$8,000 TAX CREDIT – Soon To Be Available As A Down Payment – 5 – no, make that 6 – Things You Need To Know
Written by Carl Medford, Agent in Fremont
May 14, 2009 9:25 AM Home Buying in Fremont
28 comments1,901 viewsWhile I normally refrain from cutting and pasting news into this post, the following news update from the National Association of Realtors “Realtor Magazine”, May 12, 2009, deserves to be posted in its entirety:
“Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, on Tuesday said that the Federal Housing Administration is going to permit its lenders to allow home buyers to use the $8,000 tax credit as a down payment.
Previously, most buyers wouldn't receive the funds until after they filed their tax return, and that deterred some people from using the credit. The NATIONAL ASSOCIATION OF REALTORS® has been calling for the change.
“We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment,” Donovan says. His remarks came in an address to several thousand REALTORS® gathered Tuesday morning at "The Real Estate Summit: Advancing the U.S. Economy," at the 2009 REALTORS® Midyear Legislative Meetings&Trade Expo in Washington, D.C..
He says FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.”
Here are my thoughts:
1. On the surface, COOL. REALLY GOOD NEWS.
This is great news for first-time buyers who have been looking at the market, wanting to get in but have not had any capital to do so. This will open the doors for yet another level of prospective buyers to get into the market. For responsible individuals who just haven’t been able to get together a down payment, this is the great news they’ve been waiting for.
2. On second look, NOT SO MUCH.
While this may be good news for first-time buyers who have no cash, it is a return to the scenario that got us into this mess to begin with. This will be, in reality, a return to 100% financing. FHA programs require 3.5% of the purchase price as a down payment. 3.5% on a $230,000 home is $8,050.00. I’ve sold a number of homes in the past 12 months that easily fit into this price category. In addition, FHA guidelines allow the seller to credit up to 6% of the purchase price for closing costs.
I like Warren Buffet’s concept of “skin in the game.” Although I’m just like the next guy and love a free ride, having watched the recent meltdown, I know there is no such thing as a free lunch. Those who participated in the previous 100% financing schemes that had nothing personal invested in their homes were the very ones who walked away the moment they got upside down.
In addition, the question needs to be asked, “Why don’t they have a down payment?” We’re not really talking a lot of money here. I understand that life gets in the way and expenses happen, but I also have watched a generation grow up that believe that excessive consumer debt is their god-given right of passage.
My opinion is this:
“If you don’t have the discipline, dedication and skills to build up a small down payment, then I believe the odds that you will get into serious financial difficulty in the near future are significantly increased.”
If that’s true, maybe you should wait to buy a house until you learn how to control your debts. Just a thought.
3. Funds not going where they were intended.
One of the realities of the tax credit that made sense for many first-time buyers was the fact that it provided much needed cash to improve their homes once they moved in. Most of the homes being snapped up by those eligible for the tax credits have been foreclosed properties. Many of these need carpet, paint and so on to make them nice places to live. If the tax credit is used up front, then instead of having the rebate to help fix up their homes, many will most likely rely on plastic to “get-er done.” This takes us back to point number 2 above.
Secondly, the tax credit was intended to help fuel local economies. If used up front as a down payment, the money will not make it to the local businesses that truly need a financial shot in the arm; businesses like home improvement stores, furniture companies, contractors, etc.
4. An additional layer of complexity.
For those who’ve never had the joy of working with FHA loans, I’d suggest you sign up to work on an Alaskan crab boat for the Discovery Channel’s Deadliest Catch series. That way, you could experience thrills, excitement, pain and even death WITHOUT having to deal with the FHA. For those of us not so lucky, we know what’s coming.
This suggestion actually means adding another moving part to an FHA loan.
A bridge loan of some kind. Another layer of complexity in a process that is already WAY too complicated. Even more governmental involvement in a process that’s already extremely arduous. I feel like I just clicked my heels and ended up back in Kansas (I was born there and don’t plan on returning any time soon …). Someone PLEASE tell me it’s not just me …
5. An Extension?
Lastly, if this is the direction we are going, can an extension to deadline for the tax credit be very far behind? We’re talking about the government here, and this proposal will take time to implement. It really makes no sense to go to all the trouble of making this accessible to thousands more without adding more time for it to actually happen.
6. NEWS FLASH … It’s Been Retracted!!!
Since this post was originally launched, the possibility of using the credit for a down payment seems to have been rescinded! At least for now. My guess is that someone at HUD read my blog, saw the wisdom and changed their minds! I know, I’m being silly … quit dreaming. Here’s the scoop:
Those receiving FHA loans to purchase a home have very strict guidelines attached to where they can and cannot get their minimum 3.5% down payment monies from. These include:
Funds they’ve saved themselves
A gift from a relative
Employer contributions
Secured borrowed funds (example your 401K)
From governmental agencies
FHA approved non-profit organizations
The bridge loan as proposed for the $8,000 tax credit does not qualify. Therefore, until they can work out some bugs, this is off the shelf for now.
