June 2009
HUD: Tax Credit Can Be Used on Closing Costs
FHA-approved lenders received the go-ahead to develop bridge-loan products that enable first-time buyers to use the benefits of the federal tax credit upfront, according to eagerly awaited guidance from the U.S. Department of Housing and Urban Development on so-called home buyer tax credit loans that was released today.
Under the guidance, FHA-approved lenders can develop bridge loans that home buyers can use to help cover their closing costs, buy down their interest rate, or put down more than the minimum 3.5 percent.
The loans can’t be used to cover the minimum 3.5 percent, senior HUD officials told reporters on a conference call Friday morning.
Thus, buyers applying for FHA-backed financing with an FHA-approved lender that offers a bridge-loan program can get a bridge loan to bring down the upfront costs of buying a home significantly but would still have to come up with the minimum 3.5 percent down-payment.
There remain many sources of assistance for buyers needing help with the 3.5 percent down-payment, including many state and local government instrumentalities and nonprofit lenders.
In addition, some state housing finance agencies have developed their own tax credit bridge loan programs, so buyers in states who’s HFAs offer such programs can monetize the tax credit upfront to cover all or part of their down-payment. These programs are separate from what HUD announced today.
The first-time homebuyer tax credit was enacted last year–and improved upon earlier this year–to help encourage households to enter the housing market while interest rates are low and affordability is high. The credit is worth up to $8,000 and is available to households that haven’t owned a home in at least three years. The credit does not have to be repaid, and is fully reimbursable, so households can get their credit returned to them in the form of a payment.
Predicting Mortgage Interest Rates
Factors Which Make Mortgage Rates Predictions Rise: Inflation
The so called ‘real interest rates’ are calculated assuming an inflation rate of zero. To get from the real interest rate to the ‘nominal interest rate’, which is what your bank will charge you for your mortgage, you add on the annualized percentage rate of inflation, so mortgage rates predictions will increase as inflation increases.
If nothing changes whatsoever in the housing market, but something changes elsewhere to create inflation (e.g., oil prices increase, raising the prices of gas at the pump, heating oil, and anything transported by road), then there will be upward pressure on interest rates, and mortgage rates predictions would have to take that upward pressure into account.
Factors Which Make Mortgage Rates Predictions Rise: Reduced Availability of Credit
Financial markets operate on supply and demand. Mortgage lenders generally borrow the money they lend for mortgages, or at least 90% of it. Mortgage rates predictions must take into account whether the supply of money is increasing or decreasing.
Factors Which Make Mortgage Rates Predictions Rise: Increased Risk
Apart from the market pricing factors, there is another factor which comes into play in any investment decision - risk. Mortgage rates in general will depend on the overall risk involved in the housing market.
In terms of mortgage rates predictions, the key factor is the likelihood of default by home owners, and the bank’s chance of getting their money back if a default occurs. The underlying driver of this likelihood is the LVR, or loan to value ratio. This is the average mortgage balance divided by the average house value. Mortgage rates predictions will be influenced by movements in housing valuations.
If house values plummet, as they have in some parts of the US, then the default risk for the banks suddenly increases, which means that they will be wanting to charge higher mortgage interest rates; predictions will take this upward pressure into account.
Factors Which Make Mortgage Rates Predictions Fall: Government Intervention
The US Government is an 800-pound gorilla in the financial markets. By issuing Treasury bonds at different interest rates, the government can influence the overall market for money, and thus affect the “real” interest rate. Mortgage rates predictions will consider Federal actions in the markets.
Mortgage rates predictions need to take into account the political imperatives as well as the purely economic influences on interest rates. Voters are particularly sensitive to losing their homes in large numbers, and the government is keen to avoid the scenario in which interest rates go up, and more homes are foreclosed, only to be sold into a plummeting market, further worsening the oversupply problem in residential housing.
Everyone, the government, banks, and home owners, are in agreement that this is an outcome to be avoided. Mortgage rates predictions based on purely economic considerations might indicate that mortgage interest rates are due to rise, but while the political pressure is running high, and in an election year, the government will do everything in its power, however economically irresponsible in the long term, to push the interest rate rises off until after the November elections. Mortgage rates predictions must take this political distortion of the financial markets into account.
Mortgage rates predictions are more complicated than weather predictions, because political factors influence mortgage rates predictions. This doesn’t make accurate mortgage rates predictions impossible, of course, but it requires more than just a mathematical model to make accurate mortgage rates predictions - it takes a good political “nose” as well!
Consumer Education, 101 cont.
Escrow Account Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.
Escrow Disbursement The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
Examination of Title The report on the title of a property from the public records or an abstract of the title.
Exclusive Listing A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.
Fair Credit Reporting Act A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.
Fair Market Value The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.
Fannie Mae’s Community Home Buyer’s Program An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family’s buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.
Federal Housing Administration (FHA) An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.
May 2009
Jumbo Mortgage Market is holding recovery back.
