Category: First-Time Homebuyer

Obama signs legislation extending and expanding homebuyer tax credit

Posted on by Evan in First-Time Homebuyer, Taxes

If you haven’t heard, the United States Congress and President Obama have passed legislation that expands the first-time homebuyer tax credit and extends it into the first half of 2010. Before we go any further, we want to make it clear that we are not tax professionals and recommend that you contact a tax professional to see how this law may apply to you.

Initially, the first-time homebuyer tax credit came into law as a part of President Bush’s Housing and Economic Recovery Act of 2008. In the original form, first-time homebuyers were eligible to receive up to $7,500 in the form of a tax “credit” but were required to pay back the credit over a 15-year period.

Earlier this year President Obama signed into law the American Recovery and Reinvestment Act of 2009, which increased the maximum amount of the tax credit to $8,000 and eliminated the payback provision. To be eligible for the credit, homebuyers must have not owned a home in the previous three years, must close on their purchase no later than November 30, 2009, and must make less than $75,000 for individuals and $150,000 for households.

Under the new law, the first-time homebuyer tax credit has been extended, and a $6,500 tax credit for existing homeowners has been added. Here are the details:

· Eligibility criteria for the first-time homebuyer tax credit have not changed: a homebuyer must have not owned a home in the past three years.

· To be eligible for the $6,500 homebuyer credit, homebuyers must be buying their primary residence and have lived in their existing home for at least five of the previous eight years. (The credit is not available for vacation or investment property purchases.) Homebuyers do not have to sell their existing home to be eligible for the credit.

· The credit is available to homebuyers who qualify, as long as they enter into a sales contract no later than April 30, 2010 and close no later than June 30, 2010. The $6,500 existing homeowner tax credit becomes effective December 1, 2009.

· In addition to expanding the tax credit to existing homebuyers, the new law raises the income qualification thresholds to $150,000 for individuals and $225,000 for households.

Although many critics have pointed out that the extension and expansion of the home-buying tax credit is poor public policy, there is no question that it offers a unique opportunity for existing homeowners to purchase a new home with a generous government subsidy.

Mortgage rates remain near historic lows and, according to the Case-Shiller Home Price Index, real estate prices in the Portland-Metro area remain 20% off their July 2007 highs. If you’ve been considering a move, this may be your once–in-a-lifetime opportunity. Please contact us if you’d like to review your loan options and obtain pre-approval.

Here is a link to the section of the IRS website which summarizes the new law.

Signs of more loan tightening

Posted on by Evan in FHA, General Mortgage Info.

Wells Fargo announced a key change to their underwriting guidelines today.  The reason I am blogging about them is because a) they are fairly big changes & b) Wells Fargo tends to be a bellwether for our industry.  Therefore, if Wells Fargo is announcing this today it won’t surprise us to see others following suit in the near future.

The change involves FHA Streamline refinances.  One of the big advantages of a FHA loan is that when a homeowner has one and interest rates drop they can qualify for a streamline refinance where they don’t have to re-qualify for a mortgage by supplying proof of income & appraisal to the underwriter.  So long as they have made their existing payments on time they qualify.  In Wells Fargo’s announcement they will now require FHA streamline refinance applicant’s to supply proof of employment, income, and assets.  This is sounding less and less like a streamline.

Tri-County recorders

Posted on by Evan in First-Time Homebuyer, For Professionals, Miscellaneous

The expiration of the $8,000 first-time homebuyer credit is only 52 days from today.  For those who qualify for the $8,000 credit they must close on their transaction no later than November 30th.  And although there has been much speculation about an extension of the credit; to date nothing has been passed by Congress and their is growing skepticism that anything will get done before health care reform is enacted (which means it may not get extended).

That said, we are expecting that Monday, November 30th will be a busy day at the county recording offices because many homebuyers will wait to the last minute to close.  The excess demand for recordings at that time is amplified by the fact that Thursday, November 26th is Thanksgiving day so all of the recording offices are closed.  The problem of course is that the county recording offices may not be staffed to handle the additional capacity and if a transaction doesn’t actually record until the following day it may mean that the buyer does not receive their $8,000 credit.

