You may or may not be aware of the next part of the government’s mortgage reform that goes into effect on July 30th. The new rules in the Disclosure Improvement Act have the potential to slow a transaction down by increasing disclosure periods in the Truth and Lending Act. The danger of delay is probably greatest when the buyer holds off locking the interest rate to the latest possible moment or switches lenders when the transaction is nearing closing.
Three key elements you need to know
1-lf the borrower is financing the property, these new regulatory and investor guidelines will impacted could even dictate-the closing date.
Historically, borrowers and sellers would agree on a closing date, and then service providers - including mortgage brokers and lenders - would work as best they could toward meeting that date. Going forward, contracts can still be written with a specific closing date in mind, but all parties need to take into account that the earliest any home financing transaction can close is 7 business days after the borrower is issued their initial mortgage disclosures from the lender. (Note: Saturdays, with the exception of Federal holidays, do count as a business day for the purpose of disclosures only.)
2-The borrower must be provided with a copy of the appraisal a minimum of 3 business days prior to closing. The appraisal is considered ” received” 3 business days after mailing, not counting the day mailed or 3 days after emailing including the day emailed.
If the borrower believes the 3-business-day required review period is not necessary for whatever reason, he or she has the right to waive that requirement. (Some lenders are erring on the side of caution and have indicated they will not honor these waivers).
3-An increase of more than .125% in the Annual Percentage Rate (APR) from the initial Truth in Lending Disclosure (TIL) requires the TIL disclosure to be revised and reissued to the borrower. The borrower must receive a revised TIL disclosure at least 3 business days before closing, providing the borrower with the time required to determine if the borrower is comfortable with the loan choice. Same mailing rules as above.
A more typical contract date may be 30-45 days - or possibly longer (such as with a new construction loan). Considering that many things occur and may be changed or finalized throughout the course of the transaction, there are a number of things that can impact the borrower’s APR. Therefore it is critical on the front end to ensure that estimated fees are as accurate as possible. Some of us might choose to replace the word accurate in the last sentence with the word HIGH thereby reducing the number of times we subject everyone to the clock resetting because of changes. I also recommend reaching out to your First Time Homebuyers’, and instill a sense of urgency into them as we would hate for them to miss the FTHB 8K tax credit deadline since this could potentially delay closings at the last hour. Enjoy the day!
Marketplace Home Mortgage
Mike Ouverson
Senior Mortgage Consultant
13875 Hwy 13 S • Savage, MN 55378
Cell: 612-202-8321 • Main: 612-465-8890 • Fax: 952-487-2325
mouverson@landmarqlending.com • www.EMortgageExperts.com
Wednesday, July 22, 2009
Government Regulation Clogs the Pipes
It's no secret that many facets of lending and real estate have changed as a result of the credit crisis. In addition to tightened lending practices that resulted from rising mortgage delinquencies, Washington has been heavily involved in altering the way lenders do business today.
Two individual pieces of legislation impacting our business need to be taken into account when determining closing dates for purchase transactions.
Home Valuation Code of Conduct
The Home Valuation Code of Conduct (HVCC) went into effect May 1, 2009. Intended to shield appraisers from undue influence from loan officers and lenders, this legislation installed a "firewall" between those individuals directly involved in the origination of the loan from the selection of and contact with appraisers.
HVCC also requires that borrowers receive a copy of the appraisal a minimum of three days in advance of closing. Part of the kicker here is that "received" is considered, in effect, three business days after the appraisal has been mailed to the borrower. As HVCC requires a firewall between the originator and the appraiser, the time to receive an appraisal has increased, in some cases by as much as two weeks or more. While this may not always be the case, it is important to take into consideration when considering closing dates. Today, conservative closing dates are mandatory to properly manage expectations of all parties.
Housing and Economic Recovery Act
The Housing and Economic Recovery Act (HERA) amends and impacts several aspects of obtaining a mortgage, the disclosures required for borrowers, and the timing of their delivery. This impacts the minimum time required to close, and should any changes be made to a loan application that could impact the Annual Percentage Rate (APR), this could impact the closing date.
Other than paying for a credit report, lenders may not accept any additional fees from a borrower until four business days after disclosures have been provided to or mailed to a borrower. This has the potential to delay several aspects of the application process.
Finally, upon making application, a borrower is provided a Truth in Lending (TIL) statement, detailing the total expected costs that could be incurred over the life of the loan. Should anything change in the loan application that could change the APR by more than .125%, a new TIL must be reissued to the borrower a minimum of 3 business days before closing. Items impacting the APR could include a borrower accepting a higher interest rate than initially qualified by floating their rate at application, a change to the loan amount, a change in product, a change in closing date, and any changes to fees.
What Now?
While there is more we can discuss on the specifics of these legislative implications, I felt it important enough to let you know now that I would not recommend you write purchase contracts with short closing time frames.
I will be preparing additional information you can provide both your buyers and sellers to help explain the rationale behind not scheduling closing dates in advance of 30 days and possibly up to 45 days depending on the impact of these new regulations.
Thank you again for your business and if you have any questions, please pick up the phone and call me.
Marketplace Home Mortgage
Mike Ouverson
Senior Mortgage Consultant
13875 Hwy 13 S • Savage, MN 55378
Cell: 612-202-8321 • Main: 612-465-8890 • Fax: 952-487-2325
mouverson@landmarqlending.com • www.EMortgageExperts.com
Two individual pieces of legislation impacting our business need to be taken into account when determining closing dates for purchase transactions.
Home Valuation Code of Conduct
The Home Valuation Code of Conduct (HVCC) went into effect May 1, 2009. Intended to shield appraisers from undue influence from loan officers and lenders, this legislation installed a "firewall" between those individuals directly involved in the origination of the loan from the selection of and contact with appraisers.
HVCC also requires that borrowers receive a copy of the appraisal a minimum of three days in advance of closing. Part of the kicker here is that "received" is considered, in effect, three business days after the appraisal has been mailed to the borrower. As HVCC requires a firewall between the originator and the appraiser, the time to receive an appraisal has increased, in some cases by as much as two weeks or more. While this may not always be the case, it is important to take into consideration when considering closing dates. Today, conservative closing dates are mandatory to properly manage expectations of all parties.
Housing and Economic Recovery Act
The Housing and Economic Recovery Act (HERA) amends and impacts several aspects of obtaining a mortgage, the disclosures required for borrowers, and the timing of their delivery. This impacts the minimum time required to close, and should any changes be made to a loan application that could impact the Annual Percentage Rate (APR), this could impact the closing date.
Other than paying for a credit report, lenders may not accept any additional fees from a borrower until four business days after disclosures have been provided to or mailed to a borrower. This has the potential to delay several aspects of the application process.
Finally, upon making application, a borrower is provided a Truth in Lending (TIL) statement, detailing the total expected costs that could be incurred over the life of the loan. Should anything change in the loan application that could change the APR by more than .125%, a new TIL must be reissued to the borrower a minimum of 3 business days before closing. Items impacting the APR could include a borrower accepting a higher interest rate than initially qualified by floating their rate at application, a change to the loan amount, a change in product, a change in closing date, and any changes to fees.
What Now?
While there is more we can discuss on the specifics of these legislative implications, I felt it important enough to let you know now that I would not recommend you write purchase contracts with short closing time frames.
I will be preparing additional information you can provide both your buyers and sellers to help explain the rationale behind not scheduling closing dates in advance of 30 days and possibly up to 45 days depending on the impact of these new regulations.
Thank you again for your business and if you have any questions, please pick up the phone and call me.
Marketplace Home Mortgage
Mike Ouverson
Senior Mortgage Consultant
13875 Hwy 13 S • Savage, MN 55378
Cell: 612-202-8321 • Main: 612-465-8890 • Fax: 952-487-2325
mouverson@landmarqlending.com • www.EMortgageExperts.com
Stock Rally Pushes Mortgage Rates Higher
While the economic data released during the week generally matched expectations, the outlook for future economic growth improved due to strong earnings reports, tame inflation data, and a revised forecast from the Fed. Stronger economic growth was good news for the stock market, and the Dow rose over 500 points. It was unfavorable for the bond market, however, and mortgage rates ended the week moderately higher.
On Wednesday, the Fed released its minutes from the June 24 FOMC meeting, and most of the news was negative for mortgage rates. The minutes revealed an upward revision to the Fed's forecast for economic growth and inflation in 2009 and 2010. In addition, Fed officials expressed a strong reluctance to increase any further the program to purchase mortgage-backed securities (MBS). Mortgage rates are largely determined by MBS prices. When the Fed initially announced its MBS purchase program in November, mortgage rates immediately dropped, and they dropped again significantly when the Fed announced an increase in the program in March. The Fed has a substantial involvement in MBS markets, and any change in this program would have a major impact on mortgage rates.
The housing sector data released during the week showed improvement. June Housing Starts rose 4% to the highest level in seven months. Building Permits, a leading indicator, jumped 9%. The national Association of Home Builders (NAHB) sentiment index increased to the highest level since September 2008. According to the NAHB, the first-time homebuyer tax credit, low mortgage rates, and "attractive" home prices are helping home sales.
On Wednesday, the Fed released its minutes from the June 24 FOMC meeting, and most of the news was negative for mortgage rates. The minutes revealed an upward revision to the Fed's forecast for economic growth and inflation in 2009 and 2010. In addition, Fed officials expressed a strong reluctance to increase any further the program to purchase mortgage-backed securities (MBS). Mortgage rates are largely determined by MBS prices. When the Fed initially announced its MBS purchase program in November, mortgage rates immediately dropped, and they dropped again significantly when the Fed announced an increase in the program in March. The Fed has a substantial involvement in MBS markets, and any change in this program would have a major impact on mortgage rates.
The housing sector data released during the week showed improvement. June Housing Starts rose 4% to the highest level in seven months. Building Permits, a leading indicator, jumped 9%. The national Association of Home Builders (NAHB) sentiment index increased to the highest level since September 2008. According to the NAHB, the first-time homebuyer tax credit, low mortgage rates, and "attractive" home prices are helping home sales.
Decline in Nation's Housing Prices Moderates
LEXINGTON, MA (June 3, 2009) - House price depreciation moderated across the country during the first quarter 2009, falling at a 2.2% annualized pace compared with 12.5% rate of decline in the fourth quarter 2008, according to the first-quarter 2009 update of House Prices in America, the U.S. housing valuation analysis from IHS Global Insight, the world's leading company for economic and financial analysis and forecasting. Nationally, house prices have fallen 10.4% below their 2007 peak.