Limited availability and unusually high interest rates in the jumbo loan market are adversely affecting the rest of the housing market. This is just one of the insights from recent National Association of Realtors® research on the impact of jumbo Mortgage credit crunch. .
The ongoing credit crunch in the jumbo mortgage market has stalled home sales of high-priced homes, despite some recovery taking place in some mid- and low-priced home markets.
Although legislation earlier this year increased the conforming loan limit to as much as $729,750 in high-cost areas, the mortgage market now has three primary types of loans. Loans up to $417,000 are considered “conforming,” loans between $417,000 and $729,500 are “conforming jumbo,” and loans over $729,500 are “super-jumbo.” Although conforming mortgage rates are at 50-year lows, jumbo loans in general continue to remain very costly.
“Lenders are keeping credit standards overly stringent for borrowers at the higher end of the market, and are increasingly reluctant to make jumbo loans,” said NAR Chief Economist Lawrence Yun. “The interest rate spread between 10-year treasuries and jumbo loans has also substantially increased, making jumbo loans much more costly than has previously been the case. Many people believe that the jumbo market is for the very rich, but in many areas of the country, middle-class families need these loans to buy a median-priced home.”
States that have the highest percentage of jumbo mortgages include Hawaii (43 percent of all loans are above $417,000), California (41 percent), the District of Columbia (30 percent) and New York (22 percent). In eight more states, jumbo mortgages comprise 10 percent or more of all loans in those states (New Jersey, Maryland, Massachusetts, Virginia, Connecticut, Washington, Nevada and Florida).
The resulting increased inventory of homes for sale has already doubled defaults from one year ago and will hamper a broader housing market recovery, which in turn will limit economic recovery. This also affects refinancing activity. “The inability of homeowners to refinance their jumbo loans is holding back potential consumer spending for the overall economy,” said Yun. “If they had the opportunity to refinance into historically lower mortgage rates, many current jumbo mortgage holders could save $6,000 to $15,000 in annual interest costs.”
To resolve these issues in the jumbo mortgage market, NAR advocates that Congress and the administration make permanent the current rules for determining limits that apply in 2009, use the Term Asset-Backed Securities Loan Facility (TALF) to buy jumbo loans, and increase lender competition by loosening warehouse line of credit. Realtors® will be meeting with legislators and policymakers this week to discuss these and other initiatives that will help stabilize the housing market and help lead to a quicker broad economic recovery.
Consumer Education 101 - cont.
Down Payment The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
Due-on-sale provision A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.
Earnest money deposit A deposit made by the potential home buyer to show that he or she is serious about buying the house.
Easement A right of way giving persons other than the owner access to or over a property.
Effective age An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.
Eminent domain The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.
Encroachment An improvement that intrudes illegally on another’s property.
Encumbrance Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
Equity A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.
Escrow An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
April 2009
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| By Jim Garamone American Forces Press Service |
Consumer Education 101 - cont.
Credit Report A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.
Default Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.
Delinquency Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a “late fee” for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.
Deposit A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an “earnest money deposit.”
Depreciation A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.
Discount points In the mortgage industry, this term is usually used in only in reference to government loans, meaning FHA and VA loans. Discount points refer to any “points” paid in addition to the one percent loan origination fee. A “point” is one percent of the loan amount.
March 2009 – Happy St Patrick’s Day!
Some specifics on…
American Recovery and Reinvestment Act of 2009
Homebuyer Tax Credit - The bill provides for an $8,000 tax credit that would be available to first-time home buyers for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009. The credit does not require repayment. Most of the mechanics of the credit will be the same as under the 2008 rules: the credit will be claimed on a tax return to reduce the purchaser’s income tax liability. If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser.
Commercial Real Estate - Commercial real estate is impacted primarily through those provisions of the bill focused on green building and energy efficiency as well as business tax incentives. H.R. 1 provides significant funds for state energy programs, which could be used to support commercial property owners’ investment in energy efficiency upgrades while commercial property owners seeking to invest in alternative energy systems for onsite power generation would benefit from the Department of Energy Renewable Energy Loan Guarantees Program. Of particular benefit to small businesses would be certain provisions of the bill that provide tax relief in the area of bonus depreciation and capital expenditures, as well as the 5-Year carry-back of net operating losses for small businesses.
Energy Efficient Housing Tax Credits and Grants - To promote green jobs and energy independence, ARRA invests significantly in efforts to make homes and buildings more energy efficient. The bill provides state and local governments with $6 billion in energy efficiency and conservation grants for energy audits, retrofits and financial incentives. Through 2010, homeowners will be able to claim a 30% tax credit (up from 10%) for purchases of new furnaces, windows and insulation. Another $5 billion will be available to modernize the nation’s electricity grid and install smart meters on homes that help to save consumers money. There is also $5 billion for weatherization assistance for low income households and $2 billion for federally assisted housing efficiency efforts.
Consumer education 101 Cont…
Cloud on Title- Any conditions revealed by a title search that adversely affects the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.
