.
2)The Interest Only Payment- This covers all of the interest but none of the principle. If you make this payment every month, your loan balance will neither increase or decrease.
3) Fully Amortizing 30 Year Fixed Rate Payment
4) Fully Amortizing 40 Year Fixed Rate Payment

As you can see, the Option Arm gives you flexibility and allows you to control monthly cash flow. For example, if you are a commissioned sales person, you can pay the low payment cap payment on months when you have few sales. Then, you can increase your payment, and reduce any deferred interest that may have accumulated , on a month when sales improve.

The problems occur when people, often on a fixed income, take these loans and continuously make the minimum payment. In this case, your loan balance will increase every month and reduce your homes equity. In a market where values are decreasing, this is a double whammy. To make matters worse, most of these loans have a clause that when the loan balance increases by 25% the loan becomes due in full. This basically means you are forced to refinance the mortgage.
In conclusion, for a client that understands the flexibility this loan allows, it can be a good tool to control monthly cash flow. However, it can indeed be a "ticking time bomb' in the wrong hands.

60 Years of Bad Real Estate Predictions

 

Lets keep today's "expert opinions" on real estate in perspective.

The Santa Barbara Association of Realtors put out this information some time ago:

The prices of houses seem to have reached a plateau, and there is reasonable expectancy that prices will decline." (Time, December 1, 1947)

"Houses cost too much for the mass market. Today's average price is around $8,000-out of reach for two-thirds of all buyers." (Science Digest, April 1948)

"The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs $28,000." (Business Week, September 4, 1969)

"The era of easy profits in real estate may be drawing to a close." (Money, January 1981)

"Most economists agree...[a home] will become little more than a roof and a tax deduction, certainly not the lucrative investment it was through much of the 1980s." (Money, April 1986)

baby boomers are all housed now. They are being followed by the baby bust. By 2005, real housing prices will sit 40 percent below where they are today." (Harvard economist Gregory Mankiw, "The Baby Boom, the Baby Bust and the Coming Collapse of Housing Prices." Journal of Regional Economics, Fall 1989)

"A home is where the bad investment is." (San Francisco Examiner, November 17, 1996)

"If you have bought your house since the War... You have made your deal at the top of the market... The days when you couldn't lose on a house purchase are no longer with us." (House Beautiful, November 1948)

"Be suspicious of the ‘common wisdom1 that tells you ‘Buy now'...Because continuing inflation will force home prices and rents higher and higher." (NEA Journal, December 1970)

"In California...For example, it is not unusual to find families of average means buying $I00,000 houses.. .I'm confident prices have passed their peak." (John Wesley English & Gray Emerson Cardiff, The Coming Real Estate Crash. 1980)

‘"If you're looking to buy, be careful. Rising home values are not a sure thing anymore." (Miami Herald, October 25, 1985)

"We're starting to go back to the time when you bought a home not for its potential money-making abilities, but rather as a nesting spot." (Los Angeles Times, January 31,1993)

"Financial planners agree that houses will continue to be a poor investment." (Kiplinger s Personal Financial Magazine, November 1993)

"Your house is a roof over your head. It's not an investment." (Everything You Know about Money Is Wrong, 2000)

FHA IS BACK !

 

5 Reasons to Consider FHA

1) As Little as 2 1/4% Downpayment

2) Credit Scores 600 or Below are Often Approved.

3) Coborrowers Income Can Be Used To Qualify (They don't have to live there)

 4) Seller Can Pay All of the Closing Costs

5) Only Two Years Required After Bankruptcy