Prices declined in 199 of 330 metropolitan areas in the study, down from 312 areas registering declines in the fourth quarter of 2008.
Areas experiencing the greatest declines continue to be in Florida, California and Nevada - states that experienced the highest levels of overvaluation as the housing bubble expanded - and Michigan, feeling the double whammy of the national recession and the contraction in the U.S. auto industry. Fifty-seven metro areas had declines greater than 25% from their peaks and 134 had declines greater than 10%. However, nine metro areas - five of them in California - and the rest in Florida, Arizona and Nevada have seen prices decline by more than 50% from their peaks.
The nation's housing market, as a whole, is now slightly undervalued, a sharp contrast to 2005 when 52 metropolitan areas were seen to be extremely overvalued. Extreme overvaluation was essentially nonexistent in the first quarter, existing for the second straight quarter only in Atlantic City, NJ.
Only the Pacific Northwest, extending across a wide region through Idaho and Utah, remained overvalued.
Home prices declined by more than 10% in five metro areas and by more than 5% in 26 in the first quarter, compared with 104 declining by more than 10% and 16 by more than 5% in the previous quarter.
Southern metros, especially in Texas, have remained generally undervalued throughout the study's five-year life. The most dramatic changes in valuation have occurred in metro areas in California and Florida where many have gone from extremely overvalued to undervalued in a span of two years. Magnifying the downward pressure on prices in these areas are the huge number of foreclosures and other short sales, as well as the large inventory overhand of unsold homes.
Jeannine Cataldi, senior economist and manager of IHS Global Insight's Regional Real Estate Service, said: "The good news is that the declines are happening as consumer confidence is rising and housing sales and starts seem to be bottoming out; the bad news is that job losses continue at high rates, housing inventories are still elevated and consumers, while becoming somewhat more confident, are still wary in the face of economic uncertainty."
James Diffley, group managing director of IHS Global Insight's Regional Services Group, said: "While it's too early to see a bottom of this housing downturn, this quarter's deceleration in the rate of decline may signal that the market is beginning to stabilize."
House Prices in America, a joint effort by IHS Global Insight and The PNC Financial Services Group, Inc. (NYSE:PNC) examines the top 330 U.S. real estate markets, representing 78.1% of all existing housing units and 92% of all related real estate value to determine what house prices should be, accounting for differences in population density, relative income levels, and historically observed market premiums or discounts. Markets with valuation premiums above 35% were deemed at risk for price corrections based on the typical degree of overvaluation that preceded the 79 known local price declines observed since 1985.
Prices declined in 199 of 330 metropolitan areas in the study, down from 312 areas registering declines in the fourth quarter of 2008.
Areas experiencing the greatest declines continue to be in Florida, California and Nevada - states that experienced the highest levels of overvaluation as the housing bubble expanded - and Michigan, feeling the double whammy of the national recession and the contraction in the U.S. auto industry. Fifty-seven metro areas had declines greater than 25% from their peaks and 134 had declines greater than 10%. However, nine metro areas - five of them in California - and the rest in Florida, Arizona and Nevada have seen prices decline by more than 50% from their peaks.
The nation's housing market, as a whole, is now slightly undervalued, a sharp contrast to 2005 when 52 metropolitan areas were seen to be extremely overvalued. Extreme overvaluation was essentially nonexistent in the first quarter, existing for the second straight quarter only in Atlantic City, NJ.
Only the Pacific Northwest, extending across a wide region through Idaho and Utah, remained overvalued.
Home prices declined by more than 10% in five metro areas and by more than 5% in 26 in the first quarter, compared with 104 declining by more than 10% and 16 by more than 5% in the previous quarter.
Southern metros, especially in Texas, have remained generally undervalued throughout the study's five-year life. The most dramatic changes in valuation have occurred in metro areas in California and Florida where many have gone from extremely overvalued to undervalued in a span of two years. Magnifying the downward pressure on prices in these areas are the huge number of foreclosures and other short sales, as well as the large inventory overhand of unsold homes.
Jeannine Cataldi, senior economist and manager of IHS Global Insight's Regional Real Estate Service, said: "The good news is that the declines are happening as consumer confidence is rising and housing sales and starts seem to be bottoming out; the bad news is that job losses continue at high rates, housing inventories are still elevated and consumers, while becoming somewhat more confident, are still wary in the face of economic uncertainty."
James Diffley, group managing director of IHS Global Insight's Regional Services Group, said: "While it's too early to see a bottom of this housing downturn, this quarter's deceleration in the rate of decline may signal that the market is beginning to stabilize."
House Prices in America, a joint effort by IHS Global Insight and The PNC Financial Services Group, Inc. (NYSE:PNC) examines the top 330 U.S. real estate markets, representing 78.1% of all existing housing units and 92% of all related real estate value to determine what house prices should be, accounting for differences in population density, relative income levels, and historically observed market premiums or discounts. Markets with valuation premiums above 35% were deemed at risk for price corrections based on the typical degree of overvaluation that preceded the 79 known local price declines observed since 1985.
Distressed homes on the Twin Cities market decrease
The number of houses in financial distress for sale in the Twin Cities has dropped sharply as buyers took advantage of falling prices, area Realtors said Tuesday in a quarterly report.
By itself, that's good news for the Twin Cities-area market. But another key piece of the housing recovery puzzle still hasn't fallen into place: the rate of foreclosures pushing homes onto the market. New "lender-mediated" listings -- foreclosures and short sales, where homes are sold for less than the amount of the mortgage -- remain well above year-ago levels.
Market-watchers fear that rising unemployment will push more prime mortgages into foreclosure in the coming months, putting continued pressure on the market.
The number of distressed properties on the Twin Cities market dropped 2,100 from Feb. 1 to the start of July, to 6,685, according to the Minneapolis Area Association of Realtors, which said it's the fewest available since March 2008. When looking at the same number between July 2008 and this month, the drop was 18 percent.
The Realtors group attributed the drop to falling mortgage rates, an $8,000 federal tax credit for first-time buyers and near-record affordability.
"We're very pleased that the lenders are getting to the price points where they have sold very quickly, even some with multiple offers," said Steve Havig, president of the group and owner of Lakes Area Realty in Minneapolis. It's a sign, he said, that "we're inching to a balanced market."
The group said that distressed inventory is down in every price category, except the $1 million-plus, where it has increased 60 percent.
By itself, that's good news for the Twin Cities-area market. But another key piece of the housing recovery puzzle still hasn't fallen into place: the rate of foreclosures pushing homes onto the market. New "lender-mediated" listings -- foreclosures and short sales, where homes are sold for less than the amount of the mortgage -- remain well above year-ago levels.
Market-watchers fear that rising unemployment will push more prime mortgages into foreclosure in the coming months, putting continued pressure on the market.
The number of distressed properties on the Twin Cities market dropped 2,100 from Feb. 1 to the start of July, to 6,685, according to the Minneapolis Area Association of Realtors, which said it's the fewest available since March 2008. When looking at the same number between July 2008 and this month, the drop was 18 percent.
The Realtors group attributed the drop to falling mortgage rates, an $8,000 federal tax credit for first-time buyers and near-record affordability.
"We're very pleased that the lenders are getting to the price points where they have sold very quickly, even some with multiple offers," said Steve Havig, president of the group and owner of Lakes Area Realty in Minneapolis. It's a sign, he said, that "we're inching to a balanced market."
The group said that distressed inventory is down in every price category, except the $1 million-plus, where it has increased 60 percent.
8 Ways to Share HOA News
Do you have a reliable system to get information to your HOA members quickly and accurately? Do you request suggestions and feedback? These are all signs of a proactive management style. Proactive managers welcome communication because it lets them know whether they are on track or derailed. As the saying goes, "The light at the end of the tunnel may be the headlight of an oncoming train." Better to know sooner than later.
On the flip side, reactive communications keep the board on the defensive and are indicative of a crisis management style. With crisis management, nothing gets done unless the smell of tar and feathers is in the air. Under these circumstances, it's unlikely that the end result will be good. If this is the kind of style the board has been practicing, consider what kind of environment this creates.
Failure to communicate makes fertile ground for rumor and rumors trample on the board's initiative and planning. While it's best to head rumors off at the pass, they can sometimes be a way for the board to address issues. Consider a newsletter article "Rumor Has It ..." and dispel the rumor with the facts.
Here are eight great ways to "tell it like it is": The Internet. Bar none, the internet is the fastest and cheapest way to interact with the membership. Most folks now have email addresses so why continue to waste time and money on copies, labels, stamps, envelopes and the US Snail Service if you don't need to? For about $1/day, your HOA can have its own website with key information posted and a turbo charged communication system.
Newsletters. These can be as small as one page and as large as the LA Times depending on how much time, budget, volunteer effort and information there is. Pick a format and catchy name and stick with it. Make the information interesting. Decide at budget time how many newsletters there will be and when they will be produced. And rather than print them, use PDF and email them. For more Newsletter Basics, go to www.Regenesis.net
Flyer Boxes. Flyers distributed at the mailbox, clubhouse and other common points are a quick and cheap way to get the word out. Don't forget to mail to non-resident members.
Message Board. Very effective if properly located and managed. Don't let messages stay for more than a week as they blend into the landscape. Keep the board neat and sectioned according to topic.
Member Forum. Always give the members a voice at board meetings by way of a pre-meeting Member Forum designed to let them speak their mind, ask questions or offer suggestions. To facilitate this, always hold your meetings in a location that is large enough to accommodate guests.
Automated Phone Trees. There are great options available on the internet that allow you to communicate a voice message to a list of phone numbers. See , www.call-em-all.com, www.onecallnow.com and others.
Welcome Packets. These can include things like the governing documents, budgets, rules and regulations and other need-to-know information. The message should be, as the name implies, "Welcome to the neighborhood!" Include architectural guidelines, maps, clubhouse and pool schedules, management and emergency contact information. To save paper, put all this information on a CD or, even better, direct them to the HOA website for the latest and greatest.
HOA Phone Number. This essential tool is often overlooked. Since board members and managers change, why not have a permanent phone number with voice mail that will alert the right party? Clear and frequent communications build trust and allay fears that grow when folks don't know what's going on. Rather than get ground up in a rumor mill, share the Good News and watch harmony grow.
