Archive for Mortgage Blog
What’s Ahead for Home Loans in 2010
Posted by: | CommentsThe Times They Are a Changing
What’s Ahead for Home Loans in 2010:
 House for Sale - CA Mortgage Guy - LA Home Mortgage |
This year could bring significant changes from 2009 for those seeking a LA Home Mortgage Loan or CA Mortgage Home Loan. Over the last year, home prices fell to 2003 and earlier levels in many parts of the country. In addition, home loan rates declined to the lowest levels on record and this combination led to the highest home affordability levels ever recorded. Here’s a recap of what happened in 2009 and what you need to know for the year ahead.
Would You Like a Sweetener with that Rate?
Interest rates throughout 2009 were artificially low. That’s because in late 2008, the Federal Reserve put into place a program for purchasing Mortgage Backed Securities with the intention of lowering mortgage rates. They were successful with reported rates by Freddie Mac falling below 5.00% several times in 2009.
Without this program mortgage rates would have been at least 1.00% higher, and potentially even higher than that. Did you know that a change of 1% in a home loan rate impacts the amount someone can borrow by roughly 10%? For example, if rates are in the low 5.00% range today and they shoot up to the low 6.00% range, $250,000 home buyers may become $225,000 home buyers.
Look for rates to return to 2008 and previous levels as the Fed ends the program on March 31, 2010; unless the program is extended. While rates will not immediately increase to 6.00% or higher, know that without additional intervention or an extension of the program, rising rates are inevitable. Expect that under worst case scenarios, rates could dance around the 7.00% range.
Show Me Your Docs
Contrary to what you may see or hear in the media, money is widely available for people who want to finance their homes. There is one caveat, though. People need to be able to demonstrate that they qualify for the loan amount they are pursuing and that they have been willing to repay debt they have accepted in the past.
To obtain financing today, a borrower needs to supply the lender with all documentation pertaining to their income, liquid assets and potentially items related to their credit reporting. The best preparation path to follow is to gather most recent paystubs for 30 days of earnings, two years W-2s with complete tax returns and three months statements, all pages, for any liquid assets used for qualifying.
The free wheeling days of borrowing whatever people thought they could repay are gone. While some exceptions may be granted for strong compensating factors, total debt to income level will be capped at 45%.
If you haven’t checked out your credit reports recently, now is a good time to do so if you plan on seeking financing in the next 12 months. You can pull up your reports for free at AnnualCreditReport.com. Examine your reports for any inaccuracies and work to get them corrected prior to seeking financing. You can also seek assistance from your mortgage professional.
Have We Hit a Bottom in Housing?
If you simply look at the data that is reported, one could surmise that the bottom in U.S. home prices was hit in 2009. One nationally respected index for home price reporting, the S&P/Case-Shiller Home Price Indices, indicates that home prices turned for the better around mid-year in 2009.
While all markets are different and some may continue to show signs of weakness, most communities have demonstrated strength and should continue to do so. However, some potential headwinds do exist for the second and third quarter of 2010, following the expressed expiration dates of several stimulus programs: The Mortgage Backed Securities purchase program and home buyer tax credits, both of which are directed at the housing and the mortgage markets.
Foreclosures and short sales will also continue to influence many of the hardest hit markets as unemployment and resetting adjustable rate mortgages weigh on distressed homeowners.
Dates to Remember
Two dates lie on the horizon that will impact interest rates and potentially home prices. The first program scheduled to end is the Federal Reserve’s program for purchasing Mortgage Backed Securities. Announced in November of 2008, the Fed began purchasing $1.25 trillion in mortgage bonds in 2009 which will culminate at the end of March. As the intention and result of this program was to lower rates, mortgage rates will likely begin to rise after the program concludes. However, there is talk that the program may be extended as there are no other real investors in these products still. The CA Mortgage Guy will keep you posted on any changes in the policy when they become available.
In addition, April 30, 2010 is the last day to enter into a home purchase contract and still potentially qualify for a federal income tax credit of up to $8,000 for first-time home buyers and up to $6,500 for repeat home buyers. The credit can be claimed only on contracts that close by June 30, 2010.
