Monthly Archive for February, 2009

Let's see, if you're a first time home buyer in California, and you buy a newly-constructed home, you could get up to $18,000 in tax credits! But even if you're not a first-timer you can get the California credit. And that's a sweet ten grand.

California's credit (5% of the purchase price or $10,000, whichever is less) is designed to give a little kick to the home building industry--which may not be so great for those trying to sell a "used" home in the state next year. But buyers win two ways--first, the credit applies to anyone--there are no income restrictions--who buys a brand-new home. It's paid out over a three year period, and doesn't have to be paid back as long as you live in the home for at least two years.

But what if you want a home with character, a home in an established neighborhood, and not a cookie-cutter tract product? Well, you won't be able to take the credit, but you will be able to use it--as a bargaining tool. The sellers know you'd be giving it up in order to buy their home. So perhaps they can throw in a piece of furniture you like, help you with closing costs, or leave that awesome hot tub on the deck when they go.

First come, first served. That's right, the credit lasts from March 1st of this year until March 2010. OR WHENEVER CALI RUNS OUT OF MONEY. $100 million was allocated to the program and when it's gone, it's gone. So make like it's Black Friday at Best Buy and hit the ground running. Get your loan in place (FHA is probably your best bet if you have credit boogers), round up your Realtor, and find that new house (or summon your magic bargaining powers and go looking for a used one). And close on that sucker as soon as you can before the money runs out!

Start by requesting free mortgage quotes or a pre-qualification letter from our database of new home loan lenders. It's free service where you can receive up to four free mortgage quotes, and there's no obligation to you.

How do lenders decide what to charge for a loan? Well, part of that determination is you--how risky your overall "package" is. It's kind of like the way car insurance companies decide how much to charge you. If you're the careful lady with a Volvo and a squeaky-clean DMV record, your insurance rates should reflect that. If you drive a super-charged fire-breathing monster and are on a first-name basis with the local traffic court judge, you know you're gonna pay more. Fair enough.

In mortgage lending, risk comes from all sides--where the property is (have values been declining or holding steady?), the amount of your down payment or equity (more = better), where your money comes from (steady W-2 job for twenty years or a brand new business?), your credit history, and your assets (how long could you survive if your income dried up?).

The financial markets matter. Conforming loans are packaged into Mortgage-backed Securities (MBSs) and sold like stocks. The prices for these drive interest rates. Like the bond market, MBSs move according to expectations for inflation and generally in opposition to the regular stock market. So when stocks go up, often bonds and MBSs go down (which increases rates). When stocks go down, mortgage rates often improve.

And finally, it matters where you shop. Lenders may go to the same well when it comes to most mortgage financing, but there are still variables which influence a specific lender's pricing at a given time. For example:

1. How efficient the lender is ?? office space, Internet presence, marketing, in-office or centralized operations, and data processing capability can affect the lender’s profit margin.

2. Temporary market conditions ?? sometimes a lender needs more business to keep employees busy, or expand market share in a particular area, even if it doesn’t make any money on those loans. In this case it might offer below market rates for a very short period of time. On the other hand, a lender may have too much business and could raise rates to scale back on the number of loans in its pipeline.

3. Economies of scale ?? the biggest lenders may be able to take advantage of centralized systems, which can be more efficient in very busy times. Also, the largest banks or brokerages may be able to make less per loan while retaining profitability. On the other hand smaller outfits may be able to cut back and run “lean and mean” when times are tougher.

Whatever goes into the pricing of your mortgage loan, shopping and research (I know, sorry!) are still the best ways to ensure getting the best of the “going rates” quoted.

Many taxpayers - regardless of credit history - jumped last year to take advantage of a $7,500 tax credit for first time home buyers. The advantage of this credit was that it was refundable--even if you didn't owe $7,500 in taxes you got the whole credit. For example if you owed $2,500, your credit covered that debt and the government cut you a check for $5,000. The downside was that over a 15 year period, the credit had to be repaid.

Then, Congress passed the American Recovery and Reinvestment Act of 2009. This new bill increases the credit to $8,000 and that $8,000 doesn't have to be repaid. How does this new bill affect those who took the $7,500 credit?

Unfortunately, if you took the $7,500, you can't take the new $8,000 credit. And you still have to repay the $7,500 back over 15 years. But you don't have to start repayment for a couple of years, and the value of getting $7,500 at no interest for many years still comes to about $4,000. So while the $7,500 you got may not give you warm fuzzies, it's better than a sharp stick and still a good deal.

Now for those who have not bought a house yet, there may be all kinds of goodies available to you, depending on your income.

* Mortgage Credit Certificate Programs These create a tax advantage for first-time buyers. It's pretty much free money if you meet the IRS income guidelines and your home purchase doesn't exceed a predetermined amount. An MCC allows you to deduct your mortgage interest and adds a 20% tax credit towards your income tax liability. And the lender will deduct that credit from your house payment when calculating your debt to income ratios, qualifying you for a larger loan than you otherwise could.