Collection - When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to “collection.” As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.
Commission - Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.
Common area assessments - In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.
Common areas - Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
Comparable sales - Recent sales of similar properties in nearby areas and used to help determine the market value of a property, also referred to as comps.
Condominium - A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.
Construction loan - A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
Contingency - A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
Conventional Mortgage - Refers to home loans other than government loans (VA and FHA).
Credit History - A record of an individual’s repayment of debt. Credit Histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.
February 09
The Affordable Housing Council of Lebanon County, Inc
39 North Twelfth Street, Lebanon, PA 17046
717-273-9326
Offers FREE home pre-purchase classes….
Covering information such as…..
* Shopping for a house and mortgage
* Budgeting to save for your first home
* Understanding Credit
* Avoiding Predatory Lending
* And much More!
Classes held 3 times a month up until November 2009. Call for class dates and times and reserve your seat now!!!
A completion certificate is offered upon completion to allow qualification for special mortgage programs!
Consumer Education 101: cont.
Buy Down Usually refers to a fixed rate mortgage where the interest rate is “bought down” for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower’s payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A “lender funded buy down” is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buy down adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to “qualify” at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.
Cap Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as “caps.” Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.
Certificate of eligibility A document issued by the Veterans Administration that certifies a veteran’s eligibility for a VA loan.
Certificate of reasonable value (CRV) Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.
Chain of title An analysis of the transfers of title to a piece of property over the years.
Clear title A title that is free of liens or legal questions as to ownership of the property.
Closing This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents record at the local recorder’s office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands.
Closing costs Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.
January 09 - Happy New Year!
Cont: Educating the Home Buying and Selling Public
Assumable Mortgages - A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must “qualify” in order to assume the loan.
Assumptions -The term applied when a buyer assumes the seller’s mortgage. These are rare the last 10 or more years.
Ballon Mortgages - A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.
Bi-weekly Mortgages - A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage.Reminder : There are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty year mortgage. They charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to make the additional payment which will then be paid to reduce your principle. You could save money by doing the same thing yourself, plus you have to have faith that once you transfer money to them that they will actually transfer your funds to your lender.
Bridge Loans - Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property. These have become more accepted in today’s slower market.
Broker - Broker has several meanings in different situations. Most Realtors are “agents” who work under a “broker.” Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.
Cont: Things not to do before buying a home: Don’t change jobs if you don’t have to. The lenders like to see consistency versus constant job hopping. If you are just miserable with your job, maybe you can switch to a different job within the same field. Or you can tough it out until you have the house and then start putting out resumes.
December 08
This Issue: Educating the Home Buying and Selling Public
Common Real Estate and Mortgage Terms explained & Things Not to Do before Purchasing a Home
Amortization: The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.
Annual percentage rate (APR): This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only uses this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual note rate on your loan.
Appraisal: A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
Appraised value: Is an opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
Appreciation: The increase in the value of a property due to changes in market conditions, inflation, or other causes.
Assessed value: The valuation placed on property by a public tax assessor for purposes of taxation.
Some things Not to Do before Purchasing a Home
Do not make any major purchases: Do not buy a car or any major purchase that would create debt. This includes furniture, appliances, electronic equipment, jewelry, vacations, or expensive items that run up credit cards. Do not move your money around, nor change banks during loan process: Lenders review loan packages before approval; one of the things they are concerned about is the source of funds for your down payment and closing costs. You will almost certainly be asked to provide statements for the last two or three months on any of your assets.
This may include checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and 401K - retirement accounts. If you had moved money between accounts or banks, the mortgage underwriter (loan approver) will likely require an inclusive paper trail of all the withdrawals and deposits. You may be required to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could become a tedious process. Leave your money where it is until you talk to a loan officer.
November 08
Home Projects’ Best Remodeling Paybacks
Exterior home remodeling projects led the way for the recovery of money spent on home sale. Replacement or remodeling projects that boosts home curb appeal, such as siding, windows, and decks, gave the best project paybacks.
A wood deck recouped about 82% of the costs for installation, Vinyl siding recouped about 81%, Windows brought back around 78%, and interior wise, Kitchen upgrades recouped around 78%.
Increased Housing Demand will Stabilize the Market
In a statement to the House Financial Services Committee today, the National Association of Realtors® recommended a four-point plan to stimulate home sales and stabilize housing valuations.
“The only way to overcome today’s economic turmoil is to motivate and encourage worried or cautious housing consumers to enter the marketplace,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “Stabilizing the housing market will lead to a quicker and greater economic recovery. Our goal is to ensure there is a healthy market and sufficient capital to support mortgage lending to qualified borrowers.”