For more innovative homeowner association management strategies, see Regenesis.net . Today's Local Market Conditions Report
On the flip side, reactive communications keep the board on the defensive and are indicative of a crisis management style. With crisis management, nothing gets done unless the smell of tar and feathers is in the air. Under these circumstances, it's unlikely that the end result will be good. If this is the kind of style the board has been practicing, consider what kind of environment this creates.
Failure to communicate makes fertile ground for rumor and rumors trample on the board's initiative and planning. While it's best to head rumors off at the pass, they can sometimes be a way for the board to address issues. Consider a newsletter article "Rumor Has It ..." and dispel the rumor with the facts.
Here are eight great ways to "tell it like it is": The Internet. Bar none, the internet is the fastest and cheapest way to interact with the membership. Most folks now have email addresses so why continue to waste time and money on copies, labels, stamps, envelopes and the US Snail Service if you don't need to? For about $1/day, your HOA can have its own website with key information posted and a turbo charged communication system.
Newsletters. These can be as small as one page and as large as the LA Times depending on how much time, budget, volunteer effort and information there is. Pick a format and catchy name and stick with it. Make the information interesting. Decide at budget time how many newsletters there will be and when they will be produced. And rather than print them, use PDF and email them. For more Newsletter Basics, go to www.Regenesis.net
Flyer Boxes. Flyers distributed at the mailbox, clubhouse and other common points are a quick and cheap way to get the word out. Don't forget to mail to non-resident members.
Message Board. Very effective if properly located and managed. Don't let messages stay for more than a week as they blend into the landscape. Keep the board neat and sectioned according to topic.
Member Forum. Always give the members a voice at board meetings by way of a pre-meeting Member Forum designed to let them speak their mind, ask questions or offer suggestions. To facilitate this, always hold your meetings in a location that is large enough to accommodate guests.
Automated Phone Trees. There are great options available on the internet that allow you to communicate a voice message to a list of phone numbers. See , www.call-em-all.com, www.onecallnow.com and others.
Welcome Packets. These can include things like the governing documents, budgets, rules and regulations and other need-to-know information. The message should be, as the name implies, "Welcome to the neighborhood!" Include architectural guidelines, maps, clubhouse and pool schedules, management and emergency contact information. To save paper, put all this information on a CD or, even better, direct them to the HOA website for the latest and greatest.
HOA Phone Number. This essential tool is often overlooked. Since board members and managers change, why not have a permanent phone number with voice mail that will alert the right party? Clear and frequent communications build trust and allay fears that grow when folks don't know what's going on. Rather than get ground up in a rumor mill, share the Good News and watch harmony grow.
For more innovative homeowner association management strategies, see Regenesis.net . Today's Local Market Conditions Report
Wednesday, July 15, 2009
Downpayment, Closing Costs Biggest Obstacles
Most Americans still consider having enough money for downpayment and closing costs to be the biggest obstacles to buying a home, according to the 2009 National Housing Pulse Survey, an annual survey released Thursday by the NATIONAL ASSOCIATION OF REALTORS®.
The survey, which measures how affordable housing issues affect consumers, also found job security concerns to be the highest in seven years of sampling. Two-thirds of Americans think job layoffs and unemployment are a big problem; eight in 10 cite these issues as a barrier to homeownership.
“Homeownership is an investment in your future; however, saving for a downpayment and closing costs is still too great of an obstacle for 82 percent of house hunters looking to take advantage of the current market,” says NAR President Charles McMillan. “Monetizing the $8,000 first-time buyer tax credit for downpayment or closing costs on FHA-insured mortgages is a positive first step. Our hope is that the tax credit will be extended and expanded to all home buyers and will help bring stability to the housing market and enable more Americans to achieve the dream of homeownership."
Survey: Consumers Still Believe in Homeownership
Despite the challenges with the economy and housing market, 83 percent of Americans still believe buying a home is a good financial decision.
Three-fourths of those surveyed also believe now is a good time to buy a home, a number that has increased steadily the past two years. In fact, one-third of renters are thinking more about buying home than they were a year ago.
While Americans are seeing more stability in the real estate market, uncertainty persists. The number of those who feel buying and selling activity has stabilized or stayed nearly the same has grown significantly, from 18 percent last year to 26 percent this year. However the majority (58 percent) report that activity in their market has slowed.
Regarding home sales, nearly eight in 10 say it’s harder to sell a home in their area today than it was a year ago, despite the fact that nearly three-fourths of respondents say home prices are less expensive. Large home inventories could be to blame; 44 percent cite concerns about the high number of homes and condos for sale in their area.
While nearly three-fourths of Americans are concerned about the local drop in home values, respondents expect to see more stability in the near future. Nearly seven in 10 expect local home prices to remain about the same in the next three months; only 18 percent expect prices to further decrease. The drop in prices has improved affordability, and consequently, concerns about the lack of affordable housing are the lowest they’ve been in seven years of polling – 34 percent say it’s one of their biggest worries, down from 41 percent two years ago.
Foreclosures Among Top Concerns
Foreclosures remain a real concern among survey respondents. Slightly more than half (51 percent) say foreclosures are a big to moderate problem in their area. However, the rate of foreclosures is generally seen as stabilizing; 41 percent say the rate of foreclosures in their area is about the same as last year.
Ninety-two percent of respondents said neither they nor members of their immediate family have experienced a foreclosure in the past year, yet it is still a personal concern for many. One in five respondents said they are very or fairly worried that they will have difficulty making their mortgage payments over the next year. Thirty-two percent say it’s a big or moderate worry that they, or a member of their family, may have their home repossessed or foreclosed because they are unable to pay rising monthly mortgage payments.
In 2008, more than half of respondents (54 percent) were open to the federal government taking a more active role in overseeing mortgage and lending practices – the number dropped this year to 47 percent. This could be because 42 percent of Americans believe the country is back on the right track, more than double the number last year (16 percent).
Obtaining Financing Another Obstacle
Regarding financing, seven in 10 Americans cite a lack of confidence in their ability to be approved for a home loan as an obstacle to homeownership. The same number also say that banks are making it too hard to qualify for a loan (71 percent) and that fewer mortgage options offered by banks have made it harder for them to buy a home (71 percent). The perception of qualifying for a loan as a huge obstacle is especially high among minorities.
“Home buyers need protection from risky lending products but also need access to mortgages at a reasonable cost. While there has been some easing of credit in the mortgage market, the availability of credit continues to be an issue for many qualified home buyers,” says McMillan.
The 2009 National Housing Pulse Survey is conducted by American Strategies and Myers Research & Strategic Services for NAR’s Housing Opportunity Program. The telephone survey was among 1,250 adults living in the 25 most populous metropolitan statistical areas.
Source: NAR
The survey, which measures how affordable housing issues affect consumers, also found job security concerns to be the highest in seven years of sampling. Two-thirds of Americans think job layoffs and unemployment are a big problem; eight in 10 cite these issues as a barrier to homeownership.
“Homeownership is an investment in your future; however, saving for a downpayment and closing costs is still too great of an obstacle for 82 percent of house hunters looking to take advantage of the current market,” says NAR President Charles McMillan. “Monetizing the $8,000 first-time buyer tax credit for downpayment or closing costs on FHA-insured mortgages is a positive first step. Our hope is that the tax credit will be extended and expanded to all home buyers and will help bring stability to the housing market and enable more Americans to achieve the dream of homeownership."
Survey: Consumers Still Believe in Homeownership
Despite the challenges with the economy and housing market, 83 percent of Americans still believe buying a home is a good financial decision.
Three-fourths of those surveyed also believe now is a good time to buy a home, a number that has increased steadily the past two years. In fact, one-third of renters are thinking more about buying home than they were a year ago.
While Americans are seeing more stability in the real estate market, uncertainty persists. The number of those who feel buying and selling activity has stabilized or stayed nearly the same has grown significantly, from 18 percent last year to 26 percent this year. However the majority (58 percent) report that activity in their market has slowed.
Regarding home sales, nearly eight in 10 say it’s harder to sell a home in their area today than it was a year ago, despite the fact that nearly three-fourths of respondents say home prices are less expensive. Large home inventories could be to blame; 44 percent cite concerns about the high number of homes and condos for sale in their area.
While nearly three-fourths of Americans are concerned about the local drop in home values, respondents expect to see more stability in the near future. Nearly seven in 10 expect local home prices to remain about the same in the next three months; only 18 percent expect prices to further decrease. The drop in prices has improved affordability, and consequently, concerns about the lack of affordable housing are the lowest they’ve been in seven years of polling – 34 percent say it’s one of their biggest worries, down from 41 percent two years ago.
Foreclosures Among Top Concerns
Foreclosures remain a real concern among survey respondents. Slightly more than half (51 percent) say foreclosures are a big to moderate problem in their area. However, the rate of foreclosures is generally seen as stabilizing; 41 percent say the rate of foreclosures in their area is about the same as last year.
Ninety-two percent of respondents said neither they nor members of their immediate family have experienced a foreclosure in the past year, yet it is still a personal concern for many. One in five respondents said they are very or fairly worried that they will have difficulty making their mortgage payments over the next year. Thirty-two percent say it’s a big or moderate worry that they, or a member of their family, may have their home repossessed or foreclosed because they are unable to pay rising monthly mortgage payments.
In 2008, more than half of respondents (54 percent) were open to the federal government taking a more active role in overseeing mortgage and lending practices – the number dropped this year to 47 percent. This could be because 42 percent of Americans believe the country is back on the right track, more than double the number last year (16 percent).
Obtaining Financing Another Obstacle
Regarding financing, seven in 10 Americans cite a lack of confidence in their ability to be approved for a home loan as an obstacle to homeownership. The same number also say that banks are making it too hard to qualify for a loan (71 percent) and that fewer mortgage options offered by banks have made it harder for them to buy a home (71 percent). The perception of qualifying for a loan as a huge obstacle is especially high among minorities.
“Home buyers need protection from risky lending products but also need access to mortgages at a reasonable cost. While there has been some easing of credit in the mortgage market, the availability of credit continues to be an issue for many qualified home buyers,” says McMillan.
The 2009 National Housing Pulse Survey is conducted by American Strategies and Myers Research & Strategic Services for NAR’s Housing Opportunity Program. The telephone survey was among 1,250 adults living in the 25 most populous metropolitan statistical areas.
