Now that the Tax Credit has expired what should buyers do?

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Ok.  Check this.  What causes prices to go up?  Either reduced supply or increased demand.  Would you agree?  So, now that everyone with a rich uncle or generous grandparent has bought their house to take advantage of the tax credit what does that mean to you, the buyer who “missed out” on the 8,000 “obama tax credit”? 

Let me tell you why I feel this 2nd half of 2010 is going to be a ROCK STAR time to buy your first home or even dip your toes into purchasing investment properties.  Ready?  Here goes.

With the tax credit expired, there will likely be LESS buyers to compete with.  Pretty cool, right?  If you talk to anyone who’s purchased a home, it’s not uncommon for them to have bid on multiple homes because of the increased competition.  In fact, the tax credit made it more of a “sellers market” than people will ever admit. 

Ok, so we have fewer buyers to compete with.  That’s good.  Now, how bout financing?  Even though the Fed has halted their mortgage buying, rates barely budged.  Why?  I guess you could say it’s a flight to “safety”.  You see, the stock market’s had huge gains and the international debt market (i.e. the PIGS you hear about on CNBC) in shambles, the market place is still digging owning mortgages yielding around 5% because their costs of funds are so low.

Ok, so less competition.  Good financing.  Last but not least?  There’s STILL ample supply of foreclosures and short sales coming down the pipeline INCREASING supply of homes.  So if I were a betting man I would bet that the 2nd half of 2010 is going to be a GREAT time to get into your first home or investment property whether it be a condo in DT Minneapolis or St Paul or a big shack out on Minnetonka or the St Croix. 

Got questions?  Give me a call at 651.210.9593. 

P.S.  Sorry for the delay in updating the blog…been busy helping those getting the tax credit with their financing

Can I buy a home in Minnesota after I have a short sale using FHA financing?

As many of you are aware, a lot of the homes right now on the market are short sales and foreclosures.  I have many people ask me about buying a home after a short sale occurs.  Here are the current guidelines for FHA loans.

• The borrower must have made all mortgage payments within the month due for the 12 months prior to the short sale
• Borrowers who executed a short sale after completing a permanent modification are eligible for FHA financing, provided the borrower made at least 12 payments on the permanent modification and all payments on the permanent modification were made within the month due for the 12 months prior to the short sale
• Borrowers who completed a short sale on a loan that was under a temporary modification plan at the time of the short sale are ineligible for FHA financing for three years after the short sale
• The borrower must have made all installment debt payments within the month due for the 12 months prior to the short sale
• The short sale must serve as payment in full on the existing liens, and the existing mortgage servicer may not require repayment of the difference between the mortgage balance and the short payoff
• Borrowers may not execute a short sale to “take advantage of declining market conditions and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance”
• Borrowers in default on their mortgages at the time of a short sale are ineligible for FHA financing for three years after the date of the short sale unless the borrower experienced significant extenuating circumstances – We require a Total Scorecard “approve” or “accept” response in addition to evidence of the extenuating circumstance
• Borrower(s) may not have had a previous bankruptcy or foreclosure

When does the 8000 Obama tax credit expire for members of the military?

As most of you know, the current deadline for both the “First time buyer” tax credit and the “move up buyer” credit is to have an offer in writing by April 30th with a closing by June 30th.  One exception is for members of the military and here are the specifics from the irs.gov website:

Members of the military and certain other federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and qualify for the credit. Thus, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2011. If a binding contract is entered into by that date, the taxpayer has until June 30, 2011, to close on the purchase. Members of the uniformed services, members of the Foreign Service and employees of the intelligence community are eligible for this special rule. It applies to any individual (and, if married, the individual’s spouse) who serves on qualified official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.

So if you or someone you know qualifies for the military extension (or don’t qualify and want to get in on the original offer for civilians) give me a call right now at 651.210.9593.  Thanks and Happy Friday! Jay Dacey

Key dates on the Obama tax credit for first time home buyers and move up buyers in Minnesota

Can you believe we are only a week away from St Patricks Day 2010?  Me neither!  Here are some important dates and if you are “on the fence’ you should give me a call at 651.210.9593 so you get in before the deadlines. 