NAR developed the plan for consideration by the current lame-duck session of Congress, and for the 111th Congress and the new administration. The four-point plan’s principles are consumer-driven to help foster a housing recovery to support an economic rebound. The plan calls for eliminating the repayment of the first-time home buyer tax credit that was passed in the February stimulus bill, and to expand the tax credit to include all home buyers. The plan also recommends making the increased FHA and conventional loan limits permanent to stimulate home sales and stabilize prices. In addition, the plan urges that the Troubled Asset Relief Program be put back on track by targeting the funds for mortgage relief through a mortgage interest rate buy-down. Finally, the plan recommends finalizing legislation to prohibit banks from entering into the business of real estate brokerage and property management.
“The federal government must ensure there is sufficient capital to support mortgage lending not only in strong markets but also in tumultuous ones,” said McMillan. “Realtors® are frustrated with the current mortgage lending environment that places a variety of barriers on families who wish to buy a home, impeding sales and price stabilization. We look forward to working with the Congress and the new administration to transition out of current instabilities and move toward strong and stable financial and housing markets.”
Home price are rising in some Metros, Buyers more active in other areas
Four out of five metropolitan areas recorded lower home prices in the third quarter from a year earlier, while existing-home sales fell in 32 states from the second quarter, according to the latest quarterly survey by the National Association of Realtors®.
In the third quarter, 28 out of 152 metropolitan statistical areas ¹ showed increases in median existing single-family home prices from the same quarter in 2007; four were unchanged and 120 metros experienced declines. NAR’s track of metro area home prices dates back to 1979.
Total state existing-home sales, including single-family and condo, were at a seasonally adjusted annual rate² of 5.04 million units in the third quarter, up 2.6 percent from 4.91 million units in the second quarter, but remain 7.7 percent below the 5.46 million-unit pace in the third quarter of 2007.
Lawrence Yun, NAR chief economist, said conditions continue to range widely. “A pattern of sharply higher sales in areas with large price declines is well established,” Yun said. “Affordability conditions have consistently been a major factor in driving sales. Historically during recessions, buyers have responded to incentives and it’s important for government to keep that in the forefront of stimulus decisions.”
Homeowner Wealth
60% OF THE AVERAGE HOMEOWNER’S WEALTH COMES FROM THEIR HOME’S EQUITY. IT’S LIKE A SAVINGS PLAN YOU DIDN’T KNOW YOU HAD.
You might be wondering if buying a home right now is a smart financial decision. The fact is homeownership is key to building long-term wealth no matter when someone buys. Studies show that, over time, most homeowners will steadily build equity. For example, during the past three decades, home values have increased an average of more than 6.0% per year. Of course, owning a home is much more than a way to gain a financial edge, it’s also where you raise a family and create life-long memories. Work with a REALTOR®, a member of the National Association of REALTORS®, they can show you options in your area that best fit your situation. To learn more, visit HousingMarketFacts.com.
October 08
Pending Home Sales Up
Pending home sales activity surged as buyers took advantage of low home prices and affordable interest rates, according to the National Association of Realtors®.
The Pending Home Sales Index,1 a forward-looking indicator based on contracts signed in August, jumped 7.4 percent to 93.4 from an upwardly revised reading of 87.0 in July, and is 8.8 percent higher than August 2007 when it stood at 85.8. The index is at the highest level since June 2007 when it stood at 101.4.
House passes Economic Stability Act
“The National Association of Realtors® is truly relieved that members of the U.S. House of Representatives, like their counterparts in the Senate, were able to come together in a bipartisan effort to pass the Emergency Economic Stability Act of 2008. As we have been saying, this legislation is critical to stopping the economic turmoil that millions of Americans are facing. Today’s action will go a long way toward ending the current economic crisis crippling the housing and financial markets.
“This legislation would quickly restore liquidity to the mortgage market, which would stabilize the housing market and protect homeowners. Mortgages as well as personal and small business loans would become more available and less costly. Protecting Main Street not only benefits individuals, families and communities, but also supports the larger U.S. economy.
VA Law will serve those who serve our country
Veterans across America now have expanded homeownership opportunities, thanks to the Veterans’ Benefits Improvement Act of 2008. Today President George W. Bush signed the bill into law, which includes housing provisions for veterans who are already homeowners and those who aspire to homeownership, according to the National Association of Realtors®.
Your Tax Dollars at Work
There’s been a lot in the news recently about the government takeover of government-sponsored enterprises Fannie Mae and Freddie Mac. But what does that mean for the real estate market?
These GSEs guarantee more than 40 percent of the nation’s mortgages and own or guarantee more than $5 trillion worth of mortgages, so assuring their continued operation is crucial in the current economic environment.
The government’s actions aimed to restore confidence and bring stability and continued liquidity to the nation’s mortgage market.
Interest rates came down immediately after the takeover, and it’s likely that this will keep them low for some time to come.
Buyers benefit from lower rates, and sellers benefit from the increased demand created by buyers entering the market.
September 08
Wealth Building, Home Ownership, and Veteran’s Housing Bill
Time-honored Wealth Builders: Home Ownership
A wealth of housing data clearly demonstrates that housing is a good long-term investment. According to a study by the U.S. Department of Housing and Urban Development, 60 percent of a homeowner’s wealth is from the equity they have built in their home. A Federal Reserve study has shown that the average homeowner’s net worth is 46 times the net worth of the average renter.