Source: NAR
First Time Home Buyer Tax Credit
No provision of the American Recovery and Reinvestment Act of 2009 (the “2009 Act”) has attracted as much attention as the so-called “First Time Home Buyer Tax Credit.” The credit, which is actually a new and improved version of the tax credit which debuted as part of the Housing and Economic Recovery Act of 2008 (the “2008 Act”), is intended to jump start the U.S. housing market by incentivizing certain taxpayers to purchase a new home. However, with Congress and the White House enacting both the 2009 Act and the 2008 Act swiftly, numerous questions have arisen about what, exactly, is covered by these credits. The purpose of this article is to answer many of the basic questions regarding both the 2008 and 2009 versions of the First Time Home Buyer Tax Credit.
Prior Tax Incentives for Home Ownership
Prior to 2008, the two most significant tax incentives for home ownership in the United States were (i) the home mortgage interest deduction and (i) the exclusion of capital gains for the sale of a primary residence.
Home Mortgage Interest Deduction
Section 163(h) of the Internal Revenue Code (26 U.S.C. § 163(h)) allows a home mortgage interest deduction, with several limitations. First, the taxpayer must elect to itemize deductions, and the total itemized deductions exceed the standard deduction (otherwise, itemization would not reduce tax). Second, the deduction is limited to interest on debts secured by a principal residence or a second home. Third, interest is only deductible on up to $1 million of debt used to acquire, construct, or substantially improve the residence, or on up to $100,000 of home equity debt regardless of the purpose or use of the loan.
Capital Gains Exclusion for the Sale of a Primary Residence
Section 121 of the Internal Revenue Code (26 U.S.C. § 121) allows an exclusion of up to $250,000 ($500,000 for a married couple filing jointly) of capital gains on the sale of real property if the owner used it as primary residence for two of the five years before the date of sale.
Difference Between a Tax Credit and a Tax Deduction
One of the most often asked questions regarding the new First Time Home Buyer Tax Credit, whether it be the 2008 or 2009 version, is what is the difference between a tax credit and a tax deduction. A tax credit, in contrast to a tax deduction (such as the aforementioned home mortgage interest tax deduction) is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS. A tax deduction, however, is subtracted from the amount of income that is taxed.
First Time Home Buyer Tax Credit, Part I: The Housing and Economic Recovery Act of 2008
The Housing and Economic Recovery Act of 2008 (the “2008 Act”), designed primarily to address the subprime mortgage crisis, was passed by the United States Congress on July 24, 2008 and signed by President George W. Bush on July 30, 2008. The 2008 Act included the initial version of the First Time Home Buyer Tax Credit. The 2008 version of the tax credit was available for first time home buyers purchasing any kind of home – new or resale – between April 9, 2008 and January 1, 2009 (for purposes of the tax credit, the purchase date is the date upon which closing occurs). Under the 2008 Act, a “first time home buyer” is a buyer who has not owned a principal residence during the three (3) year period prior to the purchase (NOTE: for married couples, the law tests the homeownership history of both the buyer and his/her spouse). The amount of the 2008 tax credit was ten percent of the home’s purchase price up to $7,500, and the credit was available only for single taxpayers with income of $75,000 or less and married taxpayers filing a joint return with income of $150,000 or less; however, a reduced credit was available for single taxpayers with “modified adjusted gross income” in excess of $75,000 but less than $95,000 and for married taxpayers with modified adjusted gross income in excess of $150,000 but less than $170,000.
The most significant aspect of the 2008 version of the tax credit is the fact that home buyers are required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit was claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven. In essence, the 2008 version of the tax credit acted as an interest-free loan from the Federal government.
First Time Home Buyer Tax Credit, Part II: The American Recovery and Reinvestment Act of 2009
The American Recovery and Reinvestment Act of 2009 (the “2009 Act”), signed into law by President Barack Obama on February 17, 2009, contained an overhauled version of the First Time Home Buyer Tax Credit. The 2009 version of the tax credit increased the credit to $8,000 and was made available for first time home buyers (defined the same as in the 2008 Act) who purchase a home on or after January 1, 2009 and before December 1, 2009. The income limits set out in the 2008 Act were retained in the 2009 Act.
The most significant difference between the tax credit in the 2009 Act is that the home buyers are not required to repay the credit to the government.
Other Frequently Asked Questions About the Tax Credit
Does a contract for deed purchase qualify for the tax credit?
At present, there is nothing to suggest that an otherwise qualifying purchase in which a contract for deed is utilized would not be a purchase for which a home buyer meeting the definition of a first time home buyer could claim the tax credit, so long as the purchase is not otherwise excluded (as discussed hereinbelow).
Does a purchase from a related person qualify for the tax credit?
You cannot claim the credit if you acquired your home from a “related person”, which includes: (i) your spouse, ancestors (parents, grandparents, etc.) or lineal descendants (children, grandchildren, etc.); (ii) a corporation in which you directly or indirectly own more than 50% in value of the outstanding stock of the corporation; (iii) a partnership in which you directly or indirectly own more than 50% of the capital interest or profits interest.
If a single person (Taxpayer A) qualifies as a first-time homebuyer at the time he/she purchases a home with someone (Taxpayer B) that is not a first-time homebuyer and then later that year they marry each other, is the credit still allowed?
Eligibility for the first-time homebuyer credit is determined on the date of purchase. If Taxpayer A, a first-time homebuyer, buys a house and then later that year marries Taxpayer B, not a first-time homebuyer, the credit is allowable to Taxpayer A. Taxpayer A may take the maximum credit.
Taxpayer A is a single first-time home buyer. Taxpayer B (parent) cosigns for A and does not qualify. Both names are on the mortgage. Can Taxpayer A claim the credit and, if so, how much?
Taxpayer B is not a first-time homebuyer and cannot claim any portion of the credit, but A may claim the entire credit ($7,500 for purchase in 2008; $8,000 for purchase in 2009), if the home was purchased as Taxpayer A’s primary residence.
A taxpayer owned her principal residence. Several years ago, she decided to relocate to a rented apartment, but did not sell the former residence. Instead, she rented it out to tenants. Now the taxpayer plans to buy another house and make it her new principal residence. Does she qualify for the first-time homebuyer credit?
A taxpayer who owned rental property within the past three years is still eligible for the credit. The taxpayer cannot have owned and used a home as his or her principal residence within the last three years.
If husband and wife wanted to sell the home that the wife owned when they got married, and the husband had not owned a home within the past three years, could he qualify as a first-time homebuyer for the credit even though the wife would not qualify?
No. The purchase date determines whether a taxpayer is a first-time homebuyer. Since the wife had ownership interest in a principal residence within the prior three years, neither taxpayer may take the first-time homebuyer credit. Section 36(c)(1) of the Internal Revenue Code requires that the taxpayer and the taxpayer’s spouse not have an ownership interest in a principal residence within the prior three years from the date of purchase. The husband may not take the credit even if he filed on a separate return.
Jeffrey C. O'Brien is a partner with Mansfield Tanick & Cohen, and an MSBA Board Certified Real Property Law Specialist. He is a frequent guest of the WCCO Real Estate Radio Hour and can be reached at 612-341-1263 or via email at jobrien@mansfieldtanick.com.
Prior Tax Incentives for Home Ownership
Prior to 2008, the two most significant tax incentives for home ownership in the United States were (i) the home mortgage interest deduction and (i) the exclusion of capital gains for the sale of a primary residence.
Home Mortgage Interest Deduction
Section 163(h) of the Internal Revenue Code (26 U.S.C. § 163(h)) allows a home mortgage interest deduction, with several limitations. First, the taxpayer must elect to itemize deductions, and the total itemized deductions exceed the standard deduction (otherwise, itemization would not reduce tax). Second, the deduction is limited to interest on debts secured by a principal residence or a second home. Third, interest is only deductible on up to $1 million of debt used to acquire, construct, or substantially improve the residence, or on up to $100,000 of home equity debt regardless of the purpose or use of the loan.
Capital Gains Exclusion for the Sale of a Primary Residence
Section 121 of the Internal Revenue Code (26 U.S.C. § 121) allows an exclusion of up to $250,000 ($500,000 for a married couple filing jointly) of capital gains on the sale of real property if the owner used it as primary residence for two of the five years before the date of sale.
Difference Between a Tax Credit and a Tax Deduction
One of the most often asked questions regarding the new First Time Home Buyer Tax Credit, whether it be the 2008 or 2009 version, is what is the difference between a tax credit and a tax deduction. A tax credit, in contrast to a tax deduction (such as the aforementioned home mortgage interest tax deduction) is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS. A tax deduction, however, is subtracted from the amount of income that is taxed.
First Time Home Buyer Tax Credit, Part I: The Housing and Economic Recovery Act of 2008
The Housing and Economic Recovery Act of 2008 (the “2008 Act”), designed primarily to address the subprime mortgage crisis, was passed by the United States Congress on July 24, 2008 and signed by President George W. Bush on July 30, 2008. The 2008 Act included the initial version of the First Time Home Buyer Tax Credit. The 2008 version of the tax credit was available for first time home buyers purchasing any kind of home – new or resale – between April 9, 2008 and January 1, 2009 (for purposes of the tax credit, the purchase date is the date upon which closing occurs). Under the 2008 Act, a “first time home buyer” is a buyer who has not owned a principal residence during the three (3) year period prior to the purchase (NOTE: for married couples, the law tests the homeownership history of both the buyer and his/her spouse). The amount of the 2008 tax credit was ten percent of the home’s purchase price up to $7,500, and the credit was available only for single taxpayers with income of $75,000 or less and married taxpayers filing a joint return with income of $150,000 or less; however, a reduced credit was available for single taxpayers with “modified adjusted gross income” in excess of $75,000 but less than $95,000 and for married taxpayers with modified adjusted gross income in excess of $150,000 but less than $170,000.
The most significant aspect of the 2008 version of the tax credit is the fact that home buyers are required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit was claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven. In essence, the 2008 version of the tax credit acted as an interest-free loan from the Federal government.
First Time Home Buyer Tax Credit, Part II: The American Recovery and Reinvestment Act of 2009
The American Recovery and Reinvestment Act of 2009 (the “2009 Act”), signed into law by President Barack Obama on February 17, 2009, contained an overhauled version of the First Time Home Buyer Tax Credit. The 2009 version of the tax credit increased the credit to $8,000 and was made available for first time home buyers (defined the same as in the 2008 Act) who purchase a home on or after January 1, 2009 and before December 1, 2009. The income limits set out in the 2008 Act were retained in the 2009 Act.
The most significant difference between the tax credit in the 2009 Act is that the home buyers are not required to repay the credit to the government.
