The National Association of Home Builders and Nonprofit housing groups are forming a coalition to pressure congress to reverse a ban on seller-funded downpayment assistance. With the upcoming change in presidency some are saying the likelihood of the revision being passed within 2008 is not likely. The bill is intended to protect FHA's insurance fund by charger higher premiums to lower credit score borrowers. The nice aspect of FHA is that the mortgage insurance has always been cheap in comparison to conventional products. Layering on adjustment after adjustment will remove a lot of the value of FHA but if they will continue to go to 96.5%-97% LTV they will probably still have an advantage on conventional products.
One positive note in regards to the reaction of my clients is that most people that come to me are above a 650 credit score. I think the guideline changes has effected lower credit and lower income individuals but I think higher credit and higher income individuals will always have an avenue for financing.
FHA allowable gift sources:
1. Relative, borrower's employer, labor union, charitable organization, governmental agency or public entity that has a program to provide assistance to low-and-moderate-income families or first-time homebuyers, or a close friend with a clearly defined and documented interest in the borrower.
2. Donor may borrow the gift funds from an acceptable source (not from a party to the transaction) provided the mortgage borrowers are not obligors to any note to secure money borrowed to give as a gift. Documentation is required.
3. Gift of Equity, Allowed if seller is borrower's relative
Michael ShotnikDirect Mortgage Banker
Summit Home Mortgage
303-800-4595
mshotnik@summit-mortgage.com
Given that less than 1% of listings sell due to an open house I would advise you to work on selling yourself to gain the most benefit from your time in front of each prospective buyer. Below are stratagies that will help attract more buyers.
This information has been acquired through past experience, conversations with Realtors and through speaking with other Real Estate professionals and is intended to help you serve your potential clients better and attract more buyers.
1. If you are holding someone else's listing open make sure it's your name you are promoting and not the listing agent. Prepare your own flyers and brochures to hand out. Remove their for sale sign and put your's in the yard. Create a sign in sheet with your name on it.
2. Pick a home that will attract a lot of traffic. A couple great areas to have open houses are Wash park and the Highlands.
3. At the open house have other available homes displayed. This will allow you to provide an additional service and create value in the prospective buyer's eyes.
4. Most importantly have a stratagy to find out what they really want. This flyer serves as a conversation ignitor and will help you find out just how serious they are and their real intentions for visiting your open house (click on this link to view the flyer).pdf.
If you would like any customized flyers for your open house send me an email with the sales price and the property address!
I think there are a few misconceptions about the First Time Homebuyer Tax Credit. Hopefully the Q&A below will help you understand how it may help you and the economy. It may be difficult to completely grasp, don't hesitate to contact me if you don't completely understand the implications.
Effective for home purchased - April 9, 2008 - before July 1, 2009
What is the purpose of the Tax Credit?
Congress’s intent was to provide as large a financial resource as possible for home buyers in the year that they purchase a home. In addition to helping first-time home buyers, this will maximize the stimulus for the housing market and the economy, will help stabilize home prices, and will increase home sales.
Who is eligible to claim the $7,500 tax credit?
First time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after April 9, 2008 and before July 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs.
Does the credit have to be paid back to the government? If so, what are the payback provisions?
Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the
home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.
What is the difference between a tax credit and a tax deduction?
A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS. A tax deduction is subtracted from the amount of income that is taxed.
I heard that the tax credit is refundable. What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit. For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that taxpayer qualified for the $7,500 home buyer tax credit.
Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 tax return?
Yes. Prospective home 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 downpayment. 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. Prospective home
buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.
Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit?
In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $7,500. For most first-time home buyers, this means the credit will equal $7,500. For home buyers purchasing a home priced less than $75,000, the credit will equal 10% of the purchase price.
How do I claim the tax credit? Do I need to complete a form or application?
Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. No other applications or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.
The information was obtained from the federalhousingtaxcredit.com
Below is a breakdown of the key changes addressed in the the Housing and Economic Recovery Act:
Effect October 1st, 2008
Seller funded downpayment assistance on all FHA loans is eliminated
Minimum cash investment by borrowers on FHA loans increases from 3% to 3.5%
A moratorium on FHA risk-based mortgage insurance premiums goes into effect
As I have discussed with many of you and wrote about in previous blogs, the act goes into effect on October 1st but the last day to close loans using Downpayment assistance is September 12th.
As most people know now is a good time to buy real estate in Denver because we are probably at or close to the low point in the real estate cycle. Unlike Arizona, Florida and California we are at or almost to our low point. I don't think we'll start to see broad appreciation for about another year or year and a half but we are far ahead of the majority of the country.
Recently I've been involved in multiple offer scenarios which in my opinion is a sign that prices are now at the bottom and the buyers know this. Most of these scenarios are on bank owned properties. Bank properties seem to be drawing more interest and offers than privately owned properties but this will even out over the next year or so. At the point where private listings are in the same price range as bank owned listing is when I see the market heading up.
According to Forbes Magazine Denver is among the "10 best best cities for home sellers".
Nick Trujillo of Chase bank believes that the reaction to the low Fed funds rate is an indicator of market of stabilization. Nick also believes that the market will bottom out and stay at the bottom point and head up within the next year.
Andrew Hyatt of Hyatt Appraisals comments, "after speaking with many agents and doing many appraisals in the urban Denver area marketing time is low and sellers have been receiving on average 98% of their listing price. The competetively priced REOs typically have multiple offers which is a good indicator of the market bottom." Andrew also notes "The highlands, Berkely, Sunnyside and Wash park and other urban areas have continued to appreciate through the current market cycle".
If I were in another state I don't think I would be so optimistic but Denver has all the signs of a real estate market that will soon be headed upward. Due to lending issues I don't think we'll see accelerated appreciation but I think it will be controlled and a stronger phase of appreciation in comparison to the previous real estate cycle.
Downpayment assitance is on it's last leg for the time being. The lenders that are still allowing the program are requiring the loan to be locked by 8/22 or 8/29 depending on the lender. We basically have one more week to lock and roughly 3 weeks to close. Even though the bill outlines a date of October 1st the lenders are requiring the loans to be funded which can take up to 10 days from time of closing to be 9/20.
It sounds like congress is working on a new bill that will reinstate DPA. I assume the proposed DPA will be different and probably more conservative. Just like the removal process the process to reinstate will have to be approved.
To know more follow this link: Rally for Homeownership
I was previously with a local "broker shop" in the Denver Metro area. It was a good place of employment and the environment was conducive for business. I was happy with this company because I trusted the ownership and had an overall good experience. Until the market became extremely volatile I was very content. As products were being taken away and the reputation of the mortgage industry was being tarnished I know I needed to make a move. My goal was to become a "banker" opposed to a broker. Which to me and my clients means that we are held to a higher standard and in return are rewarded with better products and pricing. It was a hard decision to make but for my client’s sake and to hedge against the market I decided to make the move.
I am now happy to say I am a Direct Mortgage Banker with Summit Home Mortgage. Along with better rates I now have in house underwriting, closing and funding. For my clients this mean a quicker and easier process the whole way through not to mention much better rates.
I would not have made this move if it weren't a perfect fit and up to this point it seems to be PERFECT.
If you would like to hear about my new company please don't hesitate to call, I would love to tell you more!
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