Man what a week (or three) in the real estate market.

To summarize:

      Rates are up big (more on that later)

      What's the deal with this tax credit??

Well as with anything the government gets involved in - confusion is sure to follow - as I have found in talking to some of you.

Everyone has heard that the $8000 tax credit can be used for the down payment.

Here are the facts as of now:

1. You can amend your return to claim the $8000 shortly after buying. Have your clients consult with a tax advisor to make sure this is the best move- you don't want to be thrown into a higher tax bracket as a result.

2. As the $8000 pertains to FHA loans as of now in the state of Wisconsin you cannot use this towards a down payment.   See below:

In accordance with ML09-15, here's the deal so far:

 Government entities and instrumentalities of government may provide a second mortgage. Currently, as far as we know, 10 state housing finance agencies offer a product buyers can use that will effectively monetize the tax credit for down payment purposes. These states are Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, and Tennessee.

Even if you could use as a down pay, the buyer still has to come up with the 3.5% of their own money. (per the same Mortgagee Letter) HUD is NOT going to budge on this because they have determined that buyers that put their own money down the default rate of those buyers declines.

3. The credit ends 12/1 period. There is no talk of extension. Buyers should not be told otherwise. Buyers should be encouraged to act quickly right now. There is plenty of inventory as you know.

Closing dates are going to fill very quickly in November which leaves only 5 months to find, finance and close on their home.

Rates - what the heck is going on and how does this effect buyers?

They have jumped .75-1.00% in the last 2 weeks!

Rates, are historically excellent, but it lowers buyers purchasing power by $5k to 10k or more.

The cause - Increased supply of bonds hitting the market as a result of all the refis that have taken place along with the Fed being unable to keep up with the buying of those bonds. Ironic isn't it.

This increased supply has lowered the price of bonds and driven up the yield.  ie rate.

Where do we go from here:

I can't say for sure the worst is behind us. However economic reports due out in the coming weeks are likely to be dismal (which is generally good news for rates) and the Fed is going to be picking up the pace on buying bonds to diminsh the supply which would cause prices to rise and yields/rates to drop.

So if you have clients that are closing in the next 45-60 days and they have not locked a rate yet, I would wait and see what the next several weeks bring. Should the closing be less than that I would recommend locking early next week to avoid any potential increases.

In this market we cannot afford to lose a deal. I have heard many stories of lenders declining tranactions for a variety of reasons - low score, appraisals, lenders even counter offering to different programs the client does not want. It's tough out there and I want to let you know that Fairway and I have been saving those transactions and getting them closed! It may not close when it was originally scheduled but it WILL close and get you paid.

I had a client that was working with another lender and they could not lock a rate for 3 months - lender was too busy. They where referred to me and we locked right away before the rate increases and are closing in less than 30 days. 

Call me with any questions and scenarios that are starting to look iffy.

Steve Baumann
Fairway Mortgage
608.575.8384
steveb@fairwaymc.com