Mortgage Changes and Tax Credit News - What's on the Horizon?
Friday, December 11, 2009 at 9:56AM
We all understand that mortgages were too easy to get a few years back, and that was a major contributor to home values climbing too quickly and the resultant bursting of the bubble; however, it is apparent that today many loans that "make sense" are not being closed. Gone are the "Stated Income Loans" where proof of income was not required (unless you have 30% or more for a down payment), replaced by required verification of income direct from the IRS itself. Gone is the judgment of credit-worthiness of a borrower by an underwriter, replaced by automated underwriting systems. For the client who "fits in the box", mortgage money is plentiful (and cheap!), but that box is shrinking. Here we are, at the tail end of 2009. This year will go down in the history books as yet another year of extreme change. Unfortunatly, I don’t think 2010 will be any more predictable and we will see even more change in the coming year. Below I have made some notes about some of my predictions for the coming year:
Lending guidelines continue to tighten.
Is FHA about to make radical changes?
The Secratary of the HUD spoke in front of Congress and made two major points. First, they are intent in making sure that lenders adhere to guidelines. Seven lenders have been eliminated from the program and 270 have been sanctioned for their practices. Additionally, in order to protect the fiscal integrity of the insurance fund (FHA is at its core an insurance company), increases in the insurance premiums are being discussed, as well as, significant changes in the underwriting guidelines. Will the allowable "Seller’s Concession" be reduced from 6% to 3%? Will the required down payment be upped from 3.5% to 5%? If those two changes happen, buyers will need 4.5% more cash into the transaction. On a $400,000 Purchase, that’s $18,000 more! Will that drive home prices down further???
Are interest rates going to go up?
This is the most frequently asked question I get and my answer is always: Well of course they are! The real question is not will they but when will they go up? Lack of economic conviction is why mortgage rates have stayed so low this year. We all know that the Fed’s heavy purchasing of mortgage backed securities has kept rates artificially low, which the Fed has announced they will discontinue beginning January 1st. Although our economic recovery is considered weak and fragile, we are no longer in a downward spiral. Today, we have hope. And as our nation regains it’s footing from what should have been the worst economic depression on record, there’s now lingering uncertainty on Wall Street about what’s due to our country in the months and years ahead. We are seeing hope and the stronger our economy becomes, along with the elimination of the Fed’s MBS purchase, along with a few other factors, increasing rates in 2010 is a given. Like I said in the beginning, the real question is when. I expect rates to remain unchanged over the next 30 days, no major increases in Q1 and we will begin to see rises in Q2. This is just my opinion and it may not be appropriate for your situation.
Five more months to get in Contract for the Federal Tax Credit for FIRST TIME HOME BUYERS.
Beyond the basics (the definition of a First Time Home Buyer and the fact that you must stay in the home for three years), here are a few of the lesser known talking points:
There is an increase in Income Limits (and resulting Phase Out Limits) from $75,000 to $125,000 for single filers and from $150,000 to $225,000 for married filers. That means many more people qualify!
That if you close in 2010 before the June 30th deadline, you can get the credit in your 2009 Returns. You can even file an extension and not even file until AFTER you have closed, or amend returns that had been filed. Any of these actions will get you your tax credit cash in a matter of weeks, not in 2011!
That if there are multiple home buyers and/or co-signers that may or may not be First Timers, there are options on how the credit can be allocated. As always, discuss these items with your accountant.
There is a new REPEAT HOME BUYER TAX CREDIT of up to $6,500.
Are you aware that you need NOT purchase a more expensive home to qualify? Just be in contract by April 30, 2010 and close by June 30.
When you consider these likely changes and deadlines with a probably rising interest rate market and a shrinking inventory, I can’t imagine why anyone who can purchase real estate would not be running to their nearest seasoned real estate agent. Anyone who buys a home now will be glad they did over the next few years and those who didn’t will be kicking themselves in the butt, "shoulding" on themselves (I should-a, would-a, could-a). Have a blessed day! Michelle
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