FHA closing costs are changing from a maximum of 6% right now to a maxium of 3% on case numbers assigned on and after April 5, 2010.  A case number is an FHA “identifier” of you and the property.  Typically 3% is sufficient to cover most closing costs but on smaller loans I see some 6% seller paid files.

Second, FHA Upfront MIP is going from 1.75% to 2.25% on case numbers assigned on or after April 5th.  ON a 100,000 loan that is 500 dollars.  On 300,000 it’s a whopping 1500.  If you are in the market you need to be proactive and get in before this goes up.

Lastly, for the First Time Home Buyer and the Move Up Home Buyer, you need to have your offer accepted by April 30, 2010 and close before June 30, 2010. 

Now a lot of people are asking me “will Obama extend the tax credit” and the answer is I don’t know.

Increase in Upfront Premiums for FHA Mortgage Insurance for Minnesota Home Loans

This is a letter copy and pasted from HUD.

w.hud.gov espanol.hud.gov

Can I buy a home in Minnesota after having a short sale?

Short sales occur when a property is sold for less than the borrower owes on the property. FHA will permit borrowers to purchase another home after a short sale, provided all of the following requirements are met:

Minnesota Contractor Helps Clients Remodel Home With No Out Of Pocket Costs

Tony Greczyna of Pineview Builders in Roseville got a call one day from a Minneapolis couple about remodeling their kitchen along with some updated mechanicals and hardwood flooring. 

After he talked to them on the phone he agreed to meet with them and inspect the property to put together a bid for the work.  When he asked how they’d be paying for the project they informed him that Jay Dacey, with Metropolitan Financial Mortgage Co. had them pre-approved for the project.

Rather surprised, Tony called Mr Dacey that same day to get more information on how they’d get the financing because the homeowner’s informed him they had only recently purchased the property and assumed there would not be a large equity position.

Mr Dacey explained to Tony that in 1978, under the National Housing Act, HUD made available a very unique home improvement loan program that is not well known but is starting to become more popular as many homeowners are either buying properties in need of work or already in a home that needs some type of renovation.

Surprisingly, qualifying for the loan is no more stringent than an FHA mortgage.  Homeowners need only a 640 credit score and reasonable debt to income ratios to credit qualify and they do not need 20% equity or anything like that either. 

In fact, the bank will give the homeowner credit for the work to be completed when determining the loan size so future appreciation is credited before construction starts.

What’s best for contractor’s Dacey noted is the funding is gauranteed for them because the money is held in escrow by the mortgage company. 

As 2010 is just around the corner more and more contractors are expected to be utilizing this as a tool for both new remodeling projects and to also get back in touch with past bids that never moved forward as a result of the home owners’ ability to finance them.  

Homeowner’s and contractors alike are encouage to give Jay Dacey a call at 651.210.9593 and see if they qualify for this program and are encouraged to do so immediately as the low fixed rates currently available are expected to rise in the first half of 2010.

Four things every MN home buyer need to know about the Obama $8,000 dollar tax credit

As you know the  homebuyer tax credit has been extended with some minor changes that will benefit first-time homebuyers and homeowners who want to sell their current home and buy a new one.

The credit is reasonably straightforward, but there are some tips for those who want to take advantage of it.
1. Deadline: April 30, 2010 – The most important tip is to be aware of the deadline. Buyers who want to use the tax credit must have their new home under contract (i.e., in escrow) by April 30, 2010, and must close the transaction within 60 days after that date.
That deadline is much sooner than it may seem: Many buyers take months to locate a house, and closing a transaction typically takes 45 to 60 days.
2. Credit up to $8,000 or $6,500 – Buyers also need to understand that the tax credit is equal to 10 percent of the sale price of the home, which could be less than the maximum of up to $8,000 for first-time buyers and up to $6,500 for repeat homeowners.
For example, if a first-time buyer purchased a small condominium that cost just $70,000, the tax credit would be $7,000. And by the way, if the home costs more than $800,000, the credit now drops to zero.
3. Get good advice – Homebuyers who want to take advantage of the tax credit should consult the right people for help
A tax preparer, who can help them ensure they meet all the requirements to use the credit.
A mortgage lender, who can help them choose a loan program that will fit their needs.
A Realtor, who can help them locate a home they can afford and want to purchase.
4. Beware of tax fraud – Homebuyers should educate themselves about the tax credit and learn the lingo.
Buyers and sellers should be wary of any advice that sounds suspicious or overly complicated. For instance, buyers who are told to conceal any information from their lender should “get away” from whoever offered that advice.
One final tip: The IRS has found such a high incidence of fraud and creative tax accounting associated with the homebuyer tax credit that taxpayers who take the credit will now be required to attach a copy of the settlement statement to their federal tax return as proof of purchase. Buyers should keep their paperwork handy.