SO … good news, right? Maybe … maybe not … we’ll see.
Thursday, July 30, 2009
Wednesday, July 29, 2009
Tax Credit!
Think There's Lots of Time for Tax Credit? Think Again
Chicago Tribune, By Mary Ellen Podmolik
July 10, 2009
Do you hear that clock ticking?
It's the sound of time creeping up on the expiration of the $8,000 tax credit for first-time home buyers.
Yes, it's only July and the credit doesn't expire until Dec. 1. And yes, it's definitely in the best interests of real estate agents and lenders to instill a sense of urgency in buyers right now, particularly because August is typically a ho-hum month.
But unless the federal government decides to extend or expand the credit -- as the housing industry has campaigned for -- it may be time for potential first-time buyers to reset their watches.
That's because it's not that a contract must be signed before Dec. 1 or a loan approved. It's that the sale has to close before Dec. 1.
"There's not as much sand in the hourglass as we may think," said Jim Merrion, regional director at Re/Max Northern Illinois.
Buyers, many advise, should have a purchase contract signed by early October so they've got 45 to 60 days to safely close the deal. Buyers who want to be in a new home by Thanksgiving need a contract by late September.
Buying a home is a complicated process, particularly after the fun of looking at potential homes descends into financial minutia.
"Any time you're dealing with first-time home buyers there's little issues that come up," said Peter Thompson, a senior loan officer at Wintrust Mortgage. "They've never been through it and they don't understand the process."
That process has become more laborious. New appraisal rules have kicked in and the lending environment remains challenging. Also, it can take significantly longer to get an answer back on an offer for a distressed property than a traditional one.
"These days, everything is dragging out," said Scott Gerami, broker of Real Time Realty in Naperville . "It seems like every transaction I've had in the past three to four months hasn't closed on time."
It's a different scenario for new home construction.
Cambridge Homes, for instance, started construction on some spec homes in anticipation of increased demand because of the tax credit. Buying one of those homes, and participating in some of the decision-making, requires the process to be started in short order.
"This is not going to be like Christmas shopping," said Cambridge vice president Dave Smith. "The night before is not going to work. The month before is not going to work."
Troubling Numbers
Two new reports paint a clear picture of how troubled the housing market was this spring.
The first, issued this week by First American CoreLogic, showed that the portion of Chicago-area mortgages that were 90 or more days delinquent rose to 7.4 percent in May, compared with 4.2 percent in May 2008. That's higher than the 6.5 percent delinquency rate for Illinois and for the nation. The Chicago area's foreclosure rate also was higher than that of the state and nation.
Report No. 2 comes from the Office of the Comptroller of the Currency and the Office of Thrift Supervision. It concluded that loan modifications were on the increase even before the Obama administration's Making Home Affordable program got rolling, but so were the number of foreclosures. The report also provided fresh evidence that the foreclosure crisis continues to extend into the prime borrowing market, defined in this report as those borrowers who have credit scores of 660 or above.
Almost 3 percent of prime mortgages were 60 days or more past due in the year's first quarter, double the percentage of seriously delinquent loans in 2008's first three months.
Meanwhile, the number of foreclosures in process rose 72.6 percent from the year-ago period, to 844,389 cases nationally. Not all will become bank-owned properties because of mitigation efforts.
The report's bright spot centers on efforts to help consumers keep their homes. New loan modifications surpassed 185,000 during the quarter, a 55 percent increase from 2008's fourth quarter and up more than 170 percent from a year ago.
But not all of those modifications stuck. The report also found that nine months after a modification was made, about half of Fannie Mae- and Freddie Mac-backed loans had re-defaulted and were 60 days or more past due.
Debra Noguera
Home Mortgage Consultant
Wells Fargo Home Mortgage
MAC MACT5442-011
1209 S. White Chapel Blvd., Suite 100
Southlake , TX 76092
817.481.0005 x 11 Tel
817.722.1912 Cell
866.931.0346 eFax
debra.noguera@wellsfargo.com
http://www.wfhm.com/debra-noguera
This is an unsecured email service which is not intended for sending confidential or sensitive information. Please do not include your social security number, account number, or any other personal or financial information in the content of the email. This may be a promotional email. To discontinue receiving promotional emails from Wells Fargo Bank N.A., including Wells Fargo Home Mortgage, click here NoEmailRequest@wellsfargo.com. Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A. All rights reserved. Equal Housing Lender. Wells Fargo Home Mortgage-2701 Wells Fargo Way-Minneapolis, MN 55467-8000
Chicago Tribune, By Mary Ellen Podmolik
July 10, 2009
Do you hear that clock ticking?