Other Frequently Asked Questions About the Tax Credit
Does a contract for deed purchase qualify for the tax credit?
At present, there is nothing to suggest that an otherwise qualifying purchase in which a contract for deed is utilized would not be a purchase for which a home buyer meeting the definition of a first time home buyer could claim the tax credit, so long as the purchase is not otherwise excluded (as discussed hereinbelow).
Does a purchase from a related person qualify for the tax credit?
You cannot claim the credit if you acquired your home from a “related person”, which includes: (i) your spouse, ancestors (parents, grandparents, etc.) or lineal descendants (children, grandchildren, etc.); (ii) a corporation in which you directly or indirectly own more than 50% in value of the outstanding stock of the corporation; (iii) a partnership in which you directly or indirectly own more than 50% of the capital interest or profits interest.
If a single person (Taxpayer A) qualifies as a first-time homebuyer at the time he/she purchases a home with someone (Taxpayer B) that is not a first-time homebuyer and then later that year they marry each other, is the credit still allowed?
Eligibility for the first-time homebuyer credit is determined on the date of purchase. If Taxpayer A, a first-time homebuyer, buys a house and then later that year marries Taxpayer B, not a first-time homebuyer, the credit is allowable to Taxpayer A. Taxpayer A may take the maximum credit.
Taxpayer A is a single first-time home buyer. Taxpayer B (parent) cosigns for A and does not qualify. Both names are on the mortgage. Can Taxpayer A claim the credit and, if so, how much?
Taxpayer B is not a first-time homebuyer and cannot claim any portion of the credit, but A may claim the entire credit ($7,500 for purchase in 2008; $8,000 for purchase in 2009), if the home was purchased as Taxpayer A’s primary residence.
A taxpayer owned her principal residence. Several years ago, she decided to relocate to a rented apartment, but did not sell the former residence. Instead, she rented it out to tenants. Now the taxpayer plans to buy another house and make it her new principal residence. Does she qualify for the first-time homebuyer credit?
A taxpayer who owned rental property within the past three years is still eligible for the credit. The taxpayer cannot have owned and used a home as his or her principal residence within the last three years.
If husband and wife wanted to sell the home that the wife owned when they got married, and the husband had not owned a home within the past three years, could he qualify as a first-time homebuyer for the credit even though the wife would not qualify?
No. The purchase date determines whether a taxpayer is a first-time homebuyer. Since the wife had ownership interest in a principal residence within the prior three years, neither taxpayer may take the first-time homebuyer credit. Section 36(c)(1) of the Internal Revenue Code requires that the taxpayer and the taxpayer’s spouse not have an ownership interest in a principal residence within the prior three years from the date of purchase. The husband may not take the credit even if he filed on a separate return.
Jeffrey C. O'Brien is a partner with Mansfield Tanick & Cohen, and an MSBA Board Certified Real Property Law Specialist. He is a frequent guest of the WCCO Real Estate Radio Hour and can be reached at 612-341-1263 or via email at jobrien@mansfieldtanick.com.
A Primer on the Homeowner Affordability and Stability Plan
The Federal government’s latest attempt to shore up the struggling U.S. housing market is the Homeowner Affordability and Stability Plan (“HASP”), which was announced by President Obama on February 18, 2009 and which was finally implemented on March 4, 2009. The HASP program encompasses both a loan modification program and a loan refinancing initiative.
In contrast to the First Time Homebuyer Tax Credit initiative, which sought to affect the demand side of the housing sales equation by incentivizing the purchase of homes, HASP aims to affect the supply side, by reducing the numbers of lender-mediated home sales which arise from foreclosures of defaulted home loans.
Loan Modifications Under HASP
HASP’s modification program offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current, thereby avoiding foreclosure, by modifying troubled loans to achieve a payment the borrower can afford. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage. Lenders are likely to lower payments mainly by reducing loan interest rates. However, the program offers incentives for principal reductions and at your lender’s discretion modifications may include upfront reductions of loan principal.
HASP’s modification program, unlike other loan modification programs, a borrower does not have to be behind on the borrower’s mortgage payments in order to be eligible for a modification under HASP. Borrowers who are struggling to stay current on their mortgage payments may be eligible, without regard to whether the borrowers are late on their mortgage payments, if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.
In general, a borrower qualify for a mortgage modification if (a) the borrower occupies the house as the borrower’s primary residence; (b) the borrower’s monthly mortgage payment is greater than 31% of the borrower’s monthly gross income; and (c) the borrower’s loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by the borrower’s mortgage lender based on the borrower’s financial situation and other applicable program guidelines.
HASP’s modification program is limited to first mortgage loans on primary residences. If a borrower owns a house that is used as a vacation home or that is rented out to tenants, the mortgage on that house is not eligible. If the borrower used to live in the home but has since moved out, the mortgage is not eligible. A mortgage on 2, 3 and 4 unit properties are eligible as long as the borrower lives on one of the units as a primary residence. As part of HASP’s qualifying process, your mortgage lender will check to see if the dwelling is the borrower’s primary residence.
To encourage borrowers who work hard to retain homeownership, HASP provides incentive payments as a borrower makes timely payments on the modified loan. The incentive will accrue on a monthly basis and will be applied directly to reduce the borrower’s mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.
Refinancing Under HASP
HASP’s refinancing provisions offer help to eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value. Such borrowers may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.
The objective of HASP’s refinancing program is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with fixed, affordable payments that are sustainable for the life of the loan. All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate. The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender. Interest rates may vary across lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon notes.
Eligible loans include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if a property is worth $200,000 but the borrower owes $210,000 or less, the borrower may qualify. The current value of the property will be determined after you apply to refinance.
As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under HASP. Eligibility will depend, in part, on agreement by the lender that holds the second mortgage to remain in a second position (i.e., the second mortgage holder must subordinate to the refinanced mortgage), and on the borrower’s ability to meet the new payment terms on the first mortgage.
Limitations of the HASP Program
HASP’s effectiveness, particularly the refinancing provisions, is limited by the following program restrictions:
• HASP’s refinancing program is limited to loans held or securitized by Fannie Mae or Freddie Mac. This will exclude a great number of mortgage loans from the program, although a modification may be possible if hardship circumstances exist.
• The consent of second mortgage holders is required under the refinance provisions. It is uncertain what incentive a second mortgage holder might have to facilitating a refinance of the first mortgage where no funds are used to pay all or a portion of the second mortgage.
Conclusion
With the launch of the Homeowner Affordability and Stability Plan loan modification and refinancing programs, the Federal government has now attempted to directly effect both the supply and demand sides of the U.S. housing market, and only time will tell whether these attempts prove successful.
Jeffrey C. O'Brien is a partner with Mansfield Tanick & Cohen, and an MSBA Board Certified Real Property Law Specialist. He is a frequent guest of the WCCO Real Estate Radio Hour and can be reached at 612-341-1263 or via email at jobrien@mansfieldtanick.com.
In contrast to the First Time Homebuyer Tax Credit initiative, which sought to affect the demand side of the housing sales equation by incentivizing the purchase of homes, HASP aims to affect the supply side, by reducing the numbers of lender-mediated home sales which arise from foreclosures of defaulted home loans.
Loan Modifications Under HASP
HASP’s modification program offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current, thereby avoiding foreclosure, by modifying troubled loans to achieve a payment the borrower can afford. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage. Lenders are likely to lower payments mainly by reducing loan interest rates. However, the program offers incentives for principal reductions and at your lender’s discretion modifications may include upfront reductions of loan principal.
HASP’s modification program, unlike other loan modification programs, a borrower does not have to be behind on the borrower’s mortgage payments in order to be eligible for a modification under HASP. Borrowers who are struggling to stay current on their mortgage payments may be eligible, without regard to whether the borrowers are late on their mortgage payments, if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.
In general, a borrower qualify for a mortgage modification if (a) the borrower occupies the house as the borrower’s primary residence; (b) the borrower’s monthly mortgage payment is greater than 31% of the borrower’s monthly gross income; and (c) the borrower’s loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by the borrower’s mortgage lender based on the borrower’s financial situation and other applicable program guidelines.
HASP’s modification program is limited to first mortgage loans on primary residences. If a borrower owns a house that is used as a vacation home or that is rented out to tenants, the mortgage on that house is not eligible. If the borrower used to live in the home but has since moved out, the mortgage is not eligible. A mortgage on 2, 3 and 4 unit properties are eligible as long as the borrower lives on one of the units as a primary residence. As part of HASP’s qualifying process, your mortgage lender will check to see if the dwelling is the borrower’s primary residence.
To encourage borrowers who work hard to retain homeownership, HASP provides incentive payments as a borrower makes timely payments on the modified loan. The incentive will accrue on a monthly basis and will be applied directly to reduce the borrower’s mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.
Refinancing Under HASP
HASP’s refinancing provisions offer help to eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value. Such borrowers may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.
The objective of HASP’s refinancing program is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with fixed, affordable payments that are sustainable for the life of the loan. All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate. The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender. Interest rates may vary across lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon notes.
Eligible loans include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if a property is worth $200,000 but the borrower owes $210,000 or less, the borrower may qualify. The current value of the property will be determined after you apply to refinance.
As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under HASP. Eligibility will depend, in part, on agreement by the lender that holds the second mortgage to remain in a second position (i.e., the second mortgage holder must subordinate to the refinanced mortgage), and on the borrower’s ability to meet the new payment terms on the first mortgage.
Limitations of the HASP Program
HASP’s effectiveness, particularly the refinancing provisions, is limited by the following program restrictions:
• HASP’s refinancing program is limited to loans held or securitized by Fannie Mae or Freddie Mac. This will exclude a great number of mortgage loans from the program, although a modification may be possible if hardship circumstances exist.
• The consent of second mortgage holders is required under the refinance provisions. It is uncertain what incentive a second mortgage holder might have to facilitating a refinance of the first mortgage where no funds are used to pay all or a portion of the second mortgage.
Conclusion
With the launch of the Homeowner Affordability and Stability Plan loan modification and refinancing programs, the Federal government has now attempted to directly effect both the supply and demand sides of the U.S. housing market, and only time will tell whether these attempts prove successful.
Jeffrey C. O'Brien is a partner with Mansfield Tanick & Cohen, and an MSBA Board Certified Real Property Law Specialist. He is a frequent guest of the WCCO Real Estate Radio Hour and can be reached at 612-341-1263 or via email at jobrien@mansfieldtanick.com.
