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Want an FHA Mortgage? Get an FHA Lender

August 29th, 2008

FHA is the hottest mortgage product around these days. And lenders who are not approved to do these loans don’t want to be left out. So they may tell you they can do an FHA mortgage, take your application, and try to refer it elsewhere (for a fee!) or broker the loan through an approved lender without telling you. This practice is questionable at best and illegal at worst. The very least that can happen is that the deal will take longer and more can go wrong because your lender isn’t in control of the process.

Don’t start an FHA loan application with a lender unless you know that’s the lender you want to use. Why? because unlike other kinds of loans, once you start an FHA loan it’s hard to switch it to another firm. This is because when you apply for an FHA loan you are assigned an FHA case number. And you can only have one, and if you want to change lenders your original lender has to release the case number. So this is one more reason to make sure your lender is truly approved to do FHA loans before you start the process–you don’t want them to have your case number and be trying to broker your mortgage. While your loan application is floating around, rates could be increasing, your home could fall out of escrow, and any number of things could go wrong.

So take care of business upfront to avoid nightmares on the back end. First, check HUD’s web site to make sure that your lender is approved to do FHA loans in your state. Just input the lender’s name and you will get your information. Then, ask your loan officer how long he/she has been doing FHA loans–everyone wants to do them now, but you don’t want to be the guinea pig for a novice loan agent. FHA loans have their own rules and complications; get an expert if you want yours to go smoothly.

Positive GDP News a Wake-Up Call for Home and Mortgage Shoppers

August 28th, 2008

An unexpectedly strong revision of second quarter gross domestic product (GDP) stood out amid an otherwise mixed bag of economic news of interest to home and mortgage shoppers.

In fact, this strong GDP number should be something of a wake-up call, or a call-to-action, for anyone who has been putting off buying a house. It may not pay to delay any further before starting to look for a house and compare mortgage companies.

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Taxing News for Those with Second Homes

August 26th, 2008

If you are considering selling your home, you might want to pull the trigger before the end of 2008. The federal government determined that millions in taxes were being drained off each year because of the way investment property sales have been treated for tax purposes. On January 1, 2009, a provision in the housing bill HR 3221 plugs that hole and it’s investors who may end up high and dry.

Homeowners were happy to recycle–their exemptions, that is. Before HR 3221, people were allowed exemption from taxation on the first $500,000 of their home selling profits if they were married filing jointly or $250,000 if  filing singly. The only restriction was that they had to have lived in their homes for two out of the most recent five years. Vacation homes or investment properties that were converted to primary residences qualified for this treatment as well. This allowed property owners to sell their residences, exclude the capital gains, move into vacation or rental properties for a couple of years, and then sell them and exclude the gains again. Who needed to work for a living?

Turn out the lights….the party’s over. While it took some time, the government did finally catch on. HR 3221 contains a provision for calculating the gain on the sale based on how many years the taxpayer lived in the property versus how many years it was owned starting 1/1/09. Merely moving in for two years will no longer allow you to take advantage of the full exclusion available. To determine how much gain will be taxed, perform this calculation. Take the number of years the house was not used as a primary residence and divide by the total period of time the home has been owned starting January 1, 2009. Multiply that result by the gain on the sale of the home to get the taxable gain.

For example: A single taxpayer has owned a vacation home since 2000. In 2006, he moved in and lived there for 2 years, selling the property in 2008 and making a profit of $300,000 on the sale. He gets to exclude $250,000 from capital gains tax because he sold in 2008. But under the new rule (and this may eventually be interpreted differently, the IRS has yet to issue guidelines), the capital gain that can be excluded will be determined by the number of years the property functioned as a primary residence divided by the number of years the property was owned. If you own property, the ownership clock restarts 1/1/09. All currently-owned property will be treated for  tax purposes as though it was purchased on that date. So if you have lived in your former second home at least 2 years and are thinking of selling, you might want to either unload it now (to take advantage of the old guidelines) or move in and plan on staying at least two years. That way when the clock restarts it’s already your primary residence.

Otherwise, you will want to live in the property as long as you can before selling. For example, if you keep the property for 3 years, then move in for 2 years before selling, you get to exclude 40% of the capital gain and will have to pay taxes on 60% of it (because you lived in the home for 2 of the 5 years you owned it starting 1/1/09). The longer you live in the property before selling, the higher the portion of gain you’ll be able to exclude.