It's the sound of time creeping up on the expiration of the $8,000 tax credit for first-time home buyers.
Yes, it's only July and the credit doesn't expire until Dec. 1. And yes, it's definitely in the best interests of real estate agents and lenders to instill a sense of urgency in buyers right now, particularly because August is typically a ho-hum month.
But unless the federal government decides to extend or expand the credit -- as the housing industry has campaigned for -- it may be time for potential first-time buyers to reset their watches.
That's because it's not that a contract must be signed before Dec. 1 or a loan approved. It's that the sale has to close before Dec. 1.
"There's not as much sand in the hourglass as we may think," said Jim Merrion, regional director at Re/Max Northern Illinois.
Buyers, many advise, should have a purchase contract signed by early October so they've got 45 to 60 days to safely close the deal. Buyers who want to be in a new home by Thanksgiving need a contract by late September.
Buying a home is a complicated process, particularly after the fun of looking at potential homes descends into financial minutia.
"Any time you're dealing with first-time home buyers there's little issues that come up," said Peter Thompson, a senior loan officer at Wintrust Mortgage. "They've never been through it and they don't understand the process."
That process has become more laborious. New appraisal rules have kicked in and the lending environment remains challenging. Also, it can take significantly longer to get an answer back on an offer for a distressed property than a traditional one.
"These days, everything is dragging out," said Scott Gerami, broker of Real Time Realty in Naperville . "It seems like every transaction I've had in the past three to four months hasn't closed on time."
It's a different scenario for new home construction.
Cambridge Homes, for instance, started construction on some spec homes in anticipation of increased demand because of the tax credit. Buying one of those homes, and participating in some of the decision-making, requires the process to be started in short order.
"This is not going to be like Christmas shopping," said Cambridge vice president Dave Smith. "The night before is not going to work. The month before is not going to work."
Troubling Numbers
Two new reports paint a clear picture of how troubled the housing market was this spring.
The first, issued this week by First American CoreLogic, showed that the portion of Chicago-area mortgages that were 90 or more days delinquent rose to 7.4 percent in May, compared with 4.2 percent in May 2008. That's higher than the 6.5 percent delinquency rate for Illinois and for the nation. The Chicago area's foreclosure rate also was higher than that of the state and nation.
Report No. 2 comes from the Office of the Comptroller of the Currency and the Office of Thrift Supervision. It concluded that loan modifications were on the increase even before the Obama administration's Making Home Affordable program got rolling, but so were the number of foreclosures. The report also provided fresh evidence that the foreclosure crisis continues to extend into the prime borrowing market, defined in this report as those borrowers who have credit scores of 660 or above.
Almost 3 percent of prime mortgages were 60 days or more past due in the year's first quarter, double the percentage of seriously delinquent loans in 2008's first three months.
Meanwhile, the number of foreclosures in process rose 72.6 percent from the year-ago period, to 844,389 cases nationally. Not all will become bank-owned properties because of mitigation efforts.
The report's bright spot centers on efforts to help consumers keep their homes. New loan modifications surpassed 185,000 during the quarter, a 55 percent increase from 2008's fourth quarter and up more than 170 percent from a year ago.
But not all of those modifications stuck. The report also found that nine months after a modification was made, about half of Fannie Mae- and Freddie Mac-backed loans had re-defaulted and were 60 days or more past due.
Debra Noguera
Home Mortgage Consultant
Wells Fargo Home Mortgage
MAC MACT5442-011
1209 S. White Chapel Blvd., Suite 100
Southlake , TX 76092
817.481.0005 x 11 Tel
817.722.1912 Cell
866.931.0346 eFax
debra.noguera@wellsfargo.com
http://www.wfhm.com/debra-noguera
This is an unsecured email service which is not intended for sending confidential or sensitive information. Please do not include your social security number, account number, or any other personal or financial information in the content of the email. This may be a promotional email. To discontinue receiving promotional emails from Wells Fargo Bank N.A., including Wells Fargo Home Mortgage, click here NoEmailRequest@wellsfargo.com. Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A. All rights reserved. Equal Housing Lender. Wells Fargo Home Mortgage-2701 Wells Fargo Way-Minneapolis, MN 55467-8000
Tuesday, July 14, 2009
Chef Pointe Cafe!
Wow, I finally ate there. I have always heard so much about it and my daughter and I had lunch on Friday. It was very good. Way to much food for one to eat at lunch. We could have shared although we had left overs for dinner. It was great!
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