Strong Treasury Auctions Lower Mortgage Rates
With a light schedule for economic data, Treasury auctions had the greatest impact on mortgage rates during the week. Strong demand for the auctions and declines in the stock market helped mortgage rates end the week lower.
In recent months, mortgage rates have been heavily influenced by concerns about the enormous amount of debt the government needs to issue to pay for all the stimulus programs. The risk is that investors will require significantly higher yields to continue purchasing an expanding supply of bonds. Strong demand from both domestic and foreign investors at this week's 3-yr, 10-yr, and 30-yr Treasury auctions eased those concerns. Longer-term Treasuries are comparable investments to mortgage-backed securities (MBS), which are the basis for the level of mortgage rates, so the results from 10-yr and 30-yr auctions are particularly important. The willingness of investors to purchase longer-term bonds (including Treasuries and MBS) at the current low rates is very encouraging.
Also this week, there was mounting speculation about the passage of a second round of fiscal stimulus before the end of the year. Given the weaker than expected June Employment data, the political pressure is increasing to take additional steps to create jobs. If another stimulus package is passed, the increase in the supply of debt required to pay for it could pressure mortgage rates higher.
Friday, July 10, 2009
New Truth In Lending Rules
Here are the new rules for TIL (truth in lending) forms for all mortgages applied for after July 30th, 2009.
• The “early” TILA disclosures must be delivered or placed in the mail not later than 3 business days after the creditor receives the consumer's written application, and at least 7 business days before consummation of the transaction. This is a new “waiting period.”
For the above purpose “business days” include each day (other than Saturday or Sunday)
• If the annual percentage rate (“APR”) on the “early” disclosure becomes inaccurate, by increasing or decreasing beyond established tolerance levels, the creditor must now make corrected disclosures to the consumer with a revised APR. The consumer must receive the corrected disclosures no later than 3 business days before consummation.
The APR is considered accurate for a regular transaction if it is not more than 1/8 of 1 percentage point above or below the actual annual percentage rate.
What does this mean?
1. There is no more closing a loan within 7 business days of application. So if a loan falls out from a lender and gets transferred to another lender, the minimum waiting period is 7 business days before you can close with the new lender.
2. If any of the fees change on the final settlement statement to a great enough extent compared to the GFE that was signed by the borrower at time of application (increase OR decrease in fees), a new TIL disclosure will have to be generated and you have to wait 3 more days before you can close. So a lender can’t have a higher or lower rate by more than .125% at closing AND the lender fees can’t go up or down by more than a couple of hundred bucks or you will have to wait another 3 days. Lender credits of any significant amount will cause a 3-day delay, even if it benefits the borrower.
Mike Ouverson
Senior Mortgage Consultant
13875 Hwy 13 S • Savage, MN 55378
Cell: 612-202-8321 • Fax: 952-487-2325
mouverson@landmarqlending.com • www.EMortgageExperts.com
Wednesday, July 8, 2009
Senator Isakson Introduces Bill to Extend, Expand Homebuyer Tax Credit
Senator Johnny Isakson (R-GA) and 9 cosponsors have introduced S. 1230, a bill that would increase the homebuyer tax credit to $15,000 and extend it to all purchasers. It would extend the credit past December 1, 2009 by making the new credit available on the date of enactment (whenever the bill might get signed) and for one year after the date of enactment. Unlike current law, the proposed expanded tax credit would not be refundable. As a result, existing state-level bridge loan downpayment programs would be less available because the purchaser/taxpayer will not know his/her tax liability at the time of purchase.
It is not known when this legislation might be considered, as both tax-writing committees are working solely on health reform. In addition, the proposal has not yet been scored for revenue purposes. Housing and Urban Development Secretary has expressed concern about whether extending the credit to all purchasers would reduce the inventory of houses available for sale. He noted that in most cases a current owner must sell another home before purchasing a new one
It is not known when this legislation might be considered, as both tax-writing committees are working solely on health reform. In addition, the proposal has not yet been scored for revenue purposes. Housing and Urban Development Secretary has expressed concern about whether extending the credit to all purchasers would reduce the inventory of houses available for sale. He noted that in most cases a current owner must sell another home before purchasing a new one
Shopping for a Bargain Home
By B. Conrad
Photo: © Orange Line Media - Dreamstime
There is no doubt that there are bargains in today's real estate market—the key is to know what to look for and what to avoid. With mortgage rates still low, buyers who are able to get a bargain will come out ahead when their market turns around.Don't be fooled by the asking price. These days it is a buyer's market, and that means buyers have lots of wiggle room when it comes to price. In this market the asking price is a good place to start, but chances are there is plenty of room for negotiation. Taking a look at comparable sales in the same neighborhood is a great way to figure out what the property is worth in the current market.
Don't be afraid to ask for extras, especially when buying a newly constructed home. The bursting of the real estate bubble has left many builders desperate to move their finished properties, and that can mean plenty of goodies for those with money to spend.
Tread carefully with distressed properties. With so many foreclosures and other distressed properties on the market, it is tempting to look for that great bargain. It is important, however, to know what you are getting into before signing on the dotted line. Some homes may need nothing more than a little TLC and some cosmetic repairs, while others could have structural damage that is bad enough to make them unlivable. Don't jump in over your head when it comes to a home that needs fixing-up; get several repair estimates before going forward with the purchase.
Be patient, but don't wait too long. At the height of the real estate frenzy many buyers flocked into homes they could not afford because they were afraid they would miss out on a sure thing. If there is one thing the bursting of the real estate bubble has taught us, it is that patience is still a virtue. The buyer's market we are seeing today is likely to last for quite some time. Still, with interest rates increasing, if you find the property you are looking for at a great price, you shouldn't hesitate to buy.
Lawn Care Dos and Don'ts
By Nancy Fulton
Photo: © Dreamstime
Summer is here and many of us will be spending the warmer months at home this year. That means our yards have to be a recreational oasis where we're comfortable inviting friends and family. Nothing is more important to a yard than a great lawn. It gives kids a place to play, provides a comfortable place to sit or lie down, and makes a home look beautiful. Read these Dos and Don'ts to keep your lawn beautiful this year.
Do Mow Your Grass - When your grass goes to seed, it dies. To prevent it from going to seed, you have to mow it before the seeds appear at the top of each blade of grass. In most cases, you must mow your lawn at least once a month to keep it green.
Do Water Deeply At Night - Since water you put on your grass during a hot afternoon quickly evaporates, it's best to water your lawn at night or early in the morning. Don't water every day, but do water once or twice a week. Make sure the water goes deep into the soil, not just on top of the grass.
Do Feed Your Lawn - Nutrients get sucked out of the soil and into the grass year after year. To keep your grass healthy, you need to put nutrients back in. In Northern climates, you should fertilize your grass in fall and early spring. In Southern climates, you need to fertilize throughout the summer because your grass grows faster and needs more nutrition. Follow the instructions on each bag of fertilizer you use, and make sure you use a "spreader" to ensure the fertilizer is evenly distributed.
Do Weed Your Lawn - Some fertilizers have weed killers in them that will help keep your lawn weed free. But you will still need to pull stubborn weeds out of the ground by hand from time to time. Make sure you always grasp the weeds by the root, and that you pull slowly. You do not want to end up just taking out part of the weed.
Do Keep Pets Off Your Lawn - If you want a healthy lawn it is important to confine your dogs and cats so they don't use the lawn for potty breaks. This keeps the people who use your lawn healthy too.
Don't Over Fertilize - More is not better when it comes to fertilizer. If your grass starts to look brown, or burnt, despite regular watering, stop fertilizing. Make sure that you water enough to eliminate any excess fertilizer, which might remain on the grass blades.
Don't Leave Stuff Lying On Your Lawn - The toy pool, the slip and slide, and stray junk can kill your lawn if left lying on the grass for too long. Your lawn needs sunlight and fresh air to thrive. It doesn't do well if compressed for long periods of time, and it can't survive being exposed to chemicals from metal or plastic that is leeching into the ground. So keep your lawn tidy if you want to keep it healthy.
Don't Let Trees Grow Too Tall - Too much shade will kill your lawn. You may decide that during the summer, a leafy tree is great, but during the fall and winter cut it back so your lawn gets the sun it needs.
Paying Attention to Detail When Preparing to Sell Your Home
By Cheryl D. Green
Photo: © Terry J. Alcorn - Dreamstime
First impressions are lasting. If you are preparing to sell your home, you want it to appear well maintained and showroom ready. Using these simple tips will ensure that your home shouts, "’m ready to sell."
Tip 1. Improve the kitchen and bathroom.
Nothing adds value like improvements to these well-traveled areas. Check your cabinets and fixtures for hanging knobs or large scratches. Spend time making minor repairs and painting or staining cabinets. Get the bathroom ready by putting up a new shower curtain or replacing that old toilet seat.
Tip 2. Minimize the 'personal' touch.
Begin to remove excess pictures, school art, certificates or anything else that may hide walls. A shrine to your kids is cute, but it may also give the impression that you aren't ready to leave yet. Once again, buyers should be able to visualize themselves living in your home.
Tip 3. De-clutter and clean.
Since homebuyers are generally a nosy bunch, you'll want to make sure that even the hidden areas of your home are clean and organized. If a prospective buyer looks into a closet or opens a drawer, the last thing you want is Junior's wash pile falling out for the world to see. Take this opportunity to have a garage sale or place excess stuff into storage.
Tip 4. Fresh is always best.
Smell is one of our most powerful senses. Someone not used to your home may pick up scents that are not pleasing to their nose. Get rid of any unpleasant odor by shampooing the carpets, emptying the garbage and cleaning the refrigerator. You may want to light scented candles, have a light potpourri on the stove or use a plug-in to create a pleasant scent.
Tip 5. Have "curb appeal."
A well-kept lawn is an absolute 'must-have' when preparing to sell your home. People love to see the lines of a freshly mowed lawn in front of their house. Look at the front door and make it attractive with a new paint or stain job. Sweep around the door and place a new welcome mat down.
And finally, get a second opinion by asking your real estate agent to tour the home with you. It may seem like extra work now, but by putting a little extra effort into the details, you'll help your agent sell your home.
Photo: © Terry J. Alcorn - Dreamstime
First impressions are lasting. If you are preparing to sell your home, you want it to appear well maintained and showroom ready. Using these simple tips will ensure that your home shouts, "’m ready to sell."Tip 1. Improve the kitchen and bathroom.