Home Ownership, stock market and traditional returns
Over the past 30 years, the median price of existing homes has increased an average of more than 6 percent every year, and home values nearly double every 10 years, according to historical data from NAR’s existing home-sales series. Thanks to the power of leverage, a homeowner’s return on investment is even more impressive over time.
For example, over 10 years, a $10,000 investment in the stock market at a normal 10 percent market rate of return would yield $23,600. The same investment as a down payment on a $200,000 home at a normal appreciation rate of 5 percent would return nearly 5 times the stock market return, at $110,300.
Housing Provision for Veterans
Today’s passage by the House of Representatives of the Veterans Construction and Extension Act of 2008 would benefit veterans across America who is homeowners as well as those who aspire to homeownership, according to the National Association of Realtors®.
The House passed H.R. 6832 in a bipartisan effort. “As leading advocates for housing issues, Realtors® have a long history of supporting veterans and the causes that matter to them, such as affordable housing,” said NAR President Richard Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif. “Our 1.2 million members appreciate the leadership of Reps. Bob Filner, D-Calif., and Steve Buyer, R-Ind., in helping pass this legislation, which will go a long way in helping veterans buy and keep their homes.”
Three provisions in the legislation are critical to help veterans during the current housing turmoil. H.R. 6832 would help more veterans who are homeowners refinance their loans into safer, more affordable loans backed by the U.S. Department of Veterans Affairs (VA loans). This would benefit veterans who have fallen victim to risky subprime loans that will be unaffordable when their adjustable interest rate resets. In addition, the legislation would make VA loan limit increases permanent, helping veterans who live in high-cost areas. The bill would also extend the VA’s authority to offer adjustable-rate mortgages to veterans. That measure would make homeownership more attainable for military families and personnel who often have to move more frequently than their civilian counterparts.
August 08
The Senate has approved a major housing stimulus package.
This bill contains several provisions to help home buyers, stop the slide in home prices, provide a lifeline to borrowers facing foreclosure,
H.R. 3221, the Housing and Economic Recovery Act of 2008, includes several provisions aimed at ending the current cyclical downturn in the housing industry and strengthening the housing finance system so that it will provide critical support as the marketplace gains strength.
The House on July 23 approved the legislation by a vote of 272 to 152, sending the measure back to the Senate.
The key elements of the bill are:
~ A temporary first-time home buyer tax credit. The tax credit will stimulate home buying, reduce excess supply in housing markets and shore up home prices.
~ FHA modernization. A revitalized FHA will have greater flexibility to respond to the needs of borrowers, enable more working families to become home owners and play an important role in the mortgage markets. To address the foreclosure crisis, the FHA will guarantee up to $300 billion to refinance troubled mortgages with federal insurance.
~ GSE (government-sponsored enterprise) reform. The law reforms the regulation of Fannie Mae and Freddie Mac and permanently increases the conforming loan limit to help buyers in high-cost markets. To reassure financial and global markets, the government will temporarily expand its line of credit to Fannie and Freddie and permit the U.S. Treasury to purchase an equity stake in the companies through the end of 2009.
~ Mortgage Revenue Bond Program. The measure gives states the ability to issue an additional $11 billion in mortgage revenue bonds, which will help strapped borrowers seeking to refinance their home loans.
~ Low Income Housing Tax Credit. Enhancing this program will expand the supply of much-needed affordable rental housing.
Tax Credit Centerpiece of Housing Bill
The centerpiece of the housing bill is a temporary, $7,500 first-time home buyer tax credit for the purchase of any home. The tax credit can be used for a home sale closing on or after April 9, 2008 and before July 1, 2009. It is expected to provide a significant financial incentive for home buyers.
Once President Bush signs the legislation into law, NAHB will launch a new Web site (www.federalhousingtaxcredit.com) which includes a set of comprehensive questions and answers about how the credit works and how consumers can put it to their advantage.
Further resources to help NAHB members promote consumer awareness about the credit will also be available at (www.nahb.org/mythbuster).
First Time Home Buyers Informational Web Site
http://www.federalhousingtaxcredit.com/
July 08
Cabinets Unhinged
By Marni Jameson
If I had to do it over (that line could open half my columns), I’d rethink my cabinet hardware. Until this past week, I hadn’t given this hardware much thought. I liked my kitchen cabinets, which are only four years old. The drawers glide smoothly like Michelle Kwan, and the door hinges feel sturdy as firemen. But recently two events conspired to change my affections.
One, I visited my friend’s new home, which she and her husband spent three years designing and building. A kitchen diva, Laurie cooks and entertains like an Oscar-party caterer, so I knew her kitchen would be, err, top drawer (sorry). Two, I received a preview of The New Yankee Workshop’s nine-week kitchen makeover special, where the plaid-shirted Norm Abram, that carpenter who can build a log cabin out of an abandoned beaver dam, outfits a tired old kitchen with smart new cabinetry. Suddenly, my hardware seemed out of date, second rate and wholly inadequate, the way parents of college graduates feel.
