Last-minute Homebuyer Tax Credit Tips

The clock is ticking on the federal homebuyer tax credit.  Will you get yours?

You still have time to buy a home and meet the deadlines, but you will need to act soon and be proactive throughout the transaction.
 
The homebuyer tax credit is worth 10 percent of the home’s sale price, up to $8,000 for buyers who haven’t owned a home in the previous three years and $6,500 for buyers who have owned and occupied a principal residence for at least five consecutive years during the eight-year period that ends on the day the new home is purchased.
 
Here are some tips for last-minute buyers:

Tip: The buyer must enter into a binding contract to purchase the home on or before April 30, 2010. The term “binding contract” isn’t defined in the homebuyer tax credit law and may be subject to interpretation. Generally, the term refers to an agreement that’s signed by both parties and has a deposit in escrow.

 Tip: The purchase must close within 60 days after the binding contract deadline. In this context, that means June 30, 2010, not June 29, 2010, according to the Internal Revenue Service. The discrepancy between 60 calendar days and two months occurs due to a financial fiction that every month equals 30 days.

Tip: Buyers should be upfront with their Realtor about their must-haves and their wish list. Buyers who aren’t realistic could find themselves up against the deadline with fewer houses from which to choose.

Tip: Harsh weather may be a help or an obstacle. Buyers who are willing to trudge through snow to find a house may have an advantage over buyers who wait until the weather improves.

Tip: Contract contingencies allow buyers some “breathing room” to take care of big items like financing, inspections and the sale of their current home, but contingencies shouldn’t be an excuse to delay once the deal is pending. If you run into a problem and you no longer want to buy that house, it’s great that you had those contingencies to protect you, but you may not have time to find another property.

Tip: Anecdotal reports suggest that some buyers have included a tax-credit contingency in the purchase contract. Whether that’s a necessary protection to make sure the deal closes on time depends on the situation and local practices. Either way, buyers should read the contract to make sure the closing will occur before the deadline.

Tip: Buyers should be preapproved for a mortgage because glitches such as a mistake on a credit report or a lender’s request for tax returns that must be retrieved from the Internal Revenue Service can cause a delay.
 
Tip: Buyers also should allow extra time in case the mortgage lender requires a second appraisal, which can delay final loan approval. The appraisal process in residential lending is going through some changes and it is not uncommon to have a mortgage lender require more than one appraisal.

Tip: Buyers should line up homeowners insurance as soon as the house is under contract. Homeowners insurance is usually routine, but some states have special disaster-related issues. A big storm, earthquake or fire can trigger a moratorium on new policies.

Tip: The IRS has introduced Form 5405 and instructions for taxpayers who want to claim the homebuyer tax credit.

HAFA (Home Affordable Foreclosure Alternatives) short sale rules may help Minnesota home sellers

Minnesota homeowners struggling to sell their homes in a short sale are getting some relief, thanks to the federal government’s Home Affordable Foreclosure Alternatives, or HAFA, program. Up to now, many short sales — in which the lender accepts a sale of the property for less than the full amount owed — have taken months to complete. Sometimes, the complex and lengthy process has failed, resulting in foreclosure.
 
HAFA establishes streamlined short sale rules and incentivizes borrowers and lenders to work together to avoid foreclosure. The rules — in effect between April 5, 2010, and Dec. 31, 2012 — also are intended to speed up the short sale process.
 
Prior to HAFA, homeowners often listed their home for sale without an idea of what the lender would accept.  Under HAFA, borrowers receive preapproved short sale terms from the lender prior to putting the home on the market.
 
Eligibility requirements
The HAFA guidelines apply to lenders who voluntarily participate in the HAMP program. The Department of Housing and Urban Development says more than 100 servicers have signed up to participate in HAMP, covering more than 89 percent of mortgage debt outstanding in the country.
To be eligible for HAFA, homeowners must first apply for a loan modification through the Home Affordable Modification Program, or HAMP. Owners who do not qualify for a loan modification or miss payments during the initial loan modification period qualify for HAFA.
Other HAFA requirements include:
·         Property is principal residence.
·         Mortgage originated before Jan. 1, 2009.
·         Mortgage is owned or guaranteed by Fannie Mae or Freddie Mac.
·         Borrower is delinquent or default is foreseeable.
·         Homeowner demonstrates hardship.
·         Borrower’s total monthly housing payment exceeds 31 percent of gross income.
·         Unpaid principal does not exceed $729,750.
 
According to HAFA rules, lenders now must offer a short sale in writing to the borrower within 30 days if the borrower does not qualify for or complete a loan modification. Borrowers then must respond within 14 days to the lender’s short sale agreement.
 
When a purchase offer is made, borrowers must submit the sales contract to the lender within three days, along with the buyers’ mortgage preapproval and the status of negotiations with other lien holders on the seller’s property.
 
Finally, lenders must approve or deny the contract within 10 days.
 
HAFA rules also state that lenders must release borrowers from the obligation to repay the difference between the sales price and the loan amount. No deficiency judgments are allowed for a first or second loan.