We would encourage homebuyers to close a week or so before the expiration of the credit so long as time permits but realize this may not be feasible.  That said, we have been pro-active in learning how the tri-counties are going to be responding to the expected additional demand.  Here is what we found out:

Multnomah County: Will be open for the full day on Friday, November 27th (day following Thanksgiving)/ may add staff if needed/ is not allowing vacations to employees on November 30th/ currently planning on closing at 5PM

Washington County: Will be open for the full day on Friday, November 27th (day following Thanksgiving)/ planning on adding staff to help out/ is not allowing vacations to employees on November 30th/ will close at 5PM but staff will stay as late as needed in order to record all documents in that day

Clackamas County: Will only open for a 5-hour shift on Friday, November 27th (day following Thanksgiving)/ not currently planning on adding staff/ has not made any policies regarding vacations to employees on November 30th/ will close at 5PM as normally scheduled

Clearly Clackamas County recordings are the most at risk.  Plan ahead!

Refi’ing a FHA loan? Make sure your lender knows the rules

Posted on by Evan in FHA

For all the benefits of FHA loans (i.e. low interest rates, low down payment requirements, assumability) there are also drawbacks (i.e. extensive paperwork requirements, upfront mortgage insurance premiums, etc.).

When it comes to refinancing an existing FHA mortgage homeowners need to be aware that one of the drawbacks is that FHA loans require a full 30-day pay-off no matter when a loan is refinanced.  Why is this a drawback?

Let me illustrate.  Let’s assume that a homeowner has a $200,000 FHA loan which is a fixed rate @ 6.50%.  On the 15th of any given month they look into refinancing an determine that they can refinance into a new fixed rate @ 5.50% if they lock for 30 days.  If they lock and proceed with their loan application they would fund their new loan on the 15th of the following month.

If their existing loan was a non-FHA loan then at closing their existing lender would collect 15 days worth of interest (1st-15th or $541.67) and the new lender would collect 16 days of interest (15th-31st or $458.33).  The total amount of interest collected at closing would be $1,000.01.

However, because their existing loan is a FHA loan then the existing lender would actually need to collect interest for the entire month.  Therefore, when these homeowners go to close they would find that the existing lender was collecting interest for the entire month (1st-31st or $1,083.34).  Meanwhile, the new lender would still collect interest for 16 days (15th-31st or $458.33).  Therefore, the total amount of interest collected at closing is $1,541.67.  In essence, the fact that the existing loan is a FHA loan adds $541.66 to the closing costs.

A homeowner with a FHA loan can mitigate the additional expense by ALWAYS CLOSING ON FHA REFINANCES ON OR NEAR THE LAST DAY OF THE MONTH.  IF they are working with an experienced and knowledgeable mortgage professional they should account for this when advising whether or not it makes sense to refinance.

If you’d like a no obligation refinance analysis completed for your FHA loan please click on the “Work with Evan” tab to the left.

FHA announces new rules Sept. 18th

Posted on by Evan in FHA

As a supplement to this post and this post, WSJ.com published this article a few minutes ago in which they report that the FHA will tighten credit standards in order to improve it’s mortgage insurance performance.  No details on when these new rules will become effective.  Here is a quote from the article in which new measures are outlined:

Under planned new rules, the FHA said lenders making FHA-insured loans will need to show net worth of at least $1 million, up from $250,000, and further increases may be sought later. The agency is seeking to ensure that lenders will have funds available to compensate the FHA if their loans fail to meet quality standards.

The FHA also will stop certifying mortgage brokers to handle FHA loans. Instead, the lenders that underwrite and fund those loans will be responsible for policing brokers and paying for any failures to meet standards.

For refinances of FHA loans, the agency will make new requirements for verifying income and other quality-control checks. It also will impose a maximum loan value of 125% of the current estimated home value on refinanced loans, in line with government-backed mortgage investors Fannie Mae and Freddie Mac.

The FHA plans to make its rules aimed at averting pressure on appraisers more consistent with those adopted earlier this year by Fannie and Freddie. Mortgage brokers or bank employees paid on commission won’t be allowed to order appraisals. Appraisals will be valid for no more than four months, down from six to 12 months previously.

