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FHA Mortgage Insurance Changes & How They May Impact a Sale

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FHA loan billboard
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You may have heard that costs surrounding FHA loans is changing in October, reducing the dollar amount needed at closing for Upfront Mortgage Insurance, while increasing the monthly portion of mortgage insurance that is added to a homeowner’s payment.

If you have previously been approved for an FHA loan but haven’t yet found a home, you’ll want to be sure to factor in the larger payment requirement into your budget, along with contacting your home loan advisor to be sure that your preapproval is still valid for the higher payment amount. You may also want to consult with your advisor to see if a different mortgage program might now be more attractive.

If you are a Seller, you may be expecting to contribute towards a Buyer’s closing costs, which are dropping considerably when the Buyer uses an FHA loan. In the past, I’ve suggested to a Seller that the buyer’s closing costs could easily total 3-4% of the purchase price. With the 1.25% drop in upfront mortgage insurance, contribution towards closing costs may be less hurtful towards your net amount at closing, thus perhaps becoming an attractive marketing tool.

Monthly Mortgage Insurance for FHA Increases October 4th:  For FHA case numbers that are assigned after October 4th, FHA will

  • decrease the Upfront Mortgage Insurance premium from 2.25% to 1.0%. 
  • increase the monthly mortgage insurance premium from .50%- .55% to .85% – .90%, depending on the combined loan to value.

My trusted Mortgage Advisor sent along this chart to help you understand how this will affect a homebuyer’s mortgage:

Sale Price

Increase in Payment

Decrease in Upfront MIP

$250,000

$54.17

$3015.63

$350,000

$75.85

$4422.03

$450,000

$97.62

$5428.48

$550,000

$118.53

$6588.87

Buy Now? … or Wait?

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I bought my first home in the mid-’70’s, and then bought again in about 1983. Even though interest rates were “obscene,” (seems like ours was somewhere around 17.5%) somehow we managed to make it work. Builders and sellers routinely bought down rates and prices were considerably lower.

I was reminded of this fact this morning when receiving a marketing piece by one of my favorite statistical companies, Estate of Mind. Simple little graphs like this one provide such a powerful visual guide of just how far interest rates have dropped and the resulting impact in purchasing power.

Now, granted, $1,500 was certainly a lot more money in the pocket in 1981 than it is now … and a home at just over $100,000 at least compared with the the $300,000 home in today’s market. (That cute little 3 bed/1.75 bath 1300 square foot house we bought at $89k is now worth about $250k.)

But what this graph does show is, on the short term, that $1,500 at today’s phenominal interest rates will buy more now than it will as interest rates rise. I wish this chart included an overlay that showed the average interest with reasonably comparable terms year by year … but the cart was free and helps get the point across — Buying at lower rates buys more house!

For a full size copy of this chart, click here.

Will Short Sales FINALLY Become Reasonable?

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j0078820As a busy agent in the south King County area and down into the Tacoma/Puyallup Pierce County areas, I both list properties for Sellers and assist Buyers in finding their “dream home,” whether it be a first time purchase or a repeat purchase.

While definitely not unique to these geographic areas, price points and demographics of buyers and homeowners for these areas seem to especially target short sales and bank owned properties. Or maybe it’s just the clients with whom I’ve worked over the last few months. Sellers need to sell–usually as quickly as possible–and Buyers just want to move in.

In any event, short sales have been a problem. It seems as though it’s nearly impossible to get bank approval in anything less than 120 days … and then IF we get approval, the banks want us to close the transaction in no more than 30 days, another feat that’s becoming more and more difficult.

Back in May, 2009, President Obama indicated that he was pushing forward legislation that would drastically change the method and bank requirements by which short sales would be approved. This was aimed at shortening the time the banks would have to approve such transactions, along with helping a distressed seller by eliminating the “pay back the difference to the lender” clause that has been a real sticking point.

FINALLY, on Monday Reuters reported that the Treasury Department has now set guidelines to simplify short sales. I can’t tell you how excited “I” will be when this finally happens. And when the Banks step up and get their own internal procedures in place to accommodate these new guidelines.

I’m maintaining an “I’ll believe it when I see it” attitude. It’ll be cause for rejoicing!!

AR Gay Sig

8 Requirements for the New Homebuyer Tax Credit, Effective NOW!

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dont twiddle thumbsOkay all you first time homebuyers, you’ve been given a second chance! The Homebuyer Tax Credit passed and was signed into effect on Friday, November 6th! What GREAT news!

And it gets even better! Not only do first time homebuyers benefit from the tax credit … to the tune of $8,000! … any homebuyer could potentially benefit, up to $6,500!