Details of Obamas 6500 “move up” home buyer tax credit in Minnesota

Homeowners who want to take advantage of a new home tax credit worth up to $6,500 when they buy a new place have until April 30, 2010, to get a deal under way. Is it time for you to get moving?
Before you decide, see if you can answer “yes” to these four questions.
1. Are you already in the market? – Let’s assume you qualify for the tax break. That means you’ve been in your current home for at least five of the last eight years consecutively, you’re purchasing a new principal residence — not a vacation home — that costs no more than $800,000, and you meet the income threshold — $125,000 for individuals and $225,000 for joint filers — to get the full $6,500 credit.

The tax credit is yours unless you sell or stop using the home as your principal residence within three years after the date of purchase. Qualified homebuyers also can take the tax credit on their 2009 or 2010 income tax returns.

But the decision to go after it hinges on other factors. For instance, if you were already planning to move, the tax credit can help you recoup some of those repairs you’ve been putting off to get your home ready for sale. Another reason could be the desire or need to upsize or downsize, to move closer to family or to make room for an aging parent are also ideal candidates for this tax credit.
 
2. Do local market conditions look favorable? – There are three reasons that now is the right time to upgrade your home.  First, interest rates are as low as they’ve ever been in our lifetime.  Second, prices are very competitive, and you can buy a lot more home today than you could three years ago. And thirdly, because of the first-time buyer tax credit, the first-time buyers are eating up the good inventory that’s affordable, and that’s good news for sellers. 
 
3. Can you sell your house in time? – You’ll have to close on your new home by June 30, 2010 and those in the military get an extra year. Because you certainly don’t want to be carrying two mortgages at once, a lot hinges on how fast you can sell your current home. Again, that depends a great deal on where you live.   Make sure you do your research before taking the plunge. Take a look at the recent history of how long it takes to get a “sold” sign up in front of other homes near you.
 
4. Can you close the expense gap? – While the tax credit can help offset expenses like home repairs and the seller’s commission, $6,500 will only stretch so far. If you are upgrading, you need to make sure you have enough equity and available cash to cover the down payment.  If you’re counting on the tax credit to cushion the higher mortgage cost of your new home, that’s a red flag.  The main reason is that in this economy, nothing is certain.  If you lose your job, the increased mortgage payments could throw you under. 
 
While the tax credit can be a financial boost to many homeowners who are ready to buy again, the purchase of a home should never be a tax-based decision. Look at this $6,500 as a cherry on a sundae.  The sundae is the historically low home prices, substantially low interest rates and sellers willing to bargain.

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Scheduling loans to close and taking new applications.

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How good of a credit score do you need to refinance in MN?

A few years ago, a score of 620 or higher was good enough. That increased to 680 in early 2008. Then it jumped to 720 in April last year and 740 in August.  In the past, any score of 700 or higher would get a double thumbs-up from credit experts. Now, rate adjustments begin kicking in at 740, with every 20-point drop adding another adjustment.
In other words, many people who were taking pride in their credit habits either must pay significantly higher or try to make quick changes to nudge their scores upward.

The road to new scoring

How did we get to this new reality?

The nation’s two largest mortgage lenders, Fannie Mae and Freddie Mac, suffered major losses in the market last year and then redefined risk, announcing price adjustments for borrowers with FICO scores below 720. And, in case you were wondering – these fees have nothing to do with your mortgage company or its various products and cannot be negotiated away. It is what it is.

All mortgage bankers, brokers and credit unions must comply with the higher interest rates and delivery changes in all traditional mortgages. Only entities intending to hold the mortgages in their own portfolios can follow their own guidelines.

Worse news may be on the horizon. There are many factors, including proposed legislation and regulation that continue to change the mortgage lending landscape. In the near future, it is more likely that this standard will continue to rise than fall.

Taking action on your score

What can a homeowner who wants to refinance do with a good FICO score that’s not good enough?
Virtually everyone can raise their scores by at least 10 (points) to 20 points, sometimes significantly more in 30 days.  Here’s what to do.

1. Find out what might have gone wrong. Applicants should know their credit score, understand what it means to their loan rates and ask their loan officers to use credit analysis on their behalf. Credit analysis tools are a simple way to identify key score influencers by scrutinizing the information contained in each of an individual’s three credit reports to look for inconsistencies, errors and omissions that may artificially depress the score.

2. Correct any inaccuracies. Although consumers can improve scores on their own, credit agencies offer services to mortgage brokers to help consumers raise their credit scores if something is reported inaccurately and there is proof of a discrepancy.

3. Decrease the percentage of available credit used. This can be done by paying down balances or increasing credit limits. Ideally, this means keeping balances as close to zero as possible, and definitely below 30 percent of the available credit limit, experts say.

4. Move things around. If one income can be used to qualify for the loan, transfer accounts to “park” the debt in the other party’s name.

5. Get a rapid rescore. It’s the only way to find out fast if an attempt to improve a score was successful. It’s done through your lender and a rescoring company. The process takes about a week, but it can get the loan process back on track. The downside is it costs a few hundred dollars.
In a perfect world, anyone contemplating a refinance or a new mortgage anytime within the next year or so would start working on getting the ideal credit score now.

Got questions?  Just give me a call right now at 651.210.9593.

Archer is top notch

Archer is top notch

@godianne not sure if new GFE …

@godianne not sure if new GFE is easier for clients to understand…no PITI, no cash to close, no need to sharpen pencil on TI, just PIMI