FHA solvency update

Posted on by Evan in FHA

Last week I had blogged this post regarding mounting losses at FHA.  Today, WSJ.com had a follow up with this article.  The bad news is that the FHA reserves level will drop below congressional mandated levels.  The good news is that the FHA has forecasted out 2 years from now and is projecting those reserves will rebound above that level with out any bailouts.  We don’t expect any changes to FHA loans at this point.

Gift Taxes- what consumers need to know

Posted on by Evan in FHA, Taxes

By most estimates FHA loan originations now make up somewhere between 33-50% of all mortgage fundings.  One of the nice flexibilities about FHA loans is that it allows the borrower/ homebuyer to receive their down payment (minimum of 3.5%) entirely as a gift from a family member.

With the first-time homebuyer credit in effect we have seen a lot of this lately as parents encourage their children to buy so that they can buy their first home and receive an $8,000 tax credit.

However, most parents and children are not familiar with the tax treatment of cash gifts.  Therefore I wanted to provide a quick outline of the most applicable points & a link to the IRS website where more information is available.

Major points:

*An individual may gift up to $13,000 to another individual in 2009 and exclude all gift taxes.  A couple may each gift up to $13,000 ($26,000 total) to an individual and exclude gift taxes.

*If a person gifts more than is allowable under the annual exclusion then they can avoid paying gift taxes in the immediate term by subtracting the amount of the excess gift from their $1,000,000 lifetime exclusion.

For example, let’s say John & Judy Williams gift $50,000 to their son James in 2009 so that he may buy his first home.  Each parent is able to exclude up to $13,000 from gift tax liability for a total of $26,000.  The remaining $24,000 is then deducted from their $1,000,000 lifetime exclusions ($12,000 each).  Therefore, they’d be able to gift/ or pass through their estate up to $988,000 and still avoid gift/ estate taxes.

Countdown to expiration of the first-time homebuyer credit

Posted on by Evan in First-Time Homebuyer

The Portland Business Journal kindly reminded me this morning that the $8,000 first-time homebuyer credit is set to expire November 30th.  November 30th is exactly 80 days away from today.  If you figure that most closings are taking about 45 days then that leaves homebuyers 35 days to find a home and reach an agreement with a seller.

There have been rumors regarding an extension of the first-time homebuyer credit but nothing yet has passed congress.  Last I heard there was a proposed bill but it had stalled out in a committee.

Mounting losses pile up at FHA

Posted on by Evan in FHA

The WSJ published this article which looks into the rising delinquency of FHA insured loans across the US.  As an industry insider this news is not entirely surprising.

During the peak of the housing boom subprime mortgages and ALT-A mortgages were more attractive for those applicants who were looking for low down payment programs.

Since those programs have been eliminated from the marketplace FHA is the only option.  As a result more and more people are relying on FHA.  Not to say that ALL FHA borrowers are not credit-worthy BUT certainly some at the margin will cost the FHA some money.

Extension of the first-time homebuyer credit?

Posted on by Evan in First-Time Homebuyer, For Professionals

There is no question that the popular first-time homebuyer credit has had a positive impact on the housing market.  Currently my team is working on 11 purchase transactions and 7 of them are first-time homebuyers.  How many of these people would not be buying if it weren’t for the $8,000 incentive?

Data out this morning from the S & P Case Shiller home price index showed that home prices rose modestly in 18 of the top 20 housing markets in the US.  Surely the tax incentives and low interest rates have helped to stabilize the housing market.

Since the first-time homebuyer credit has been such a catalyst in the housing market many people are concerned about what will happen after 12/1/2009 when the program is set to expire.

This morning I came across this article which is reporting that there is currently a bill in front of the House Ways & Means Committee in Washington D.C. which would extend the credit into 2010.

I’m not sure of the political feasibility of such a bill. especially since budget deficits are a growing concern amongst Americans (click this link to see the US national debt clock).

What do you think?  Do you think we should extend the program?  Or, should we let the free market takes its course?