Out with the old…

… and in with new FHA guidelines. Given the time of year, it seems almost appropriate.  Regarding the new change…

FHA loans now require borrowers to not only have a minimum qualifying credit score to be approved for a loan, borrowers also need to have at least three trade lines (accounts) in their credit history.  The three trade lines must:

• Trade lines can be a credit card(s), student loan, car loan, mortgage
• Have at least 12 months of history (current or closed account)
• If an account is closed, it cannot be closed more than 24 months ago or it will not be counted toward the required three trade lines

Because of this new change, even if a borrower has the minimum down payment (3.5%) and a qualifying credit score (620+), they would still not qualify if the new trade line requirement is not met.

Why would FHA require this? There has not been an official statement, but they could be thinking “if there are only one or two trade lines, is the credit score an accurate score based on the limited history.” Regardless of the reason, this is just one more item to keep in mind when looking to buy a home.

I’ve said this before and I will say it again, planning ahead is key.  Knowing where you stand, how much you can afford, and when it the best time to move forward is essential in this ever changing market.

Happy Holidays!!

Wishing you and yours the best this holiday season!! 

it’s official

The new bill extending the first time home buyers tax credit passed through both the House and the Senate.  The last stop is President Obama’s desk.  Once signed, the law goes into affect.

Several aspects of the bill are the same, but there are some new twists this time around.

• First time home buyer tax credit of $8,000 extends through April 30, 2010. Home must be under contract by that date and closed on or before June 30, 2010.
• As before, first time home buyers are individuals who have never owned a home OR have not owned a home in 3+ years.
• A “moving up” tax credit of $6,500 is available for current home owners buying a new home.  To qualify, home owners moving up must have lived in their current residence for 5+ years.
• Income levels for a single purchaser are limited to $125,000 adjust gross income (up from $75,000) and $225,000 for couples (up from $150,000).
• Home buyers with adjusted gross income above those levels can still qualify for the tax credit, but the amount of the credit diminishes as you move above the income limits.
• In order to cut down on fraud, home buyers must be at least 18 years old and must submit a copy of the HUD-1 settlement statement from closing.

There you have it.  New life in the tax credit and let a new countdown begin… only 175 days left before you must have a home under contract to qualify for either of the tax credits.

The recession is over… right?

The numbers are out. The last quarter saw the GDP grow by 3.5%.  That means the recession is over and it’s time to party!!

Or is it?…

GDP growth is a great way to measure the state of the economy, but unusual circumstances (such as the $600 government rebate check in Q2 2008 or “cash or clunkers” in Q3 2009) can mask actual deficiencies. Moving forward, there are some other areas that one would like to see some improvement.   

• Jobs – While job creation typically lags behind an economic recovry, seeing fewer jobs being shed month-to-month would encouraging – September had more overall jobs lost than August.
• Home values and sales – The housing market is slowly stabilizing and home sales are increasing month-to-month, but we are not there yet.  When people feel confident in their job, they are more likely to make bigger purchases (homes, cars, etc.).  Until the job market rebounds, the housing market will continue to struggle.
• Inflation – This has definitely not been problem during the current recession. Inflation figures are below 0% and have NOT given way to major deflation.  Ironically, mild inflation can be viewed as a good thing for the economy. It shows that people are spending/investing money.  When year-over-year inflation figures are below 0%, it means people are not spending/investing money. That is not the best scenario for an economy primarily based on…
• Consumer Spending – Whether you like it or not, consumer spending comprises 60-70% of the U.S. economy.  There was a 3.4% growth in consumer spending in the last quarter, but some of the growth is attributed to the “cash for clunkers” program. It will be telling to see how consumers behave as we move into the holiday spending season.
• Stocks – Wall Street has roared back after falling to decade lows in the market.  Even though the market is still volatile, the recovery in stocks has been a much needed boost. 

Is the recession over?  While there have been great strides made, in the words of Obama and others… “we’re not out of the wood yet.”  These other areas need to see improvement too if we truly want to see an end to the longest and deepest recession since the Great Depression.

Seems that time is not running out

There has been a lot of talk coming out of Washington regarding extending the first time home buyer’s tax credit.  There are those that want it extended for another year.  Others that want it phased out gradually over the next year.  There are some who want it to end now.

After weeks of hearing about it, there are actual developments to report on a possible new bill that will extend the tax credit.  Note the use of the word “possible” because this is not a done deal.