Here are some of the highlights. Of course you’ll want to verify this information with your own accountant; as with most bills of this sort it’s many pages long and there are requirements that must be precisely met.

  1. A first time homebuyer is one that has not owned a home for at least three years.
  2. To qualify, a repeat homebuyer, must have owned their current home for at least five consecutive years out of the last eight years. So … imagine that you owned a home for at least five years, but sold it and have now been renting for the last two years. You qualify.
  3. If you’re a single person, you cannot earn more than $125,000; if you’re married, you can earn up to $250,000.
  4. You must be in a contract to purchase your new home on or before April 30th … but you have until June 30th to close the transaction.
  5. There’s no lag between the old deadline (November 30th) and the beginning of the new period … it’s as if the November 30th deadline never existed. The new deadline is April 30th (see #4).
  6. The maximum purchase price for your new home is $800,000.
  7. Your new house does not have to cost more than your last house. It’s okay to downsize!
  8. Oh yes! And as a measure to prevent fraud, you’ll have to attach proof of purchase to your tax return in order to qualify. I haven’t read the entire Bill, but I would anticipate that a copy of your final HUD (closing) statement will probably suffice. But do ask your tax accountant. They’ll know.

SO, Congratulations. Now, don’t twiddle your thumbs and let this run out AGAIN! Call me and let’s get shopping!!

AR Gay Sig

Not Buying? You’ll Still Benefit From the Home Buyer Tax Credit!

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pay with credit cardSince the beginning of 2009, first time homebuyers have benefited from an $8,000 gift directly from Uncle Sam. Qualifying for the gift was easy and thousands of people benefited.

As I write this, plans are in place to extend and modify the tax credit into next Spring (thank heavens), which will continue to help economic recovery for more folks than just those stepping up to purchase a home.

I’ve been amazed while hearing our various elected officials and economists speak shortsightedly, in my opinion, about why the tax credit should not be extended, nor should have been in place to begin with. I absolutely agree that the tax credit has a huge price tag. However, let’s think very briefly about what that tax credit is actually buying.

Just help buying a house? Hardly!

Think back to your last move, whether it was a house, an apartment, back to mom’s, wherever. What was the first thing you did? I can tell you what I did … picked up my wallet and headed straight to the store. I needed STUFF — boxes, moving supplies, shelf liner, paint, curtains, towels, furniture — STUFF!

That’s where the money goes. Not just in a pocket or frankly, not just back in a savings account. Is $8,000 too much? Did I buy $8,000 worth of stuff? Oh yes. And much more. Had I been given the $8,000 as a gift from my last move, my house credit card might not have been maxed out!

Homebuyer’s Tax Credit Has NOT Yet Passed — Not Quite!

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As I write this at 4:45 PDT, our local news station, along with several lenders and title companies are reporting that the Homebuyer’s Tax Credit has passed and will be extended to April 2010.

While that’s GREAT news, it’s not quite right yet, from what I can see.

Looks like the Senate has agreed to pass a resolution that would extend the $8,000 tax credit to First Time Homebuyers, a $6,500 tax credit for repeat homebuyers, both with qualifying issues.

However, a vote hasn’t actually taken place that passes the resolution as a stand-alone bill. At the moment, it’s hung up on the premise that it’ll be tagged onto legislation to extend unemployment benefits, although it appears that it’ll pass the Senate even as a stand-alone bill.

Read more at my favorite site: Reuters.

I’m holding off the celebration until it’s signed around! And I’ll be the first to let you know — that way we can ALL celebrate!AR Gay Sig

Senate Activity on Extending the $8k Tax Credit

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j0382678Like almost everyone I know that works in the housing industry, I’ve been chasing myself around for the last few weeks trying to get all of the First Time Homebuyers in my client list qualified and under contract so that they were eligible for the $8,000 tax credit … due to expire on November 30th. It’s been a wild ride, full of both elation and disappointment!

And, of course, absolutely full of the question “Will it be extended?”

I’ve been diligently trying to follow along with activities in the legislature while listening to other opinions about why it will and why it won’t and who thinks it’s a great idea and who thinks it’ll continue to bankrupt us all.

Reuters is one of my favorite places to find quality news feeds–in this case current activity on extending the $8,000 tax credit for homebuyers.

Yesterday, Reuters reported that Bill Nelson (Dem.) of the Senate Finance Committee indicated that the Senate would act this week on the tax credit and that it would likely be extended for a “limited” period.

Then the stock market reacted negatively later in the day to a report that it would not be.