Nothing adds value like improvements to these well-traveled areas. Check your cabinets and fixtures for hanging knobs or large scratches. Spend time making minor repairs and painting or staining cabinets. Get the bathroom ready by putting up a new shower curtain or replacing that old toilet seat.
Tip 2. Minimize the 'personal' touch.
Begin to remove excess pictures, school art, certificates or anything else that may hide walls. A shrine to your kids is cute, but it may also give the impression that you aren't ready to leave yet. Once again, buyers should be able to visualize themselves living in your home.
Tip 3. De-clutter and clean.
Since homebuyers are generally a nosy bunch, you'll want to make sure that even the hidden areas of your home are clean and organized. If a prospective buyer looks into a closet or opens a drawer, the last thing you want is Junior's wash pile falling out for the world to see. Take this opportunity to have a garage sale or place excess stuff into storage.
Tip 4. Fresh is always best.
Smell is one of our most powerful senses. Someone not used to your home may pick up scents that are not pleasing to their nose. Get rid of any unpleasant odor by shampooing the carpets, emptying the garbage and cleaning the refrigerator. You may want to light scented candles, have a light potpourri on the stove or use a plug-in to create a pleasant scent.
Tip 5. Have "curb appeal."
A well-kept lawn is an absolute 'must-have' when preparing to sell your home. People love to see the lines of a freshly mowed lawn in front of their house. Look at the front door and make it attractive with a new paint or stain job. Sweep around the door and place a new welcome mat down.
And finally, get a second opinion by asking your real estate agent to tour the home with you. It may seem like extra work now, but by putting a little extra effort into the details, you'll help your agent sell your home.
FHA New Rules for Condos
FHA has come out with its long-awaited rules on condominium loans, and they're a mixed bag for investors, second home and other buyers and sellers.
On the one hand, the rules allow lenders a lot of more flexibility in reviewing condo project eligibility and documentation. That's good -- it should allow more lenders to increase their condo activity in the red-hot FHA segment of the market.
On the other hand, the agency is imposing a number of important restrictions. Here's a quick overview of the rules:
Units in condo hotels are prohibited. Ditto for units in time share or "segmented ownership" projects, houseboat condo developments, and projects where there are multiple dwellings inside single condominium units.
FHA said it won't insure units in condominiums where more than 25 percent of the total space is allotted to commercial uses, such as retail stores or offices. In fact, the agency made a point of emphasizing that it will reject loan applications from any property that it deems not "to be primarily residential" in character.
FHA also won't insure condo loans if more than 10 percent of the units are owned by investors. That's a much stricter standard than Fannie Mae's, which permits up to 49 percent of units to be investor owned. The 10 percent rule applies as well to situations where a builder or developer is left with unsold units and rents them out.
The agency won't endorse loans from projects where less than 50 percent of the total units already have been sold, or where less than 50 percent of the units are owner-occupied or sold to buyers "who intend to occupy them."
FHA doesn't even want to insure loans on units located in buildings with heavy concentrations of units that are FHA-financed. If more than 30 percent of the unit owners in a project took out FHA-backed loans, the agency doesn't want to do any more business in that condominium.
In a concession to rental apartment project investors who convert their buildings to condo, FHA is abandoning its current one-year mandatory waiting period before considering loan applications on condo units.
Finally, FHA said it doesn't want to have anything to do with condo projects that might be affected by negative environmental factors. For example, it won't insure units in buildings located within a thousand feet of a major highway - it wants to avoid adverse noise pollution impacts on property values - or within three thousand feet of a dump, landfill or EPA Superfund site.
Buying A Home After Bankruptcy
Buying A Home After Bankruptcy
Experienced bankruptcy lately? You may wonder if you will still will be able to get a home loan. You may also be wondering if buying home after bankruptcy is a good idea for you.
While bankruptcy can make your mortgage loan approval difficult, it is still possible to get approved. In fact there have been more and more, bad credit loans coming out all the time.
They are called the Subprime lenders; they are focusing more on helping individuals with poor credit in buying home after bankruptcy.
This is happening mostly because bankruptcies are still on the rise and there is an increasing number of people with bad credit who are looking for home financing.
Just to give you a bit of an overview here are some very good reasons to consider after bankruptcy buying home:
Increase your credit rating. When you make your payments on a regular basis, you will be able to develop your credit rating. Once your pre-payment penalty is done, you should be able to refinance your credit loan for a much lesser interest rate.
After your bankruptcy has been for ended 2-3 years, you ought to have a much easier time qualifying for a lesser interest rate mortgage loan.
You will be able to own an asset. If you are just renting a home then you are absolutely throwing your monthly payments away. Why not just buy a home, over time, its value will increase and you are working you way towards owing an asset.
Once you have bought your house, as soon as 6 months or so later, you might be able to take out an equity loan on your home and consolidate any other debt that you might have since your bankruptcy or debt that could not be included in your bankruptcy.
Taxes and student loans will not be discharged in a bankruptcy. You may also want to use the extra cash to invest in a business venture or for needed home improvement.
It is very tempting to buy an new home, new car, do some renovations, etc., after bankruptcy discharge you have no debt left. You will probably feel like you can afford a larger house payment due to the financial experience that you have.
But it is not that easy so here are some factors to consider before committing yourself to a new house payment.
The Pre-payment penalty. This penalty is usually about 6 months worth of house payments. And usually lasts from 2-3years. Once you sign those mortgage papers you absolutely have to make those payments. If you don’t have the amount of the pre-payment penalty in savings, you are locked into making the payments or losing the house.
The Two Year Mark. Keep in mind that after 2-3 years from the date of the bankruptcy discharge, mortgage loans will be much easier to get. With a small down payment, you might even be able to get a mortgage loan without a pre-payment penalty.
So, if you are within 6 months or so from the 2 year mark. It would be smart to wait it out and have more mortgage loan options.
Borrowing Too Much. This is the most common mistake that we usually get into. If you do decide to buy a house, buy one that you know you will be able to afford. Don’t max yourself out on credit, living right up to the edge of your income.
If your income suddenly drops, you’ll want to make sure that you can still afford your house payment. Be conservative with how much home you need to buy.
Most of us always think that bankruptcy is the end of our credit life. But don not despair because I know some people that have been in to bankruptcy but has been able to get up again and rebuild there credit quickly most of them has even been able to buy a new house.
Bankruptcy will show up on your credit report for 10 years. That means that every mortgage lender will certainly see that fact when evaluating your mortgage application.
Although it may be difficult to find a bank to give you a mortgage it’s certainly not impossible. Banks want to make money and you may find one that’s willing to take the risk.
Mortgage Rates Hold Steady
Mortgage Rates Hold Steady
There was very little daily movement in mortgage rates during the holiday-shortened week, and they ended the week nearly unchanged. The economic news during the week contained few surprises.
Following better than expected results for May, investors were closely watching the June Employment report for clues about the timing of any economic recovery. Thursday's data showed that the economy lost -467K jobs in June, and the Unemployment Rate rose to 9.5% from 9.4% in May. Average Hourly Earnings, a proxy for wage growth, rose at a slim 2.7% annual rate. High unemployment and slow wage growth have caused consumers to save more and spend less. Since consumer spending accounts for about 70% of economic activity, the slowdown in spending has had a large impact on economic growth. For mortgage rates, however, low wage inflation and slow economic growth are favorable.
While the Employment report may have captured the most attention, the week began with a significant announcement from Chinese officials. According to the head of China's central bank, there will be no sudden changes to China's foreign reserve policy, meaning that China will not pull back from buying US bonds. Over recent months, investors have been concerned that foreign central banks would decide to scale back their purchases of US bonds, so this was very welcome news. Recent Treasury auctions have confirmed that foreign demand remains strong.
Saturday, June 27, 2009
Demand is Strong for Treasury Debt
With major economic data, large Treasury auctions, and a Fed meeting on the schedule, it was a busy week for mortgage markets. In the end, it was the Treasury auctions which had the greatest impact on mortgage rates. Demand was very strong at the auctions, which pushed mortgage rates lower. Wednesday's Fed announcement and mixed economic data were roughly neutral for mortgage rates.
Much of the rise in interest rates we saw in late May and early June was due to concern about the enormous supply of debt the government needs to issue to pay for all the stimulus programs. The question was whether investors would require significantly higher yields to continue purchasing bonds. Strong demand from both domestic and foreign investors at this week's Treasury auctions eased those concerns for now and helped mortgage rates to reverse some of their recent increases.
As expected, the Fed made no change in the fed funds rate. However, investor expectations varied widely for the Fed's statement, but the statement revealed no significant shifts in policy. In particular, there was no change in the timing or the quantity of future MBS and Treasury purchases. In addition, the statement contained no discussion about exit strategies to eventually unwind Fed stimulus programs. Overall, the Fed simply held the course, and mortgage rates were nearly unchanged after the news.
In the housing sector, May Existing Home Sales rose 2.4%. It was the first time since September 2005 that Existing Home Sales increased for two months in a row. The inventory of unsold homes declined to a 9.6-month supply from a 10.1-month supply in April. A NAR survey revealed that 29% of sales were to first-time homebuyers, helped by the $8,000 tax credit, low mortgage rates, and favorable affordability levels.
Always feel free to contact me with any questions. David Krull 651-246-4250 RealtorMN@gmail.com
Wednesday, June 24, 2009
Are you the Ideal Mortgage Applicant?
Are You an Ideal Mortgage Applicant?
By Susan Keenan
Photo © Lisa F. Young - iStockphoto
Most lenders check on three main criteria when evaluating a mortgage application. The amount of loan you qualify for and the interest rate quoted will be based on an assessment of your credit score, available cash for a down payment and your ability to make monthly payments. These factors help a lender to decide on their perceived risk in giving you a loan.
What is your credit score?
To qualify for a mortgage, your credit score should be more than 620. Paying bills on time, keeping credit accounts open—don't cancel existing accounts just before applying for a mortgage—and keeping your credit card debt to a minimum should improve your credit rating.
How much can you afford as a down payment?
Lenders want to know how much you can contribute as a down payment towards the purchase. Most lenders limit their funding to 80% of the purchase price. When deciding on your contribution, get an estimate from the lender of the closing costs involved. These costs, which consist of attorney fees, taxes, points, title insurance and such, are due at the time of closing and should be considered when deciding on your total cash outlay for your home.
Will you be able to afford a mortgage payment?
