Jenny Browne, US Preferred Realtor

FHA released the new loan limits today for 2010. As you probably guessed, many areas are going to see a decrease from 2008 and 2009 levels going in to 2010. Here in Maricopa County, we will see the max loan limit drop from $346,250 to $271,050 for single family residences. This figure may look familiar to you. You may recall HUD stepped in and raised loan limits temporarily to allow for more folks to qualify for an FHA loan back in 2008.







For a majority of the country, the FHA loan limits will be as follows:







One-Unit $271,050



Two-Unit $347,000



Three-Unit $419,400



Four-Unit $521,250

Gov't looking into increasing down payment for FHA loans - Bad idea!

The minimum down payment for borrowers looking to obtain an FHA loan for the purchase of a home currently sits at 3.5%. However, a bill introduced to congress last month by Representative Scott Garrett, a New Jersey Republican, aims to increase the down payment to a minimum of 5%.

In addition, the new bill would also prohibit the FHA from letting borrowers roll their closing costs into the outstanding balance of the loan. Thus, further increasing the minimum out of pocket contributions by home buyers.

This comes at a time where FHA financing continues to play a larger and larger role in insuring new home mortgages. However, with an increased percentage of the current marketplace also comes increased risk. As a result, the FHA said in a Sept. 18 statement that it's tightening credit and appraisal standards and appointing a chief risk officer.

However, there has been no indication from the FHA that an increase in down payment is yet necessary to manage their increasing role in the housing market. And in a time when more and more first time home buyers are purchasing homes in the current marketplace, the potential passage of such a proposal could certainly put the process out of reach for certain buyers.
At this point this bill has yet to move forward and would need approval from the House of Representatives before moving forward.

First Time Homebuyer Tax Credit Extended Into 2010!
Plus...A New Tax Credit for Certain Existing Home Owners!

It's official. President Obama has signed a bill that extends the tax credit for first-time homebuyers (FTHBs) into the first half of 2010. This program had been scheduled to expire on November 30, 2009.

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

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

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

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

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

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

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

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

Extension of buyer tax credit... almost a go.

Senate votes to renew tax credit for first-time home buyers

Provision for $8,000 refund part of bill to extend jobless aid

By Dina ElBoghdady

Washington Post Staff Writer
Thursday, November 5, 2009

The Senate voted Wednesday to renew the government's $8,000 tax credit for first-time home buyers through the first six months of next year as part of a broader bill designed to extend unemployment benefits.

For the first time, the tax credit program would also enable many homeowners who buy a new primary residence to receive a $6,500 refund.

The measure was attached to a bill that would provide 20 weeks of unemployment benefits in more than two dozen states with jobless rates above 8.5 percent and up to 14 weeks elsewhere. Another provision in the bill would allow businesses that had operating losses in 2008 and 2009 to seek refunds for taxes paid on profits over the past five years.

The bill, which passed 98 to 0, should reach the House floor by Thursday, House  Majority Leader Steny H. Hoyer (D-Md.) said in a statement. His office said the legislation would then go to the White House for the president's signature.

The Obama administration has previously supported extending the $8,000 tax credit, and without congressional action the program would end Nov. 30.

Under the bill, first-time home buyers would receive the $8,000 tax credit if they sign a contract by April 30 and close on it by June 30. The plan would also make those who buy a new primary residence eligible for the $6,500 credit if they owned their current home for at least five consecutive years in the previous eight years.

But the measure limits the purchase price of the home to $800,000. It also imposes income caps so that people who make more than $125,000 annually and couples who make more than $225,000 would not be eligible for the program, which is estimated to cost $10 billion.

 Sen. Johnny Isakson (R-Ga.), a longtime advocate of the tax credit, praised passage of the bill in his chamber but said the extension would be the last one. "Tax credits like this only work by creating the sense of urgency to take advantage of them," Isakson said in a statement.

The tax credit and the broader bill in which it is included are part of a series of Democratic-led initiatives aimed at helping the economy and people who have lost their jobs.

The unemployment benefits of more than 1 million people would lapse without this extension, according to the National Employment Law Project, a nonpartisan group that tracks the issue. More than 15 million Americans are unemployed, more than a third of them for longer than six months.

