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June 23, 2009

10 Home Loan Tips for 1st-time Home Buyers

Category: Consumer Tips,FHA,Home Loan News – admin – 7:28 am

If you are looking to make the move from a rented apartment to a home of your own, you are not alone. The convergence of low home prices, still-low mortgage rates and appealing tax incentives makes 2009 a good time to buy a home for many people. If you are looking to buy, here is what you need to know:

Home prices are low. Home prices dropped at a record annual pace of 18.7% this past March. That means discerning buyers can find real bargains. Mortgage interest rates are still relatively low. While interest rates have risen from their historic lows earlier this year, they still are appealing. In mid-June, rates hovered around 5.70% for a 30-year fixed rate home loan.

Tax credits will help. 1st time homebuyers can get money back from tax credits implemented as part of the 2009 American Recovery and Reinvestment Act. An $8,000 credit is available to 1st-time buyers for homes purchased before December 1, 2009. Home financing legislators are considering increasing the credit to $15,000 and expanding it to include other home buyers

Credit scores matter. While houses are widely available, home financing is limited to those with good credit. Credit scores range from 300 to 850, with the median U.S. credit score about 725. A score below 680 usually results in a higher interest rate or denial of credit. Check your credit score before you make any home buying decisions. If your score is lagging, wait a few months and work to improve the score by paying every bill on time, paying down as much debt as possible and disputing any erroneous information on your report. Note that it can pay to do your homework researching FHA mortgage rates and lenders — credit scores do not decline if multiple similar credit report requests are submitted within a close time period (usually a few weeks).

You must have savings. A down payment is essential today. Ideally, you can put down 20% of the purchase price (see #7 regarding PMI). If not, talk to your mortgage lender about your options.  Do not stretch too far. Standard underwriting guidelines call for keeping housing expenses below 35% of total income.

Understand private mortgage insurance (PMI). Home mortgages with less than 20% home equity (which means a 20% down payment for those purchasing a home) require PMI in case the owner defaults on the home loan. When the home owner pays a conventional home mortgage down to 80% or less of the home’s value, the home owner can request the home lender to cancel the PMI and then be able to stop paying the additional amount. Meanwhile, PMI is tax-deductible, at least through 2010.

Know the real costs of buying. The principal and interest on a mortgage payment are only the beginning of home-related costs. Escrow payments – the funds withdrawn to cover home insurance and taxes – and PMI can add a few hundred dollars per month to a mortgage payment. In addition, home owners must pay for repairs and maintenance. A rule of thumb is to budget 1% of the home’s purchase price per year for upkeep.

Know whether you can pay off early. If the mortgage loan has a prepayment penalty, borrowers face hefty charges if they pay it off early. This provision also can apply to future mortgage refinancing, so be forewarned. Review Truth in Lending disclosures to find out.  Read the full article online, > 10 Home Loan Tips for 1st-time Home Buyers

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December 19, 2008

Best Time for a Second Mortgage?

Category: Consumer Tips,Published Articles – admin – 3:10 pm

A frequent question we get from homeowners is “When is the best time to take out a second mortgage?” Obviously we respond to that question by asking more questions like, What do you need the money for?  Cash out?  Debt Consolidation?  Home improvements?  What would your home be appraised at?  What is the outstanding mortgage amount on your existing home loan?  How is your credit?  How long do you plan to live in your home?  Depending on how the loan applicant answers those questions will dictate how we advise them. 

For example, If you have bad credit and no equity, the likelihood of qualifying for a home equity loan or equity line of credit is very minimal.  Typically to get approved for a bad credit second mortgage, the borrower will need to have 25% -30% home equity available to satify the lender’s underwriter.   Read the complete article > When is the Time Right for a Second Mortgage?

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October 5, 2008

How the Housing and Economic Recovery Act of 2008 Tax Credit Works

Category: Consumer Tips,FHA,VA – admin – 4:48 pm

The Housing and Economic Recovery Act of 2008 was signed into law by the President on July 30, 2008. It began on October 1, 2008 and sunset on September 30, 2011. It was designed primarily to address the subprime mortgage loan crisis. But, one of the features of this legislation is a tax credit that the government hopes will help stimulate the housing market. This tax credit is only available to first time homebuyers. A first time homebuyer loan is financing for a borrower that is defined as someone who has not owned a primary residence for 3 years prior to the home purchase.  FHA home loans have been helping new homebuyers for years, but their recent expansion for 1st time home-buying should reach out to more consumers.

How to Qualify for the Tax Credit
First time home buyers who finance a home between April 9, 2008 and July 1, 2009 are eligible to take a tax credit equal to 10 percent of the purchase price of a principal residence, up to $7,500 on their 2008 tax returns. A qualifying home purchase is a single-family detached home, townhouse, condominium, manufactured home, or even a houseboat. Single taxpayers with modified gross incomes up to $75,000 and married taxpayers with a joint modified gross income of up to $150,000 are eligible for the full amount. Above those incomes, the tax credit begins to phase out.

Getting Started with the Tax Credit
All you have to do is claim the tax credit on your federal income tax return. No additional paperwork is required. If you don’t want to wait until you file your return to claim the credit, you can simply reduce your income tax withholding.

The NAHB reports, “Buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the future home buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the down payment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding.”

Important Notes about the Tax Credit
Here are some important things to not about this tax credit, so you know just what to expect if you decide to take it:

  • This tax credit is basically an interest-free loan, which must be paid back over the course of 15 years.
  • This is a tax credit, and not a tax deduction, meaning that it is a dollar for dollar reduction on taxes owed, as opposed to a tax deduction, which reduces the amount of your adjusted gross income that can be taxed.
  • The credit is refundable, meaning if you owe $2,000 in taxes and take the $7,500 credit, you will receive at $5,500 refund.
  • The credit must be repaid to the government over 15 years or when the house is sold. For those taking the tax credit in 2008, the first $500 payment would need to be made when the buyer files their 2010 tax return.

What if I sell the house?
If you sell your home within 15 years, and the gain on the home is less than the amount of the credit, then the remaining portion of the tax credit is forgiven.  If the gain is greater than the remaining portion of the tax credit, then the balance will be due for that year’s income taxes.

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