When I get to Laurie’s house, she’s cooking dinner for her 16-year-old son and 24 of his friends. I pitch in to assemble five pans of vegetarian lasagna, two vats of Caesar salad, and three trays of garlic bread. As she dredges eggplant and stirs a gallon pot of bichamel (a word that in my recipe book means turn the page or order pizza), I snoop.
Her kitchen is enormous, but my obsession isn’t with size, but with drawers. I pull one open, swoosh. It’s fastidiously organized with compartments like a tackle box. I look it over.
“Where is it?” I ask.
“Where’s what?” She must wonder why my head is under her drawer.
“The hardware.” There’s no drawer orthodontia cluttering the sides, waiting to catch crumbs and grease.
She shrugs. “Does the lasagna need more cheese?”
Then I meet the invisible hand. With a tap, the drawer slides to an inch of closing, then stops as if it hit a cotton ball. Just as I’m ready to push it again, a vacuum-like force sucks the drawer silently, firmly shut. I scream and jump back.
I holler to Laurie as if I’m the one who’s discovered it: “Watch this!” I open a drawer and shut it, harder. It slows to a controlled stop, then swoosh, sucks closed. I need to tie a strap under my jaw to keep it from falling in the lasagna. “How does it know?”
“Uhh, when you’re done, could you toss salad?”
When dinner’s ready, the teenagers come through like locusts. Once they’ve gone, and we’ve cleaned up, Laurie offers coffee. “What kind do you want?” she asks.
“Whatever you’re having.”
“No, seriously, you can have whatever you want.” She shows me her built-in Miele espresso machine. The appliance has cartridge slots for five kinds of coffee, ranging in octane levels from hair-on-your-chest strong to why-bother decaf. Pick your strength, and it brews espresso, latte or drip by the cup.
I shake my head. “Is this Jane Jetson’s kitchen or yours?”
Laurie slides open a drawer built under the coffee maker. In it are not just mugs, warm mugs, because this isn’t just a drawer; it’s a mug warming drawer.
The longer I stay, the more unfaithful I feel toward my own comparatively modest kitchen. I was falling in love. That’s the inevitable risk of home improvement. However up to date you make your kitchen, advancing technology sits on the verge making it as outdated as the wood-burning stove. Still, knowing that, if I had to do it over, I’d rethink the hardware, and I’d add that warming drawer.
I became even more smitten with high-tech kitchen gadgetry when I returned home and previewed The New Yankee Workshop kitchen series, airing this month and next on PBS. After watching it, I called Abram to uncover a few more secrets and trends:
* Design with your stuff in mind. Kitchen designers use several methods to customize kitchens. Using a string test, they tie a string to someone and trace her steps as she cooks. Then they design a cabinet plan that saves footsteps. The heap method involves putting all your kitchen stuff in a pile, and then designing cabinets to accommodate it, which beats making what you have fit given cabinets. Laurie took pictures of her kitchen supplies while they were in the cabinets of her former home, then made sure her new kitchen had a place for everything and more. The owner of the kitchen Abram was remodeling had 14-inch plates; standard upper cabinets are 12-inches deep. “Simple,” Abram said. “We made the cabinet deeper.”
* Don’t skimp on the hardware. Typically, hardware comes rated for two kinds of loads: carrying ability and shock capacity. (Can your kid jump on it?) The higher the load the better. Both Laurie and Norm used hardware from Blum.
* Trade doors for drawers. Thanks to better hardware, cabinets with fixed shelves are giving way to cabinets with pullout shelves or drawers. Laurie’s kitchen has upper cabinets, but for lower storage she has primarily drawers. She will never again rummage in the back of a cabinet for a pot.
* Bring dead corners to life. Corner cabinets often become black holes; things go in but never return. New cabinet designs fix that. Drawers have fronts built at a 90-degree angle that pull open to reveal full drawers. Doors open on elbow hinges, revealing shelves that turn like Lazy Susans.
* Replace don’t retrofit. Putting new hardware on old cabinets is expensive, difficult and usually not worth it. “If you’re ready to replace the hardware, you’re getting close to the idea of new cabinets,” said Abram.
The difference between Mortgage Pre-Approval, Pre-Qualification and Commitment
June 08
Mortgage approval is an important aspect of home purchases that most all buyers need to attend to prior to looking for and making an offer on a home.
Mortgage Pre-Qualification is generally a process where a buyer contacts a Mortgage Lender, often on the telephone, who then asks the buyer to provide some personal financial and work history information. The information requested involves a current address and how long living there, a social security number and permission to order a credit report, annual income and hopefully the amount of down payment that can be put on a home.
