Tag Archive for 'mortgage lenders'

Today, Congress passed a measure to make the Home Buyer Tax Credit available to more people who meet income eligibility requirements, not just first-time home buyers. And those income limitations have been raised as well. See if you qualify for a tax credit under the new plan, and how to take advantage of it.

Congress has made the Home Buyer Tax Credit available for several more months and expanded it to make more people eligible. First time buyers will be able to get up to $8,000 if they get under contract to buy property before May 1st, 2010, and close on their purchase before July 1st. But that's not all.

You Don't Have to Be a First Timer Any More

Some buyers who aren't buying a first home are eligible as well, and can take up to $6,500 in tax credit if they beat the new deadline. The text of HR 3548 reads, "In the case of an individual (and, if married, such individual's spouse) who has owned and used the same residence as such individual's principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence, such individual shall be treated as a first-time homebuyer for purposes of this section with respect to the purchase of such subsequent residence." So those who have owned their home for some time can also benefit from this provision.

The credit applies to the purchase of primary residences (not vacation or rental properties) costing $800,000 or less. The credit is phased out for individual taxpayers with annual incomes exceeding $125,000 and for joint filers with incomes exceeding $225,000. This is up from the old limits of $75,000 and $125,000, respectively.

What About Those Who Already Bought Homes?

Bill No. HR3548 does allow those who want to take the credit immediately to amend their 2008 tax returns and claim it. But can you claim the credit for purchases in 2008 or earlier in 2009 if you are eligible to claim it under the new bill but were not under the old? For example, what if a couple were first time home buyers last year, but their income at $200,000 a year exceeded the old thresholds? Could they amend their 2008 return and take the credit because they qualify today?

Probably not, if you carefully read the text of the bill as it will be submitted to President Obama for his signature. It reads: "EXTENSIONS- The amendments...shall apply to residences purchased after November 30, 2009."

So once again, those who didn't jump at the government's first offer got a better deal. Hopefully at least you will get to enjoy some home value appreciation as this credit fuels new home purchases and drives up home values in your area.

How Can I Take Advantage if I Qualify?

1. Don't let things go too long. Mortgage lenders like Bank of America had stopped accepting applications for purchases that needed to close by November 30^th. This extension should give them some breathing room, and allow those who are buying homes to have more lenders to choose from.

2. Shop carefully to get the best mortgage rates, and get yourself pre-approved as soon as you have chosen your lender. It's especially easy to do this online if you don't already have a trusted lender who you know can get the job done.

3. Make sure that your purchase agreement states that you have to close before July1st or you will not be obligated to go through with your purchase, or you want a $6,500 price refund at closing. It's best to have everyone--Realtor, lender, and seller--on the same page and working to get your purchase closed on time.

4. Document everything carefully, and keep copies of all your documents. The First Time Buyer's Credit has been plagued with fraudulent claims, and the IRS will be very careful about who it will allow to claim the credit. So be sure that you are eligible, and be prepared to prove that your claim is valid.

The new legislation has been designed to provide the housing market with a shot in the arm. Home purchases typically beget other purchases, such as furniture. Hopefully this will fuel the economy and even those who are not eligible can benefit in some way.

If you've been following the news about mortgage reform, you might have come across the term YSP, or Yield Spread Premium. YSP is simply a rebate paid by a wholesale lender to a mortgage broker for originating a loan. While some (usually well-meaning but ignorant) folks rant about how lenders use the Yield Spread Premium to steal from poor dumb consumers, the truth is that consumers are pretty sharp when it comes to shopping, YSPs save many people money, and most people who get loans from brokers (85% in fact) choose to make use of them.

Here is how YSP works: When a mortgage broker brings in a loan, he or she saves the wholesale lender time and money. The lender doesn't have to market or advertise, network in the community, maintain a local office, meet with the borrower, analyze the income, assets, and debts as well as future financial and lifestyle changes, help the borrower choose the best loan, complete the paperwork, and document the financial package. The broker who does all this doesn't work for free but is not an employee of the lender either. So brokers get paid one of two ways: they either collect fees from the borrower (that's you and me!), for example origination and application fees, or they get them from the lender in the form of a rebate. Borrowers can choose to pay the fees to the broker out-of-pocket or they can opt for a slightly higher rate and the lender will cover the broker fees for them. And 85% of borrowers opt to have the lender pay the broker fees. It's their choice.

But this is hard to visualize. So here's an example:

Bob Borrower wants a $200,000 loan with a 30 year fixed rate. His broker shops around and offers him the chance to get a 5.75% rate while paying 1 point ($2,000) plus about $1700 in other fees. Or, Bob can choose a 6% rate and pay NO fees. Bob finds an online mortgage calculator and puts these figures in. The 5.75% loan carries an APR of 5.92%. The payment is $1,167. The 6% loan, costing $0, has an APR of 6% and a payment of $1,199, a $32 per month difference. So Bob can choose between paying $3700 upfront or paying $32 a month more. While the 5.75% loan has the lower APR, it takes almost ten years before Bob makes up the $3700 by saving $32 a month. So you can see why most people choose the so-called "no-cost" loan.

How can Bob KNOW that he's not being taken advantage of? Simple, when it's easy to compare rates and programs online. Bob checks online and finds another lender who wants 6.125% for a no-cost loan -- he knows he's getting a fair deal. It doesn't matter what the wholesale price is; by comparing offers and taking the best one you get a good deal -- no different than shopping for clothes or tires (aka threads and treads).

There are plenty of things to watch for when shopping for a loan -- the APR, the fees, terms like prepayment penalties, teaser rates, amortization -- but YSP doesn't mean "You're Swindling People" and yield spread premium isn't anything to worry about.