"Why the $8,000 First Time Home Buyer Tax Credit Helps ALL Home Owners

"Why the $8,000 First Time Home Buyer Tax Credit Helps ALL Home Owners"

By Brent Sute

Most Americans are not happy about the current state of affairs in our economy OR the fact that our government is getting bigger and bigger. The fact that our Federal government is having to basically print money and take large stakes in the American companies to prevent our economy from falling deeper into trouble would have been unimaginable only a couple of years ago. However, the $8,000 tax credit for first time home buyers is a positive step to restoring our beleaguered housing market and will hopefully spark our economy from deep recession.

Housing led our economy into the current funk and it will help lead the economy out of recession. Even though the $8,000 tax credit is only available for consumers buying their first home (or consumers who have not owned a home in the past 3 years), all home buyers and other consumers will benefit. The current excessive inventory of houses will be eased by the fact new buyers are coming on to the market. Also, current home owners who would like to move to a larger home, or simply have to move because of relocation, now have more buyers that are interested in purchasing their home. Also, many of the foreclosures that are contributing to the excessive inventory in most markets are well suited for first time home buyers who will be receiving the tax credit.

Furthermore, the $8,000 tax credit is available to home owners once they buy a home. Recipients are not allowed to use the $8,000 towards their minimum contribution of 3.5% on a FHA loan. Therefore, a couple of weeks after closing consumers now have the much needed funds to go out and buy furniture, lawn mowers, carpet, and other accessories for their new home. This is absolutely a good thing for local businesses, home improvement centers, and people who offer repair and renovation services.

While the $8,000 is great for improving a newly purchased home, I am advising most of my clients to save a good portion of the money for cash reserves and to pay off high interest credit card debt. This approach will create more healthy financial households which lead in turn to a long term healthier group of consumers.

We have a long way to go before our economy fully recovers from the current down turn. However, the $8,000 tax credit is one thing the government is doing right to help the American economic situation.

$8,000 Tax Credit Soon To Be Accessible at Closing????

$8,000 Tax Credit Soon To Be Accessible at Closing???

HUD Secretary Donovan appeared at a NAR function yesterday, and this is an exact excerpt of his remarks:

"We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a downpayment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to "monetize" the tax credit through short-term bridge loans. We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit. FHA will be publishing the details shortly."

What does this mean? It means that HUD is puttting the finishing touches on allowing home buyers to access the $8,000 tax credit for their down payment at closing. This will allow more people to access housing, decrease inventory of existing homes, and allow the economy to possibly rebound quicker.

As we receive more information regarding the tax credit, I will pass it on.

Changes, Challenges, and Opportunities

2009's Mortgage Environment - Changes, Challenges, and Opportunities

Some of the issues I've come across in the first two months of 2009 relative to obtaining mortgages:

1. 80% of the loans I am currently originating are FHA loans.

2. Soon, you will likely need a 620 credit score to qualify for a mortgage, including FHA. (Note: many lenders have already implemented the 620 minimum credit score.

Also, underwriters are becoming more and more subjective when it comes to interpreting guidelines and manually reviewing credit. Expect underwriters to ask for documentation they wouldn't have before, perhaps delayed underwriting decisions, and sometimes a bumpy road to closing. With that said, originators and processors are still adjusting to what the underwriters are requiring and we will be able to help our clients manage the process better over time.

3. 70% of my new clients are first time home buyers - the $8,000 FTHB tax credit is certainly helping generate new homeowners.

4. Refinancing can be very challenging in this market; mostly because of appraisal concerns. Even in Alabama, where we lead the country in home appreciation in 2008, we are seeing it difficult to get appraisal values where consumers need them in order to refinance.

5. It is very difficult to predict what mortgage rates are going to do day-to-day, week-to-week, or month-to-month. In years past, it was easier to predict the range in which rates would move based on technical factors, inflation, etc.

6. PMI companies have gone crazy. Any loan with a debt to income ratio over 45% is being turned down by the PMI companies. If you have a 780 credit score and 83% LTV, but a 48% debt to income ratio, you probably can not obtain PMI on your conventional loan. If your debt ratio is under 45% and you qualify for PMI on your conventional loan, your annual rate may be more tan 1.0% of the loan amount.