The difference between the three is in the documentation, verification and underwriting. Home buyers providing copies of income statements, paystubs and bank account statements to Mortgage Lenders are typically getting pre-approved, whereas Mortgage Lenders simply relying on verbal information provided by buyers is simply a pre-qualification. More often than not, the difference between the two is that one is issued without any verification of information, while the other the buyer provides written documentation of all information requested by the lender. Although neither is a considered to be a mortgage commitment, a Mortgage Pre-Approval letter is more preferred to ensure buyers a better chance for obtaining a loan. Mortgage commitments, usually a week or so before closing on the home, mean buyers have been approved for the loan after all requested documentation has been submitted and reviewed by the lender’s loan underwriters.
The mortgage application process involves somewhat standard underwriting criteria and guidelines for each particular type mortgage, whether the mortgage is VA, FHA or Conventional. The varying underwriting criteria involves guidelines for verification of income, income qualifying ratios, verification of down payment, cash reserves after closing, credit check scores and work history, among others.
Mortgage Lenders requiring more thorough processes in Mortgage Pre-Approvals is preferred to ensure eligibility for loans in the amounts requested by buyers. In addition to obtaining a credit report, many lenders require the buyer to provide proof of two years of work history, pay-stubs or income tax forms, copies of bank statements for source of funds verification, and copies of charge card statements.
With the thorough Mortgage Pre-Approval the buyer will have confidence in an affordable price range and have more confidence in obtaining final mortgage commitment. Moreover, in submitting offers, sellers will know they have a serious buyer who has taken the time to arrange for mortgage financing first. Just as important, the buyer can be more relaxed in spending money to hire an Attorney, if requested, for contract review, providing the earnest money deposit, hiring a home inspector to perform home inspections, termite inspections, radon inspections plus any other required inspections and paying for the mortgage application and appraisal fee.
By going through a more in-depth mortgage approval process prior to making an offer on any home, buyers can concentrate more on the home purchase and moving preparations, and not worry about any difficulties in the final approval process after finding a home.
Housing Relief & Higher Loans
Limits Approved - May 08
The National Association of Realtors® expressed appreciation to Senate Banking Committee Chairman Christopher Dodd, D-Conn., and Ranking Member Richard Shelby, R-Ala., for their efforts to bring forth a bipartisan bill that can bring stability to the housing market and help stem the rising rate of foreclosures. Today, the committee voted to pass the Federal Housing Finance Regulatory Reform Act of 2008.
“Our 1.2 million Realtor® members appreciate the hard work and commitment of the Senate Banking Committee in advancing legislation that will help people buy and keep their homes,” said NAR President Richard Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif.
NAR expressed ongoing support for all the major features in the housing package passed earlier this month by the U.S. House of Representatives, and for the government-sponsored enterprise (GSE) reform (Fannie Mae and Freddie Mac) and Federal Housing Administration foreclosure prevention measure included in the Senate bill.
“We are pleased with the overall direction of this bill,” Gaylord said. “As Senators Dodd and Shelby noted, this legislation is good for both the housing market and the homeowner. However, we continue to strive for permanent increases to the conforming loan limits at the higher level passed by the House. This truly would be good for current and future homeowners.”
Realtors® have long advocated reform of Fannie Mae and Freddie Mac, as well as permanent loan limit increases for the GSEs and FHA. “This legislation, reforming the Fannie Mae and Freddie Mac and creating a refinancing program designed to stem foreclosures, should help thousands of families refinance existing mortgages and keep their homes,” said Gaylord.
“We look forward to working with the House and Senate to finalize an aggressive bill that will ensure that every American who can afford to own a home and aspires to do so will have that opportunity, and that every American who responsibly owns a home is able to keep it,” said Gaylord.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.
Tax Changes for 2008 - Apr 08
Plan now for 2008 tax changes to save money on taxes
~ More money for retirement: You can contribute up to $5,000 to an IRA and $6,000 if over 50 years old
~ No state sales tax breaks: The provision allowing tax payers to deduct state sales tax expired in 2007
~ More tax breaks for retirement: Married tax payers with joint incomes up to $85,000 will be allowed to deduct IRA contributions if filing jointly. Individuals with incomes up to $53,000 can take the deduction
~ Higher standard deductions: If you are one of the two-thirds of taxpayers who do not itemize, you will be able to deduct $10,900 as a married couple filing jointly or $5,450 for singles
~ No tax on some capital gains: Joint filers whose taxable income does not exceed $65,100 and single filers with income that does not exceed $32,550 do not have to pay any tax on capital gains they realize in 2008 - the rate for other tax payers remains at 15 percent
~ More time to sell your house when you lose a spouse: Tax payers who lose a spouse now have up to 2 years after that death to take the maximum exclusion of $500,000 in gain on the sale of a principal residence. The other requirements for the exclusion must have been met before the death
~ Less money back for some hybrid cars: While buying a hybrid car can still save you on your taxes, the tax credit has been phased out on many popular models such as the Toyota Prius. Look at the 2008 Model Year Hybrid list at www.irs.gov before you buy
~ Tougher tax for kids: Children under 18 or full time students up to 24 years old will pay taxes at their parent’s tax rates for investment income over $1,700. This does not apply to wages a child earns
~ Higher cut offs for Social Security: The maximum amount of earnings subject to social security tax increases to $102,000 in 2008.