This morning, Reuters posted another story complete with Q&A about another proposal being floated through the Senate by Senate Majority Leader Harry Reid, a Nevada Democrat, and Senate Finance Committee Chairman Max Baucus, a Montana Democrat. In their scenario, the credit would be extended to the end of 2010, but would be phased out in $2,000 decreases beginning in April, then again in July and in October.

Now, at the moment, I kinda like this proposal. And I like the idea that it carries into the Spring, where house purchases and sales tend to begin rallying all by themselves.

bd06916_My only issue with their proposal is that it’s being attached to the passage of another bill for unemployment insurance benefits. Sigh. Seems like it’d be so much easier to keep track of things if each expenditure had to stand on its own.

I’m sure tomorrow there’ll be yet more ups and downs about whether the $8,000 tax credit will be extended, or buried. Passage will be cause for celebration, in my opinion. Of course, then the bill will need to go on to the House, where, no doubt, it’ll be changed yet again. Back and forth.

Just my 2¢ worth!

 

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Don’t Move Money Around

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money bagI sometimes hear frustration from buyers who are being asked to produce the papertrail that supports the source of the  money being used for the downpayment and closing costs. The underwriter (the person that issues final approval for your loan) requires this information as one method of eliminating the possiblity of fraud, to meet the requirements of investors with whom they work, and for quality control. They’re just doing their job, but sometimes meeting this requirement is difficult and tedious.

You may have  been diligently consolidating money from various accounts so that it’s easier to manage, but this can actually cause more loan approval challenges.

During the time you’re working on purchasing a home, or at least for the prior three months or so, don’t move money around unnecessarily. The underwriter will require documentation of any large deposits or withdrawals from your account. This could include money you received as gifts, from transferring funds between accounts, investment liquidations, cashing out mutual funds, retirement funds, or whatever. You may be asked for copies of cancelled checks, deposit receipts, or other supporting documents that may see inconsequential.

If you’re relying on gift monies that will be used in your purchase in any fashion, you’ll likely also be required to produce a letter from the person giving you the money that documents the fact that you are not required to repay the gift. In fact, the person from whom you’re receiving the money may also need to produce copies of bank statements, etc., that documents where they received your gift money.

In fact, this is also not the best time to be changing banks, or even opening new accounts.

Don’t move your money around … or if you do, be absolutely certain you can document everything thoroughly.

AR Gay Sig

Impact of King County Furlough Days on First Time Homebuyer Tax Credit

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j0433136I received a message late last week from one of my helpful resource folks, Garrett Huffman of the Master Builder’s Association, regarding real estate closings and King County furlough days.

Earlier this year I posted a blog entry listing the days various King County offices would be closed in an effort to help minimize budget overruns. One of the most troublesome dates on the list is scheduled furlough for November 25th … just 5 days prior to the end of the First Time Homebuyer’s Tax Credit, as it is currently defined. Add in the typical Thanksgiving holidays of November 26-27, the last week of November has generally been deemed a write-off as far as getting transactions closed.

According to Garrett, the folks at King County have taken into account the general “panic” that may WILL occur by folks trying to get transactions recorded so as to qualify Buyers for their tax credit.

I have a couple of transactions that are looking like last minute closings too. YIKES!

The Master Builder Association has been working hard to be sure that last minute transactions are recorded on time. Here’s what they’re reporting:

“King County has been very responsive to our association’s concern regarding a furlough day planned at the county in late November. To make sure that the home sales to first time homebuyers close by Nov. 30 and are therefore able to qualify for the federal first-time homebuyer tax credit, the Recorder’s office is taking the following action:

  • King County plans to have 15 employees in the Recorder’s Office designated as furlough ineligible and therefore able to work overtime during Thanksgiving week.
  • These designated staff will work overtime on Monday, Nov. 23 until all documents are recorded.
  • On Tuesday, Nov. 24 the Recording Office will start at 7:15 a.m. and stay late until everything is recorded.
  • They will have a team of seven recorders on stand-by to work on Wednesday, Nov. 25 should there be any additional work not completed on Tuesday.
  • The office will not be open to the public on Wednesday, Nov. 25 and would not receive any additional documents.

In addition, we have requested that King County be prepared for Recording office staff to work overtime on Monday, Nov. 30, to help ensure that all sales are recorded and no first time homebuyer will miss the tax credit deadline.

Thank you, Garrett for such great information!

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Still on the Fence? — 10 Reasons to Get Moving!