Act Now…Not Later
While no one knows for certain what the future holds, one thing does appear clear. Home loan rates and home prices both will be higher in the future. If you or anyone you know is looking to purchase or refinance a home, waiting could be costly!
Look forward to the next posting from the CA Mortgage Guy!
A Quick Debt to Income Ratio Update
Posted by: | CommentsEffective December 2009, conventional loans will be maxed out at a TOTAL debt to income ratio of 45% (up to 50% with strong compensating factors which are determined by FNMA/FHLMC guidelines.)
FHA loans continue to have a front-end max housing payment debt ratio up to 47% and a max TOTAL debt to income ratio of 57% with compensating factors; as of the time of this posting.
If you would like further information on what this means to you and qualifying for a loan, please contact me today.
Look forward to the next posting from Jeff Cook – the CA Mortgage Guy!
5 Things to Know about how FHA has Responded to Short Sales
Posted by: | CommentsThe CA Mortgage Guy would like to inform you of an update from FHA regarding how it is responding to short sales and short pay offs has been published.
- Short sale – a previously owned property was sold for less than what was owed.
- Short pay off – there was a principal write down of indebtedness that cannot be refinanced into a new mortgage.
Here is an overview of the Top 5 things you should know about these changes:
- These changes are effective immediately.
- Borrowers are NOT eligible for new FHA financing if they pursued a short sale on his or her principal residence simply to take advantage of the declining market in their area in order to acquire a similar or better property near their current residence within a reasonable commuting distance.
- Borrowers ARE eligible for new FHA financing if they had 0×30 (no 30 day lates) on their mortgage and other installment debts in the past 12 months AND the proceeds from the short sale served as payment in full.
- Borrowers whose mortgage was in default OR pre-foreclosure status at the time of the short sale are NOT eligible for FHA financing for 3 years from the date of the pre-foreclosure sale, unless they qualify for an exception. Lenders MAY approve an exception based upon A) The default was due to circumstances beyond the borrower’s control, such as a death of primary wage earner, long-term un-insured illness etc. AND B) The review of the credit report indicates satisfactory credit history prior to the circumstances beyond the borrower’s control which caused the default.
- On an FHA refinance, borrowers ARE eligible if the current lender chooses to write down the mortgage due to declining market values AND/OR a reduction in income.
Stay tuned for more FHA and conventional loan updates from the CA Mortgage Guy!
Homebuyer Tax Credit – FAQs
Posted by: | CommentsThe CA Mortgage Guy would like to share with you: First-Time Homebuyer Tax Credit – FAQs
Here are answers to some commonly asked questions about the homebuyer tax credit:
What is a tax credit?
A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.
What is the tax credit for first-time homebuyers (FTHBs)?
An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.
Who is eligible for the FTHB tax credit?
Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible. This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.
As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.
How do I claim the credit?
For those taking advantage of the tax credit in 2009, you may choose to either apply for the credit with your 2009 tax return or you may apply for the credit sooner by filing an amended 2008 tax return with Form 5405 (http://www.irs.gov/pub/irs-pdf/f5405.pdf).
Can you claim the tax credit in advance of purchasing a property?
No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.
Can a taxpayer claim a credit if the property is purchased from a seller with seller financing and the seller retains title to the property?
Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Examples of this would include a land contract, contract for deed, etc. According to the IRS, factors that would demonstrate the ownership of the property would include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property.
Are there other restrictions to taking the credit?
Yes. According to the IRS, if any of the following describe your situation, a credit would not be due.
- You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
- You do not use the home as your principal residence.
- You sell your home before the end of the year.
- You are a nonresident alien.
- You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
- Your home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
- You owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2009, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2006, through July 1, 2009.
Can you buy a home from a step-relative and be eligible for the credit?
Yes. Provided the person you are buying a home from is not a direct blood relative, the purchase would be allowed.
Can parent(s) who will not live in the property cosign for a mortgage for their child and the child that is a qualifying FTHB still be eligible for the credit?
Yes.
Can a separated spouse who has not owned a home for four years qualify for the FTHB tax credit if the spouse has owned a property anytime in the last three years?
No. However, the spouse may be eligible for the repeat buyer credit. The best path to take in any situation regarding income taxes is to speak with a professional tax preparer or CPA.
Look forward to my next posting!
