What’s Ahead for Home Loans in 2010:

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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!

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!

It’s official!!  First Time Homebuyer Tax Credit Extended Into 2010!
Plus…A New Tax Credit for Certain Existing Home Owners!

Fresh off the press from the CA Mortgage Guy: It’s official. President Obama has signed a bill that extends the tax credit for

Homebuyer tax credit extended and expanded into 2010!

first-time homebuyers (FTHBs) into the first half of 2010. This program had been scheduled to expire on November 30, 2009.

In addition to extending the tax credit of up to $8,000 through June 30, 2010, the extension measure also opens up opportunities for others who are not buying a home for the first time.

So Who Gets What?
The program that has existed for FTHBs remains intact with the one exception that more people are now eligible based on an increase in the amount of income someone may now earn.

Additionally, the program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Deadlines
In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

Higher Income Caps in Effect
The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible.

Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

Maximum Purchase Price
Qualifying buyers may purchase a property with a maximum sales price of $800,000.

Look forward to my next posting!

The Senate voted overwhelmingly today on a bill which included the extension and expansion of the homebuyer tax credit.  The bill passed the Senate with a 98-0 vote Wednesday.  The bill included language to extend the first-time hombuyer tax credit of up to $8,000  through June of 2010 as long as buyers enter into a binding contacting before April 30, 2010 and expanded the program to include a $6,500 tax credit for move-up buyer’s who have lived in their current residences for at least five years.  The bill also increased the income ceiling to $125,000 for individuals and $250,000 for couples.  I’ve also heard that the credit is/will be only available for homes up to $800,000.  We’ll have further detail once the bill has passed the House next and the official details are released.

The bill will now go to the House, which is expected to quickly vote, pass and send it on the The President to sign.

Stay tuned for more news on this!

Look forward to my next update!

10/29/09 Update:

According to reports today from Capitol Hill, The AP And Reuters; Senators agreed late Wednesday to extend the popular tax credit for first-time homebuyers and to offer a reduced credit to some repeat/move-up buyers.

Senators agreed to extend the existing tax credit for first-time homebuyers up to $8,000; while offering a reduced credit of up to $6,500 to repeat/move-up buyers who have owned their current homes for at least five years, said Regan Lachapelle, a spokeswoman for Senate Majority Leader Harry Reid, D-Nev.

The tax credits would be available to homebuyers who sign sales agreements by the end of April 2010.  They would have until the end of June 2010 to close on their new homes, according to a summary of the legislation being circulated among lawmakers.  The Senate could vote on the overall bill as early as Thursday, but lawmakers were still haggling over several unrelated amendments Wednesday evening.  House leaders have also said they support extending the tax credit for homebuyers.

Real estate industry experts and representatives said consumer uncertainty about the tax credit is hurting new home sales. September’s decline was the first since March 2009.  It takes 45 to 60 days to close on a house purchase, making it unlikely a sale made today would be consummated by the end of November, said Lucien Salvant, spokesman for the National Association of Realtors.  “Buyers right now have an incentive to hold off, not knowing whether the credit will be extended,” Salvant said.

Roughly 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.

Stay tuned for updates!

Is the first-time homebuyer tax credit going to ended or be extended, changed or replaced?  That’s the million dollar question I’ve been receiving all month from clients and Realtors.

The CA Mortgage Guy is not sure as of yet, however there was an article today on Bloomberg.com which stated the program may be replaced with a new tax credit program with a smaller tax credit amount capped at $7,290 and based upon a percentage of a home’s sales price – 10% at time of the article publication and current draft of the proposed legislation.

A great change I see from the article is the expansion of the tax credit to move-up buyers..increasing the income eligibility to $125,000 for individuals and $250,000 for couples; up from the current first-time homebuyer tax credit income eligibility of $75,000 for individuals and $150,000 for couples; and leaving the income eligibility for first-time buyers (first-time buyers are classified by the IRS as individuals who have not owned a home within the past three years) at current levels.  Makes sense to me!  Move-up buyers generally do have higher incomes and have been completely shut-out of the current tax credit program.

With the current program ending in approximately 30 days, we are sure to hear an announcement soon.  I’ll keep you posted on any new updates.  Make sure and sign up for the CA Mortgage Guy new content/blog post update announcements by completing the Follow Me On The Web section in the left column…..you’ll be notified via email of new content changes and blog post updates.

Have a great day and look forward to my next post!