• the tax credit applies to first time home buyers (never owned a home OR not owned a home in 3+ years) and could also apply to buyers moving up to a larger primary residence (must have owned current home 5+ years)
• the first time home buyer credit would remain at $8,000 and the trade up credit would be $6,500
• home buyers (first home or new home) adjusted gross cannot exceed $125,000 ($225,000 for couples filing  jointly)
• homes must be under a signed contract by the end of April and close no later than June 30, 2010
• tax credit only applies to homes $800,000 or less

As of this posting, the bill has not been passed and no vote is scheduled.  What does that mean? If you want to make sure you get the $8,000 tax credit as a first time home buyer, start the process now and own your home before the end of November. 

Holding onto the past

The past can hold a lot of great memories… birthdays, wedding day, graduation, one’s favorite TV show that was cancelled by FOX… OK, that last one was a personal example, but you get the idea.

Some people I talk to still reminisce about the “good old days” of buying a home when it was easy to get financing. By fixating on that thought, one may begin to believe that no one can get financing now. That is simply not true! 

Banks are still lending money, but they now prefer “safer and more predictable” loans (in other words, fixed financing) instead of the no doc, stated income/stated asset, subprime, etc. programs that helped usher in the current financial crisis we are all struggling through.

Borrowers can still qualify to buy homes with little money down, less than average credit, and can choose from a variety of loan programs. Some examples:

• Borrowers only need 620 credit score to qualify for an FHA loan
• A down payment as little as 3.5% can get someone into a home with an FHA loan (5% for a conventional loan)
• Some foreclosed homes are eligible to be bought with only $100 down, and still others are available with no money down
• Adjustable Rate Mortgages (ARMs) are also available with as little as 5% down
• Interest Only ARMs do exist, but the down payment requirement is now 20%

If you are looking to buy or refinance your current home, get in contact with me. We can discuss “how things were” vs. “how things are” and make sure you are ready to move forward with your next loan.

Sometimes it is just best to let go of the past no matter how tough it may be… If we stay in the past, we might miss out on the best buyers market (low rates and lower home values) in years. 

One might also miss out watching an actor from their favorite TV show star in his new show on ABC.  If that were true for me, I would have missed this great Halloween episode moment when he paid tribute to his character from the cult TV show FOX cancelled 5 years ago - Malcolm Reynolds from “Firefly”.  Enjoy!

Through the roof

Where is the country’s debt level headed? I’ll give you a hint; see the title of the post. 

That’s right, with the $123 billion auction in Treasury bonds due out this week, the debt level of the U.S. is going to be at the brink of the self-imposed ceiling of $12.1 trillion.  This raises some interesting questions with the first one being pretty obvious.

1. What does this mean? – It means that the government will be out of money to operate.  The government will either shut down OR vote to raise the debt ceiling.  The latter is the much more likely scenario.

2. “The government shuts down.” That sounds bad so how will that affect all of us? – Day to day life will go on as it did before the shut down just like it did the last time there was a shutdown in 1995.  It sounds worse than how it will actually play out.

In theory, the debt ceiling should be a resistant level for government spending. Meaning, if it gets to that point, perhaps it is time to reevaluate some policies.  Sadly, that doesn’t happen when you have the alternative of simply raising the ceiling.

3. How would this affect interest rates and the market?  Now this is perhaps the most intriguing question of all, and the potential affect on mortgage rates would be a negative one.

If the government shuts down and/or the debt ceiling isn’t raised, then United States of America finds itself in a situation where we are maxed out on credit – we have no credit – resulting in a loss of value for U.S. bonds.  This scenario would negatively impact other country’s bond investments, individual’s bond investments, and cause interest rates to rise (as bond prices fall, interest rates rise).

That scenario will likely be avoided by a simple vote to increase the debt ceiling.  That said, the debt ceiling isn’t the only development affecting the trading and value of bonds:

• Bond prices are not only on the wrong side of the 200 day moving average, but are also below the 10, 25, and 50 day moving averages. That means there is no support to hold bond values should the market be given a reason to turn.
• Fascinatingly enough, a “reason” for turning may occur this week as the Feds plan to auction $123 billion in bonds this week.  If the auction buying is weak, expect bond values to drop pushing interest rates higher.

In short, the technicalities of bond trading point toward bond prices falling and interest rates rising. If there ever was a time to lock in a rate for a purchase, or talk to someone about refinancing an existing loan, now is the time. Don’t miss out on these historically low rates hoping they will improve by another 0.125%.  Get started today! 

The end is near

5 Minutes to Midnight

I’ll admit that the doomsday clock at about 5 minutes to midnight (meaning the end of the world is upon us) is a little over dramatic – even for me.  The point I’m trying to make is simply this… time is running out on the $8,000 tax credit and low interest rates.