Although the legislation gained wide bipartisan support, it had been mired in bickering for weeks as Republicans tried to attach amendments that Democrats opposed. Party leaders from both sides voiced support for the core measures, including the tax credit.

Supporters of the tax credit, including the real estate industry, say it has energized home buyers and helped increase sales. But critics say the program is too expensive and has attracted mainly people who were going to buy a home anyway.

In the Senate's measure, taxpayers would be able to claim the credit on their 2009 income tax return for purchases made in 2010.

Staff writer Perry Bacon Jr. contributed to this report.

 

Congress nears deal on extending home buyer tax credit

 

By Jessica Holzer, Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- U.S. senators are nearing a deal on a measure to extend the first-time home buyer tax credit through next April and expand it to some buyers who already own a home.

Under the deal, certain "step up" buyers who have lived in their current home for at least five years would also qualify for the tax credit, according to lobbyists close to the negotiations.

The deal comes amid heavy housing industry pressure to extend the tax credit, which is set to expire Dec. 1 unless Congress acts. The measure, which proponents hope to offer as an amendment to legislation extending jobless benefits, could receive a Senate vote this week.

Under the measure, the credit would run through April 30 of next year, though sales contracts in force by that date would be eligible as long as the deal closes within 60 days. The credit would amount to 10% of the sales price, with a maximum of $7,290. The current credit has a cap of $8,000.

To qualify, first-time home buyers must make no more than $75,000 a year or $ 150,000 for couples. For step up borrowers, the income caps are $125,000 for individuals and $250,000 for couples.

Many advise that you ask your lender to produce the note

Write-offs to Remember

Deductions in the Loan Process

Write-offs are the government's way of rewarding taxpayers when they've done something the government likes. And to judge by the write-offs, the government likes it when people borrow money to buy a house. There are write-offs aplenty, many of which people often forget.

Make sure your clients take advantage of every break the IRS will give. Here are a few they tend to forget:

Points:
According to the IRS, origination fees charged as points must be paid for the use of money, (for example, to obtain a lower interest rate) in order to be tax deductible. Origination fees that constitute a "service fee" are not tax deductible. The question must be asked, "Does the fee apply to the use of money, or is it a service charge?"

Pre-payment penalties:
Unforeseen circumstances often cause borrowers to pull out of their mortgages sooner than expected. Fortunately, pre-payment penalties are tax deductible, which helps ease the pain.

Pro-rated real estate taxes:
Even if the seller sent the tax collector the check, chances are the buyer paid a pro-rated portion of the taxes for the year at closing. Be sure they know to deduct their fair share.

Pro-rated mortgage interest:
Depending on when in the month the home sale closes, buyers pay either a hefty or a tiny amount of pro-rated mortgage interest for that month. Big or small, they can write that off. The Final Closing/Settlement Statement will show just how much they're due.

Home construction loan interest:
As long as the construction period doesn't last more than two years before they make the new place their "principal residence," they can write off the interest for that construction loan.

It pays to pay attention – all these write-offs can add up to some serious savings when tax time comes around.

Mortgage guidelines continue to change

The Banks have come up with new guidelines as they continue to figure out the best way to lend money to borrowers.  Michael McDermott from Primelanding states,

"Today we are seeing another turn of the metaphorical credit crescent wrench and it’s not a “lefty loosey” - it’s a “righty tighty.”  Fannie Mae (conventional loan giant) released its new regulations that will for the most part be effective come December 12^th (loan applications date).   Please look at #5 as this is a very big change that could have a major impact on your clients purchasing power and home buying plans.  Please plan accordingly remembering the 12/12/09 date.  Here is a list of the changes affecting your clients:

1.       New minimum FICO scores – 620 (most lenders were already using this as a floor)

2.    New adjustments for Flexible Mortgages (My Community, Flex 100  etc.  We will see these come back when we are no longer “declining)

3.       Elimination of “Expanded Approval” levels II and III (still have EA I – these are for “riskier loans)

4.       Credit Reports good for 90 days (already implemented but used to be 120 days)

5.     Total Expense Ratio will be capped at 45% (some exceptions up to 50% - rare)

The current expense ratio for Conventional Loans goes as high as 65% so cutting to 45% is a major change.  Please remember these changes are for Conventional Loans NOT FHA.  FHA currently allows strong/creditworthy borrowers to go up to 56.99% on their total expense ratio."