7. Many state housing finance authority programs are still jam-packed with tools to help consumers. For example, The Alabama Housing Finance Authority's Step Up program is still the best thing going in my opinion. They still have down payment assistance for FHA loans (3% of the sales price; FHA requires 3.5% down), their rates are good (currently 5.5%), you do not have to be a first time home buyer to qualify, and your total household income must be under $97,000.

8. It is still my opinion that first time home buyers should put as little down as possible, unless they have access to lots of money. My reasoning: the MOST important factor in creating financial security is the accumulation of a reserve savings account. If a buyer uses all of their available money for a down payment and leaves nothing back for reserves, what's going to happen if they lose their job? Don't spend your reserves on a down payment if you don't have to. If you do put something down, only do so if you will have enough money in reserves to last several months of payments. To put things in perspective, a 3.5% down payment ($3,500) will only save a borrower about $25 per month on a $100,000 loan. On the other hand, the $3,500 would be enough to make a consumer's mortgage payments for nearly 6 months!

9. I believe the $8,000 tax credit is great for first time buyers because it allows them to pay off debts, accumulate savings reserves, and eliminates the need to use credit cards to buy furniture, home furnishings, and yard supplies after closing. This simply means, if managed correctly, the first time home buyer can live in their new home with a peace of mind that they will be able to afford and sustain their lifestyle.

10. Don't become paralyzed by the news. Understand what is going on, but don't see things worse than they are. Only be concerned with the things you can control, prepare for risks, but don't worry about the things in which you have no control. Also, now is the time to ACT on opportunities that will not be available forever. America will recover and will be better off in the future. There will likely be no other time in our lifetimes where we will see opportunities presented as we have right now. Relative to housing, we have lots of good inventory to choose from, home values that have come down (can you say "on sale?"), sellers that are willing to work with reasonable buyers, tax incentives for first-time buyers, and rates that are within 1/2% of the all time lows.

President Obama Lays Out Plans for Restoring Housing Markets

President Obama Lays Out Plans for Restoring Housing Markets

President Obama just completed a speech given in Mesa, AZ in which he highlighted the specifics of his plans for helping the U.S. housing markets recover.

He laid out a 5-point plan that included the following aspects:



1)Help 4-5 million American homeowners who are upside down on their mortgage (their loan balance is higher than their market value of their home) refinance with Fannie Mae and Freddie Mac. Cost to taxpayers will be zero.

2)Sub-prime lenders to modify terms of loans. Only 12% of mortgages are sub-prime loans, but over 50% of the foreclosures are from sub-prime products. The government is setting forth clear guidelines in which these modifications must be handled. The lenders must reduce the mortgage payments down to no more than 31% of the borrower's income. An estimated 3-4 million home owners may be affected.

3) Ensure liquidity and take mortgage rates low my continuing to buy mortgage bonds secured by Fannie Mae and Freddie Mac. Also, help shore up the liquidity of state housing finance authorities.

4) Help families avoid foreclosure by reducing balances to market values on primary residence homes.

5) $2 billion in grants for local neighborhood efforts in fighting foreclosures.


I was impressed by the President's effort to clearly and specifically explain how he plans to tackle this huge problem. I also liked the fact that he ended by saying that lenders, bankers, and consumers must act more responsibly in the future in order for us to avoid encountering these types of problems again.

Now, what the President said sounds good and hopefully will be successful. The question remains, can they pull it off, execute the plan, while still ensuring our future and the future of following generations. Only time will tell.

Economic Stimulus Plan Benefits the Housing and Mortgage Industries

Economic Stimulus Plan Benefits the Housing and Mortgage Industries

Revised February 17, 2009

Just signed and sealed...a $787 Billion Stimulus Plan made up of tax cuts and spending programs aims at reviving the US economy. Although the package was scaled down from nearly $1 Trillion, it still stands as the largest anti-recession effort since World War II.
Home owners and potential homebuyers stand to gain from key provisions in this stimulus plan. Here is what we know as of today...


Tax Credit for Homebuyers
First-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit. Remember a tax credit is very different than a tax deduction - a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income.
The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.