~ More money for gas: The standard mileage deduction for businesses increase to 50.5 cents per mile. Mileage rates for medical and moving purposes actually falls to 19 cents per mile.
Home Financing Basics - Mar 08
Home Financing 101
Buying a home? Welcome to the wonderful world of home financing. A home mortgage is a long term loan that allows you to gain control of a very expensive asset without using all of your own money. The property becomes collateral for the loan which ensures that there is sufficient value to justify lending a large amount of capital. The mortgage will be a loan for a long period of time. This is referred to as the “life” of the mortgage or the “amortization period.” Typically the life of the loan will be for 10 to 25 years. Though some mortgages can extend to 50 years or more. The life of the mortgage may be for a long period of time but the term of the mortgage will be shorter. The term of the mortgage is the time period for which the mortgage rates apply. This is usually 5 years. At the end of the term your mortgage must be refinanced. Mortgage terms are shorter due to fluctuations in interest rates. The rates for a mortgage are largely dependant on current interest rates. Your mortgage will either lock in a rate for the 5 year term or the rate will float with changing interest rates. At the end of the term you will refinance your home with a new mortgage at the interest rates that apply at that time.
Why Get a Pre-Approved Mortgage?
Being pre-approved for your mortgage makes the home buying process easier. This will allow you to know what the maximum price you can spend on a home. Having your financing already set-up will impress the seller of the home and may make your offer more attractive over a buyer that has yet to apply for a mortgage. Getting a mortgage is easier than ever. Interest rates are low and lenders are competing for your mortgage business. You can apply for a mortgage online and receive approval in a short period of time. Online mortgage brokers like Loan.com can help you find the best rates on a mortgage regardless of your credit history.
Types of Mortgages
Conventional Mortgages:
A conventional mortgage will have a fixed interest rate. They typically come in 10, 15 or 30-year loans. These conventional loans used to require 20% down but many today will accept a lower down payment. Putting down 10% is what most home buyers do, though you will be required to purchase private mortgage (PMI) insurance if you put down less than 20%.First-time homeowners will find that there are many mortgages available to them that require less than a 10% down payment. (Highly recommended mortgages for those on long term fixed incomes).
Adjustable Rate Mortgages (ARM):
An adjustable rate mortgage will have an interest rate that changes with current market rates. An adjustable rate mortgage is most useful when you are planning to own the home for a short period of time. In today’s low interest rate climate a locked in rate may be advisable if you plan to own the home for many years. This will keep your payments steady as interest rates climb over the coming years. Before committing to an adjustable rate loan ask yourself how you can afford your mortgage payment to increase by should rates rise significantly before the end of your term. (Be cautious of adjustable rate mortgages since they can adjust upwards increasing monthly payment amounts significantly: Be sure that you are able to cover any future increases before choosing an ARM).
Bridge Loan:
A bridge loan is used when you purchase a home before your current property sells. The bridge loan is temporary until a permanent one is in place. Carrying a bridge loan will mean making two mortgage payments on the two properties till on of them sell. This will greatly increase your monthly expenditures while the bridge loan is in place so be certain you can afford to make both payments.
Assumable Mortgages:
An assumable mortgage is a loan that stays with the property. It is simply transferred to the qualified home buyer. This means considerable savings for the next buyer. It may include no points, no interest rate change and low closing costs. Assumable mortgages are often the most valuable part of a property. FHA loans given before December 1, 1986 and VA loans given before March 1,1988 are completely assumable to the qualified buyer. This means that you can take the loan along with the real estate, just as it stands.
FHA Mortgages:
Loans through The Federal Housing Administration (FHA) help low-to-moderate income home buyers purchase homes with low down payments (approximately 3%). You can use a gift or unsecured loan for the down payment and closing costs. Also, these loans are usually assumable (along with the current interest rate) by the next qualified home owner when you sell your home, which is an added benefit when it comes time to sell.
Balloon Mortgages:
The Balloon Mortgage has a fixed rate for a certain time frame, typically seven years, followed by a “balloon” payment requiring repayment of the entire home loan balance. Interest rates are generally lower than conventional loans. People may choose this type of loan because they plan on either selling the home, paying it off, or refinancing before the balloon payment is due.
VA Mortgages:
Veteran Affairs loans are great because they provide the opportunity to buy a home with no down payment. They are offered up to a predetermined loan amount (not more than $200,000) and are assumable by qualified buyers. To qualify for a VA loan, the veteran must be on active duty or have a discharge (other than dishonorable), along with one of the following:
* 180 days active (not reserve) duty between September 16, 1940 and September 7, 1980
* 90 days service during a war (Korean, Vietnam, Persian Gulf, etc.)
* Six years service in the National Guard