Let me explain…

$8,000 tax credit expires on November 30, 2009- As of this post, there are only 30 business days remaining before the deadline (remember we lose a couple of days because of Thanksgiving). While it may seem like there are 6 weeks to go, there are only 30 working days left. 

There is talk of extending the credit and some people are being creative in trying to define what part of the buying process needs to be completed by the 30th… Bottom line, if you want to be sure to get the tax credit, a first time home buyer’s purchase must be closed on or before November 30th.

Historically low interest rates- Last November, the Federal Reserve announced a plan to purchase up to $1.25 Trillion in mortgage back security bonds.  This would increase their value and push interest rates down (as bond prices go up, interest rates go down – and vice-versa).

Shortly after the announcement, interest rates dropped about a half of a percentage point — on just the announcement of the plan!!!  Once the Feds actually began buying bonds, rates dropped into the 4’s.

Those days are coming to an end as the Feds begin (over the past couple of weeks) to scale back the purchasing of bonds.  They plan to be out of the bond buying business at the start of the new year.

What does this mean for interest rates? Well, the past couple of weeks have seen the market trend in the wrong direction pushing mortgage rates slightly higher.  One can only expect this trend to continue as the Feds move away from buying bonds. 

All hope is not lost. At this moment, it is not too late.  If you haven’t taken advantage of these historically low rates to purchase a home or refinance your existing home (if you current rate is over 6%, we need to talk), rates are still historically low.  Also, there is enough time to still buy a home and qualify for the tax credit if you start today.  Let’s get started by calling or emailing me!

I’ll be back? It is back!

Like a futuristic machine that won’t quit, conventional loans have fought back against the credit crunch. I’m not saying it’s over, but there is at least one positive sign -  5% down payments* on conventional loans are back!

* – This news is a few weeks old, but  I intentionally pushed off writing about it in case PMI companies changed their mind - they have been known to do that!

The real question… who qualifies for a conventional loan with 5% down? Borrowers with at least:

• a 5% down payment
• 720+ credit score
• and a debt to income ratio of less than 41% – in other words, buying a home one can afford

Anyone out there who doesn’t have a 720+ score of 5% down?  Don’t worry!  Even though there is a credit crunch (less money available to loan), there is still money available to loan! 

FHA loans only require a 620+ credit score with a 3.5% down payment.  There are other loan programs available that one could be eligible to buy a home with less than a 3.5% down payment (see this recent post for more information on these programs).

Looking to buy a home with 5% (or less) down?  Call or email me.  I would enjoy reviewing your situation, explaining the pros and cons of the different loan programs, and helping choose the right loan for you. 

The passing of time

Time.  Where does it go? We never seem to have enough of it… We typically wonder if the time is “right”… and for some of us, time is beginning to run out.

Tax credit for first time home buyers – In order to qualify for the $8,000 tax credit, the home must be purchased before December 1, 2009 – which means November 30th. 

You may be thinking “there is still plenty of time.” While there are still 10 weeks remaining, if you haven’t started the process, it’s enough time, but not a lot of time to spare.

Think about it… You’ll need to find a realtor. Then find the time to start looking at homes for sale. After looking at several homes, you’ll make an offer AND wait for the offer to be accepted.  Then you will need to apply and get approved for a loan.  Finally, after all of that, you are ready to buy the home.

Typically the entire process can take somewhere between 6-8 weeks.  Whew, two weeks to spare! However, remember there is a major holiday that will limit the number of closing times available at the end of November. 

Oh, don’t forget about fence sitters who will make the move to buy a home.  Now all of the sudden realtors are busier than normal, closing attorneys are booked, and lender underwriting times may be longer than normal.

The moral of the story – plan on closing at the beginning or middle of November to be sure not to miss out on the tax credit.

Refinancing a home – Rates are at historical lows.  As of this post, a 30 year fixed rate is under 5% and a 15 year fixed rate is in the low 4’s.  That being said, rates won’t stay there forever.  Don’t believe me? Remember late May of this year when rates went from the mid 4’s to almost 6% in about two weeks?

I don’t know when rates will go up, but they will at some point.  If you are thinking about refinancing your home, let’s talk now and see if it makes sense so you don’t miss out.

Time… we never seem to have enough of it and wonder if it is the “right” time.  If you are looking to buy a home and get the tax credit OR refinance your existing home, now is the time! I’d enjoy the opportunity to speak with you about your options.