* A refundable $8,000 credit for first-time homebuyers. And many folks who have owned property in the past still qualify for "first time homebuyer" status. Check here to see if you qualify. Here are the details:

· The tax credit does not have to be repaid.

· The tax credit is equal to 10 percent of the home's purchase price up to a maximum of $8,000.

· The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.

· Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

· If you have not filed your taxes yet for 2008 and you close on a home before you do so, you may be able to apply it on your 2008 tax return. Check with a tax pro for details.

* Rural Housing Programs You'd be amazed at what's considered rural by the USDA. Programs include zero down payment options for qualifying buyers in qualifying areas. And on February 1st, these rates dropped to 4.375%. Check out the details here.

So 2009 brings a lot of good reasons to buy a home. FHA and USDA lending guidelines are fairly liberal, and first timers can catch a lot of breaks from the IRS. When it comes to home buying, the US government loves newbies. Talk about beginner's luck.

You can start your search by contacting our database of new home loan lenders to request a mortgage prequalification letter from mortgage lenders; if you have a property in mind already, you can request up to four free competing mortgage quotes. If you already have a property, given current low market rates, consider requesting mortgage refinance quotes through our mortgage lender matching service. Good luck!

The new stimulus package provides a lot of breaks to first time home buyers. But when it comes to home ownership, you're no virgin. Are you shut out of the tax credit for first-time home buyers because you have owned property before? Maybe not.

According to the US Department of Housing and Urban Development, "first time" home buyers are:

1. Those who have not owned a primary residence during the three year period immediately preceding the close of escrow on the new home. Amazingly, those who owned rental property but no primary residence can still be first-timers! If the last time you owned real estate was over three years ago, you're officially a first-timer.
2. Single parents who owned their homes with their ex-spouse. Dump an old spouse, get a new house.
3. Displaced homemakers who owned their homes with their ex-spouse. Displaced homemakers are those who did not work outside the home while married. So now, if you can qualify for a mortgage you can also get a tax break. See my earlier entry on getting a mortgage even if you have no job.
4. People who owned homes not considered real property, such as mobile homes not affixed to permanent foundations. Right now it really pays for "rolling stones" to settle down and get a house with a permanent foundation.
5. Property owners whose current residence can’t comply with building codes for less than the cost of rebuilding. Living in a falling-down dump? Trade up to a new home at a fire-sale price and get a tax break too.

There are many ways to become a "born again" virgin when it comes to home ownership. And the incentives offerred to those who qualify should get a lot of people off the fence and into houses.

There are some things that seem universally true in mortgage writing. Annual percentage rate, or APR, is almost always described as being "higher" than the stated interest rate. Because loans cost money to originate and the ARM calculation incorporates the fees into the rate. And adjustable rate mortgages, or ARMs, are inevitably depicted as possessing a "low" start rate or "teaser rate," which then "increases" when it adjusts. Well this world has been turned upside down. Short-term rates are so low now that ARM start rates are frequently higher than the adjusted rate. Some are adjusting today down to less than four percent!

And that throws the APR calculation off as well. Because when the APR is calculated, it is assumed that the rate will adjust to current rates (the financial index its tied to plus a margin of generally between 2 and 3 percent) at the end of the introductory period. Right now, those indexes are near zero and thus the APRs are lower than the start rate.

So normally an adjustable rate mortgage or hybrid ARM would be more desirable with a longer introductory period; today, the shorter the better. For example, Freddie Mac's average 1-year ARM start rate is 4.92%. But if adjusting today with the 1-year Constant Maturity T-Bill index at .61%, a loan with a margin of 2.75% would be adjusting to 3.36%, assuming that it didn't have a rate floor (limit to how low it can go). If the loan has a floor rate of 4%, that is the lowest the interest rate will go regardless of what happens in the financial markets.

So in today's environment, those who have short-term goals and don't plan to keep their property for many years could be well-served by getting an ARM with no floor or a very low one. And a short introductory period is better than a long one. So a 3-month ARM based on the LIBOR index could start at 4% today and be adjusting down to 3.25% in three months. Why would you want a 5/1 hybrid ARM and be stuck at 5.5% for years?

Saw this article today, entitled Payday Loans Can Help You Save Your Mortgage from Foreclosure. Could not believe someone would write something so irresponsible. Let's see, you can't make the payments on the bills you have now, so of course the solution is to....get MORE debt! At a HIGHER interest rate! The author claims that ...

You'd think having good credit and being careful with your spending would make your creditors like you. But your credit card company might not. According to a Feb 12th Smartmoney.com article, creditors have been reviewing the accounts of their most credit-worthy customers--and if their balances aren't high enough they are slashing credit limits or closing ...