This is new law, and the IRS has yet to issue guidelines. Be wise and seek professional advice from a tax accountant or property lawyer when you are considering buying or selling your home so that you can determine the financial repercussions. However, with this new law coming into effect on January 1, now might be the time to pick up the phone.

The Long-Term Impact of the Mortgage Crisis

August 21st, 2008

The past week saw more symptoms that the mortgage crisis is likely to drag on: 

For prospective homebuyers, these symptoms of long-term consequences of the mortgage crisis signal that waiting for the storm to blow over may not be the best strategy.

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At Your Service….and That’s the Problem

August 20th, 2008

News trickling out of regulatory offices and lending institutions indicates that the much-touted HUD foreclosure prevention program set to begin in October has hit a few snags. According to American Banker, it is likely that regulatory agencies will not be prepared to begin handling the cases by October 1. In addition, it is expected that this program will meet with the same very limited success that FHASecure did, and for the same reasons.

The biggest obstacle is that loan servicers–those who buy the loan from the original lender and then collect the payments–are the ones foreclosing and are not in a position to originate a new loan as required  by the program. And of those who are licensed and staffed and capable of originating loans, many do not have FHA licenses which are required by law in order to originate an FHA mortgage.

So if you are counting on a rescue to get you out of a home foreclosure in october, don’t. the only thing you can count on most likely is more red tape.

Inflation’s Long Roots Keep Mortgage Rates in a Holding Pattern

August 14th, 2008

Mortgage rates remained unchanged for the second consecutive week, as a troublesome reading on consumer prices neutralized growing optimism over falling oil prices.

Though the Consumer Price Index (CPI) measures a period which trails the recent declines in oil prices, the latest reading was a reminder of how difficult it can be to put inflation back in the bottle once it escapes. 

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Give Us a Break: New Tax Credits for Homeowners

August 8th, 2008

Most tax breaks for homeowners are worthless to those who don’t itemize deductions on a Schedule A. Which is about 63% of Americans! The tax benefits of home ownership go mostly to the affluent, who generally have mortgage interest and other deductible expenses that exceed the standard deduction of $5,450 for singles, $10,900 for married couples, and $8,000 for heads of households.

So those with lower income may derive less financial benefit from homeownership. However, the new housing reform law did throw in a benefit to those who take the standard deduction. Even taxpayers who take standard deductions will be able to subtract property taxes from their taxable income (up to $1000 for married couples and $500 for others). Add this credit to the $7500 first time homebuyer tax credit and you get at least 8000 reasons to buy this year if you can swing it.

For the less affluent, the fact that the $7500 is a refundable credit is critical. The credit isn’t even available for single taxpayers whose AGI exceeds $95,000 and married couples with an AGI over $170,000. But even people who pay little or no tax benefit from this credit. For example, Joe Paycheck has $2,500 in federal taxes withheld from his salary during 2008. His tax bill for the year is $3,000. Normally, Joe would have to cut the IRS a check for $500 on April 15th. But in 2008 Joe became a first time home buyer. So he’s eligible for a $7,500 tax credit. Instead of paying the IRS $500, Joe gets a check for $7,000 (the $7,500 credit minus the $500 owed). Not bad.

There is a little catch. The credit gets repaid to the IRS over time ($500 per year for 15 years). If the home is sold before then, the unpaid credit would be repaid from the profit of the home sale. If there isn’t enough profit from the home sale, the credit is written off and the IRS doesn’t get repaid. So a first-timer could buy a house, live in it for a couple of years and sell it, and even if there was no profit on the deal the seller would be $6,500 ahead (the $7500 credit less the $1,000 repaid over two years). So there is a sizable upside to the process. If considering a first time home purchase, check with a tax pro for the whole scoop on the new tax credits. Then check with a lender to see if you can afford to become a first time home buyer.

Connect the Dots… to Lower Mortgage Rates

August 7th, 2008

Current events give a good demonstration of what really drives market interest rates:

The reason for the drop in mortgage rates can be traced to a third significant development:

All of which suggests that potential homebuyers — or mortgage refinancers — would do well to keep their eyes on the price of oil in the weeks ahead. 

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