Additional Housing-Related Provisions
Tax Incentives to Spur Energy Savings and Green Jobs - This provision is designed to help promote energy-efficient investments in homes by extending and expanding tax credits through 2010 for purchases such as new furnaces, energy-efficient windows and doors, or insulation.
Landmark Energy Savings - This provision provides $5 Billion for energy efficient improvements for more than one million modest-income homes through weatherization. According to some estimates, this can help modest-income families save an average of $350 a year on heating and air conditioning bills.

Repairing Public Housing and Making Key Energy Efficiency Retrofits To HUD-Assisted Housing-

This provision provides a total of $6.3 Billion for increasing energy efficiency in federally supported housing programs.Specifically, it establishes a new program to upgrade HUD-sponsored low-income housing (for elderly, disabled, and Section 8) to increase energy efficiency, including new insulation, windows, and frames.
Expanding Housing Assistance-This provision increases support for several critical housing programs. It includes $2 Billion for the Neighborhood Stabilization Program to help communities purchase and rehabilitate foreclosed, vacant properties.

More Help for Homeowners in the Future

Another thing to keep an eye on in the coming weeks is President Obama's plan to help struggling borrowers before they are faced with a default on their mortgage.
According to reports, the Obama administration is discussing plans to help borrowers who are struggling to stay afloat, but who have not yet fallen behind on their payments. At this point, details are scarce; however, reports indicate that President Obama is looking to spend approximately $50 Billion to directly help homeowners before they face foreclosure and financial disaster.

While this is good news for individual homeowners, it will likely be good for the housing industry as a whole. That's because, assisting struggling borrowers before they default should help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices.

First Time Home Buyer Tax Credit FAQ

First Time Home Buyer Tax Credit FAQ
Click on the following link to learn more about the new First Time Home Buyer Tax Credit:

http://www.federalhousingtaxcredit.com/2009/faq.php#9

Inside Story: False Illusions and What You Need to Know About Mortgage Rates

Inside Story: False Illusions and What You Need to Know About Mortgage Rates

(Distributed with the express permission of Sue Woodard and Barry Habib from Mortgage Market Guide)

The Fed's been at it again, offering words that sound encouraging at first blush, confirming that their buying program of Mortgage Backed Securities is in full swing and will continue as needed. Of course, the media will pick this up and offer their own interpretation, saying "Good news, the Fed's words on continuing their purchasing program mean that rates will continue to drop lower, and remain low into the summer..." But is this really what that means? Not so.

Here's the truth.

Yes, the Fed has been buying Mortgage Bonds, but if you look at what they are purchasing, they are buying a lot of FNMA 30-yr 5.5% and 5.0% Bonds...which won't have much of an impact on present interest rates. Why? First, see the Fed's purchases for yourself by hitting this link: Direct Link to View Fed Mortgage Bond Buying - http://www.newyorkfed.org/markets/mbs/index.html.

So why is the Fed buying these Bonds? Well if you think about it, it's very smart of the Fed...and maybe even a little sneaky...because 5.5% Bonds actually represent outstanding mortgages with rates of 6 - 6.50%, which are precisely the loans being refinanced at today's great interest rates.

Stay with me here...

With rates at present low levels, many of the mortgages in these FNMA 5.5% pools being bought up by the Fed will be refinanced and paid, thus giving the Fed a quick recoup on some of their investment. And this is likely a big reason why the Fed said they could continue this purchasing program beyond June, if necessary. Bottom line, the Fed buying these higher rate coupons will not necessarily help rates to move lower, as their actions do not impact the loans being originated at today's low rates.

Here's the most important part.

Sometimes I talk to clients who are in a situation where it makes sense to refinance right now, and save $250 per month for example. But when they hear the media throwing around teases of lower rates ahead, they decide to hold off on making the decision to save the $250 per month right now, in the hopes of gaining another $30 per month in additional savings with a lower rate than where we stand presently. Now clearly, rates could turn higher, and this window of opportunity could pass them by entirely.

The clincher is this:

Even if those clients ultimately are correct in timing the market, and eventually grab that lower rate and save another $30 per month - think of what they have lost by waiting. While they delayed, they lost the savings they could have gained by taking action sooner - or in the example used, $250 - for every single month they waited. So even if they got lucky and obtained the rate they were looking for, it could take years to make up what they lost by waiting.
I don't want anyone to miss an opportunity by either waiting, or not understanding what is at stake. Let's talk further on this - call or email me and let's discuss what this might mean for you.