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Town Crier

I know, I’m a broken record. Buy now. Don’t wait. Get going. Don’t look back on 2009 as the year you “should have” bought and didn’t. Here are 10 reasons why you may not want to wait any longer to buy a new home:

  1. 1.   The number of houses available from which you can choose is staggering. Just a few years ago Buyers had to choose from a handful of houses in their price range. Not so much right now. There are a lot of houses in inventory!

    2.  

  2. 2.   In fact, you can take your time (a little bit!!). Generally at least long enough to go home and have dinner and talk to Mom and Dad. Again, just a very short time ago, houses were selling so fast with multiple offers that folks were writing up offers on the hood of the car just outside the house. (Oh yes, I remember!) Now, you don’t want to take too much time (hence the title to this blog entry) and lose out, but at least you can breathe a little! 

    3.  

  3. Yes, I know that for many first-time buyers, it seems as though the best houses out there are short sales. And they take forever to close. And some don’t! But some do! The trick here is to make offers on several short sale houses. It’s all a numbers game. ONE of them will be approved and close.

    4.  

  4. There are also a lot of savvy sellers that have figured out the pricing game — price it right and the house will sell! Work with a qualified agent to help get through all of the hundred or so steps it takes to actually close on a sale. (It IS complicated right now!)

    5.  

  5. There are also a ton of bank-ownedproperties. Most banks are aggressively pricing their foreclosure inventory. They want those houses gone! Believe it or not, some of those properties are getting multiple offers as asking prices are so low.

    6.  

  6. Tax credit. Yep … more on the $8,000 first time homebuyer tax credit. No word yet as to whether this will be extended. There are a lot of proposals, lots of talk in Congress to extend the credit and perhaps even increase the amount. But nothing’s been done and I sure wouldn’t want to miss out on this golden opportunity. $8,000 is a LOT of money. Think of the “fixing up” you could do with that amount! I mean, every house has something you’ll want to change or improve or paint or fence or …..

    7.  

  7. Loan qualifications are more stringent. Yes, that IS a reason to get off the fence: when all is said and done you’ll be more secure in your ability to make your payments. Compared to last year, and the year before that and the year before that … it truly is harder to qualify and go through all of the steps to get a mortgage. But in the long run, that’s probably better for you as a Buyer.

    8.  

  8. Mortgage loan programs are amazing too! I work with a number of excellent loan officers. Bless them, they regularly call and/or send me messages telling me about various programs they have available. For example, my contact at Bank of America last week helped me understand one of the FHA ARM (Adjustable Rate Mortgages) they use. Now, I know that ARMs have received a terrible rap over the year or so. After all, the deal is that people got in over their heads in payments when the rates adjusted. But good grief … common sense prevails … and with a program like the FHA 5/1 ARM he described, it’s hard to go too far wrong: 3.75% for the first five years; the rate can adjust up or down no more than 1% a year … and it caps at 5% … 5% for the remaining life of the loan! Wish we were buying now … that’s AMAZING!

    9.  

  9. Perhaps you truly HAVE saved enough for a down payment. One of the common reasons I hear for waiting is that they Buyers haven’t saved up enough down payment to bring their payment down to their comfort level. That’s a bit of a two-edged sword. It seems logical. But here’s some information sent to me by another loan officer today:

    10.  

    Next year, the rates could be at 6.5%, which is far more “normal” than the extreme lows we are seeing at 5.0%.  This rate of 6.5% would take the monthly payment on a $300,000 loan up to $1896.20 per month (P&I).  That equates to a difference of $285.74 per month in mortgage payment.  Follow me here……  That $285.74 per month is the same as $57,000 in purchasing power.  This means that if someone is qualified at $300,000 at a 5.0% rate today, next year, if rates increase to 6.5%, that same buyer will only qualify up to $243,000.  Spread this information to your buyers who are “on the fence”.  Money is cheap right now but won’t be that way forever.”

    “In today’s market, with a loan amount of $300,000 and an interest rate of 5.0%, the monthly payment would be $1610.46 P&I.

    Downpayment can be as low as 3.5% of the purchase price when using an FHA loan, or even zero percent if you are buying a qualified USDA house. (That’s a home in a designated rural area.) Actually, there are a few other zero percent loans, too. School teachers police and fire officers all have some special programs available.

  10. And finally, interest rates continue at record lows. You may have heard this before: A loan less than 8% is amazing. I remember buying at 17% back in the 1983. Yikes! But we did it and we made the payment. Of course we refinanced as soon as possible too. I’m told that interest rates right now are hovering right around 5%. 

So … have I convinced you? Or at least given you a bit more to think about? 

If you’ll forgive me for sounding a bit like a the local town crier: It truly IS Time to Get Off the Fence! It just doesn’t get … and may not get … any better than NOW!

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