Looks like buyers will need to have a lot less debt before purchasing a home.  It may hurt a little at first, but in the long run - a good thing for borrowers!

Homeowners - strategically defaulting - continues to increase

Among researchers' findings are these eye-openers:

* The number of strategic defaults is far beyond most industry estimates -- 588,000 nationwide during 2008, more than double the total in 2007. They represented 18% of all serious delinquencies that extended for more than 60 days in last year's fourth quarter.

* Strategic defaulters often go straight from perfect payment histories to no mortgage payments at all. This is in stark contrast with most financially distressed borrowers, who try to keep paying on their mortgage even after they've fallen behind on other accounts.

* Strategic defaults are heavily concentrated in negative-equity markets where home values zoomed during the boom and have cratered since 2006. In California last year, the number of strategic defaults was 68 times higher than it was in 2005. In Florida it was 46 times higher. In most other parts of the country, defaults were about nine times higher in 2008 than in 2005.

* Two-thirds of strategic defaulters have only one mortgage -- the one they're walking away from on their primary homes. Individuals who have mortgages on multiple houses also have a higher likelihood of strategic default, but researchers believe that many of these walkaways are from investment properties or second homes.

* Homeowners with large mortgage balances generally are more likely to pull the plug than those with lower balances. Similarly, people with credit ratings in the two highest categories measured by VantageScore -- a joint scoring venture created by Experian and the two other national credit bureaus, Equifax and TransUnion -- are far more likely to default strategically than people in lower score categories.

* People who default strategically and lose their houses appear to understand the consequences of what they're doing. Piyush Tantia, an Oliver Wyman partner and a principal researcher on the study, said strategic defaulters "are clearly sophisticated," based on the patterns of selective payments observable in their credit files. For example, they tend not to default on home equity lines of credit until after they bail out on their main mortgages, sometimes to draw down more cash on the equity line.

Strategic defaulters may know that their credit scores will be severely depressed by their mortgage abandonment, Tantia said, but they appear to look at it as a business decision: "Well, I'm $200,000 in the hole on my house, and yes, I'll damage my credit," he said of defaulters. But they see it as the most practical solution under the circumstances.

The Experian-Wyman study does not try to explore the ethical or legal aspects of mortgage walkaways. But it does suggest that lenders and loan servicers take steps to screen and identify strategic defaulters in advance and possibly avoid offering them loan modifications, since they'll probably just re

$8,000 Home Buyer Tax Credit -
Ending Soon 

As we head into the fall, recent housing numbers and anecdotal evidence, suggests that home buying has certainly picked up. One of the reasons for the increase in home sales, outside of lower prices and interest rates, is the $8,000 first time home buyer tax credit. This credit applies to new home buyers (or those who have not owned a home in the past three years) and it comes to an end on Monday November 30, 2009.

What that means, is that in order to take advantage of this credit, your home purchase must close by that date. With most home closings taking between 30 and 45 days in the current market, that means we are getting closer and closer to the deadline to where new home buyers will be certain they will be able to take advantage of this credit.

For those that have interest in purchasing and obtaining the tax credit, now would be the time to act. Especially if you have concerns which may lengthen the process, such as credit or down payment issues that may affect the loan process.
In addition, there is also a negative in the positive that is increased buyers; that is a more difficult time in getting your purchase offer accepted. Home buyers and real estate agents in the current market have reported that multiple offers are common place on almost all bank owned homes in the current market. Meaning that it could take longer until you have your offer accepted, as you may end up having to bid on more than one property.

In addition, other transactions such as short sales, will typically take longer to close as well, as a third party bank must approve the sale.

What this all means is that this is certainly an opportune time to purchase, with the combination of affordability and tax credits in the current market for buyers. However, with the time length from start to finish of purchasing a home in the current market, November 30th is a lot closer then it may seem.