A lender will look into your ability to consistently make monthly mortgage payments. The current mortgage crisis has prompted lenders to scrutinize documents relating to employment, income and assets. Documents such as pay-stubs, letters from employers or bank statements may be submitted for this purpose.
What is your debt to income ratio?
Lenders usually look at two ratios when evaluating mortgage applications. The front-end ratio or debt to income ratio is your monthly principal, interest, property tax and mortgage insurance payment taken as a percentage of your gross monthly income. A value of 28% or less is acceptable.
The back-end ratio is the total of all your debt obligations and commitments, such as alimony or child support, expressed as a percentage of gross monthly income. Lenders check for a value of 36% or less for this ratio. If you are encouraged to take on a higher loan, it is best to exercise prudence and accept an amount that you can deal with.
Despite the best of preparation, crises such as job loss or illness can leave you financially depleted. To ensure that you have sufficient funds to meet your mortgage and other day-to-day expenses, maintain a contingency fund that can cover your financial commitments for a minimum of three months.
By Susan Keenan
Photo © Lisa F. Young - iStockphoto
Most lenders check on three main criteria when evaluating a mortgage application. The amount of loan you qualify for and the interest rate quoted will be based on an assessment of your credit score, available cash for a down payment and your ability to make monthly payments. These factors help a lender to decide on their perceived risk in giving you a loan.What is your credit score?
To qualify for a mortgage, your credit score should be more than 620. Paying bills on time, keeping credit accounts open—don't cancel existing accounts just before applying for a mortgage—and keeping your credit card debt to a minimum should improve your credit rating.
How much can you afford as a down payment?
Lenders want to know how much you can contribute as a down payment towards the purchase. Most lenders limit their funding to 80% of the purchase price. When deciding on your contribution, get an estimate from the lender of the closing costs involved. These costs, which consist of attorney fees, taxes, points, title insurance and such, are due at the time of closing and should be considered when deciding on your total cash outlay for your home.
Will you be able to afford a mortgage payment?
A lender will look into your ability to consistently make monthly mortgage payments. The current mortgage crisis has prompted lenders to scrutinize documents relating to employment, income and assets. Documents such as pay-stubs, letters from employers or bank statements may be submitted for this purpose.
What is your debt to income ratio?
Lenders usually look at two ratios when evaluating mortgage applications. The front-end ratio or debt to income ratio is your monthly principal, interest, property tax and mortgage insurance payment taken as a percentage of your gross monthly income. A value of 28% or less is acceptable.
The back-end ratio is the total of all your debt obligations and commitments, such as alimony or child support, expressed as a percentage of gross monthly income. Lenders check for a value of 36% or less for this ratio. If you are encouraged to take on a higher loan, it is best to exercise prudence and accept an amount that you can deal with.
Despite the best of preparation, crises such as job loss or illness can leave you financially depleted. To ensure that you have sufficient funds to meet your mortgage and other day-to-day expenses, maintain a contingency fund that can cover your financial commitments for a minimum of three months.
Use Less Stuff to be "Green"
Use Less Stuff to be "Green"
Courtesy of ARAcontent
Photo © Saniphoto - Dreamstime
If the desire to "go green" leaves you feeling a bit overwhelmed, keep it simple with a "less is more" attitude, advises Bob Lilienfeld, sustainability expert and author of "Use Less Stuff." You'll be amazed at how simple lifestyle changes can affect your impact on the environment and your budget.
Recycling has long been touted as the centerpiece of environmentally conscious behavior, Lilienfeld notes. But the truth is that recycling by itself can't solve the environmental issues we're now facing. "The real key to saving the planet is to shop smarter so that we manage our consumption and stop creating waste," he says "Beyond recycling, we need to reduce and reuse in all areas of our life."
Here are Lilienfeld's tips on how to shop with a "use less stuff" mindset:
Make a List, Check it Twice
The best way to get what you need—and not what you don't—is to start from a list. Doing so keeps you from purchasing impulse items that you really don't need and have to pay for. And, if you include items that you're almost out of, you'll prevent yourself from having to run out for that one thing you either ran out of or forgot to buy. So, you'll save time, money, and gasoline. Less is More
Concentrated products are better for the environment because they use fewer natural resources. Concentrated products not only mean less waste, but also less weight you have to carry around. Concentrated products use 22 percent to 43 percent less packaging and up to 44 percent less water in the formulation than before, so you get a product that is a better choice for the planet, without any performance sacrifice.
A great place to find concentrated products is the detergent aisle. There are a number of top brand detergents, like Tide, Gain, Cheer, Era and Dreft that have been recently reformulated to provide the same number of loads in detergent bottles that are about half the size, resulting in a more convenient product that is easier to carry, pour and store.
Reduce, Reuse, Refill
Buy refills for your favorite products. Take a spray bottle for example. You really don't need a new sprayer, just more cleaner. Buying the larger refill bottles means you throw away less, get more product, and save money, too, since you're not paying for a spray top that you really don't need.
A Bright Idea
Invest in the just-introduced, second generation compact fluorescent light bulbs, or CFLs. They last 16 times as long, use 75 percent less energy, and now provide light that's as natural looking as standard incandescent bulbs.
For more information on how using less stuff can help the environment, visit www.use-less-stuff.com.
Courtesy of ARAcontent
Photo © Saniphoto - Dreamstime
If the desire to "go green" leaves you feeling a bit overwhelmed, keep it simple with a "less is more" attitude, advises Bob Lilienfeld, sustainability expert and author of "Use Less Stuff." You'll be amazed at how simple lifestyle changes can affect your impact on the environment and your budget.Recycling has long been touted as the centerpiece of environmentally conscious behavior, Lilienfeld notes. But the truth is that recycling by itself can't solve the environmental issues we're now facing. "The real key to saving the planet is to shop smarter so that we manage our consumption and stop creating waste," he says "Beyond recycling, we need to reduce and reuse in all areas of our life."
Here are Lilienfeld's tips on how to shop with a "use less stuff" mindset:
Make a List, Check it Twice
The best way to get what you need—and not what you don't—is to start from a list. Doing so keeps you from purchasing impulse items that you really don't need and have to pay for. And, if you include items that you're almost out of, you'll prevent yourself from having to run out for that one thing you either ran out of or forgot to buy. So, you'll save time, money, and gasoline. Less is More
Concentrated products are better for the environment because they use fewer natural resources. Concentrated products not only mean less waste, but also less weight you have to carry around. Concentrated products use 22 percent to 43 percent less packaging and up to 44 percent less water in the formulation than before, so you get a product that is a better choice for the planet, without any performance sacrifice.
A great place to find concentrated products is the detergent aisle. There are a number of top brand detergents, like Tide, Gain, Cheer, Era and Dreft that have been recently reformulated to provide the same number of loads in detergent bottles that are about half the size, resulting in a more convenient product that is easier to carry, pour and store.
Reduce, Reuse, Refill
Buy refills for your favorite products. Take a spray bottle for example. You really don't need a new sprayer, just more cleaner. Buying the larger refill bottles means you throw away less, get more product, and save money, too, since you're not paying for a spray top that you really don't need.
A Bright Idea
Invest in the just-introduced, second generation compact fluorescent light bulbs, or CFLs. They last 16 times as long, use 75 percent less energy, and now provide light that's as natural looking as standard incandescent bulbs.
For more information on how using less stuff can help the environment, visit www.use-less-stuff.com.
The Benefits of a Great Real Estate Agent
The Benefits of a Great
Real Estate Agent
By Angela Baca
Photo © Jozsef Szasz - Dreamstime
Real estate agents do more than just help you search for a home; they provide indispensable advice during the entire home-buying process. Here are three ways that your agent will protect your interests in the steps toward buying a home.
1. Finding Your Ideal Home - If you've already searched for a home for several months, you probably have a few prime properties in mind. Your agent will help you sift through your choices to ensure that the property you think you want is really going to serve you well long-term.
As an added bonus, an experienced agent has a knack for sniffing out things like dishonest sellers, lemon houses, and bad deals. Buying a home can present many pitfalls for the inexperienced; having the expertise of a professional will provide peace of mind and ensure that the process goes smoothly.
2. Preparing the Real Estate Offer - You may already be aware of the basic steps toward owning a home, but there are some finer details to drafting and presenting a real estate offer to the seller. A real estate agent guides you in how to prepare your offer and helps you to draft a competitive set of terms that will increase your chance of being accepted by the seller. Some considerations include how much to offer for the home, when to close on the deal, what costs will be paid by each party, and if the seller will add improvements to the home before closing.
3. Closing the Deal - Once a seller has accepted your written offer, there are many steps that must take place before the house will be transferred to you. Since a professional real estate agent has been down this road many times, they will be able to guide you during the major phases of the closing process.
Although an objective third party may draw up all the paperwork and hold the escrow funds until closing, your agent acts solely on your behalf. Don't hesitate to voice your concerns or ask your agent lots of questions to ensure that you get the optimal benefit from the home-buying experience.
Real Estate Agent
By Angela Baca
Photo © Jozsef Szasz - Dreamstime
Real estate agents do more than just help you search for a home; they provide indispensable advice during the entire home-buying process. Here are three ways that your agent will protect your interests in the steps toward buying a home.1. Finding Your Ideal Home - If you've already searched for a home for several months, you probably have a few prime properties in mind. Your agent will help you sift through your choices to ensure that the property you think you want is really going to serve you well long-term.
As an added bonus, an experienced agent has a knack for sniffing out things like dishonest sellers, lemon houses, and bad deals. Buying a home can present many pitfalls for the inexperienced; having the expertise of a professional will provide peace of mind and ensure that the process goes smoothly.
2. Preparing the Real Estate Offer - You may already be aware of the basic steps toward owning a home, but there are some finer details to drafting and presenting a real estate offer to the seller. A real estate agent guides you in how to prepare your offer and helps you to draft a competitive set of terms that will increase your chance of being accepted by the seller. Some considerations include how much to offer for the home, when to close on the deal, what costs will be paid by each party, and if the seller will add improvements to the home before closing.
3. Closing the Deal - Once a seller has accepted your written offer, there are many steps that must take place before the house will be transferred to you. Since a professional real estate agent has been down this road many times, they will be able to guide you during the major phases of the closing process.
Although an objective third party may draw up all the paperwork and hold the escrow funds until closing, your agent acts solely on your behalf. Don't hesitate to voice your concerns or ask your agent lots of questions to ensure that you get the optimal benefit from the home-buying experience.
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