What are the new changes to FHA and when do they go in effect?

Hey everyone, as usual, there’s talk of change in the mortgage industry (both in Minnesota and nationwide).  So the latest talk has to do with FHA and enforcing stricter guidelines.   Before I share them with you, it’s important you know that FHA defaults are rising very fast and I feel it will be the next “bubble” or “waive” of foreclosures…those 2007/2008 FHA files that were done without much thought having gone into the underwriting.

Ok, so here are the big ones….

Down payment:  talk of raising it from 3.5% to 5%.  Since most clients are getting gifts from their grandparents or parents, I don’t know if this will be that big of a deal.  It will obviously help the banks improve their equity position but not by much.  If you are able to save up 7k for a 200k purchase, will it be that much harder to save up 10k?  Savers can save.  Gift givers can gift.

Seller paid closing costs:  FHA allows for up to 6% which seems like a lot but isn’t really all that much more on small loans.  Conventional allows for 3% but no one is doing any conventional purchases now anyways so it’s not a huge deal.  Also, because the yield spread premiums banks pay brokers (or if you are an actual bank your service release premiums) are typically higher on FHA, on most loans 3% in seller paids plus some of the YSP towards the banks fees would offset this change to make it almost a non-issue.

Another area of issue is the Up Front Mortgage Insurance premium.  Right now it’s 1.75% of the loan for most loans and it’s rolled into the loan amount the majority of the time.  If it get’s rolled in, big deal.  If it’s a little higher, big deal.  Not out of pocket, not felt by the clients. 

Talk is also focused on raising the monthly MI payments.  This would be the most impactful in my opinion because now we are talking about dollars coming out of the pockets of consumers every month.  This also makes homes less affordable.  Kind of counter-productive, right? 

Last but not least…the magic FICO score requirment.  Currently at 500 but most lender imposing minimums of 620 or 640.  In my opinion, and I “saved the best for last”, raising credit score minimums to 700 for borrowers would be the safest bet for getting better performing loans. 

Now, there is only 1 minor problem with this…if you rip out the borrowers between 620-699 who can now get financing, you take away a decent sized portion of the market, lowering demand for housing and theoretically, lowering prices.  Now, this may be a short term pain for a long term gain. 

The reason why you ask?  The folks who have lower scores default/foreclose more often.  Those foreclosures are essentially bringing the homes values down of the neighbors who’ve paid on time.   So statistically, those people would be more likely to foreclose later on down the road and keep a drag on pricing by keeping foreclosures a larger portion of the market than is usual.

Since I  dont’ have a couple billion in TARP money and no high powered lobby firm I won’t be able to re-write these laws or have too much an impact…but it’s something to think about.  Raising credit standards alone should help prevent the majority of defaults more so than raising down payments and raising the costs by having higher MI payments.

Have questions, let me know….phone is 651.210.9593 or email away to jay@jaydacey.com

What percentage of FHA loans are currently delinquent?

A new survey put out recently indicated that 8.9% of FHA insured loans are currently 90 days or more behind.  This has worried some as FHA is required to keep 2% reserves per their agreement with the government.  They are currently around 3% in reserves but delinquincies are rising so be prepared for the potential for higher up front mortgage insurance premiums (currently at 1.75% for most FHA mortgage loans) and at .55% for the monthly mortgage insurance premium.  Now is a great time streamline into a lower rate adjustable rate mortgage because the rates are so good and if ARM’s make you uncomfortable, fixed rates are still well under 6%.