If you owe more on your home than it would bring in today’s housing market you may feel trapped with no options. Should you have tried to recently refinance your home you may be painfully aware that your options are severely limited. Most lenders require equity in your home before allowing you to refinance.
You may think you have no where to turn, but you might be wrong. Options do exist and two of them are part of the federal government’s Making Home Affordable program.
Option one is HARP, or Home Affordable Refinance Program. (Don’t you just love how all government programs seem to be required to have a catchy acronym?) If your situation meets certain criteria, you could be eligible for a refinance of 105% and in some cases up to 125% of the value of your home.
Before throwing that “refinance celebration party” there are a couple of qualifications that must be met. First, you cannot be on the road to foreclosure. If you have had any delinquent payments over the past 12 months, you will not qualify for this program.
Also, Fannie Mae or Freddie Mac must own your home mortgage. This is because this federal program is made available only through these two mortgage behemoths. You find out whether or not your loan is owned by Fannie or Freddie at http://makinghomeaffordable.gov and following the four steps linked to the home page.
Your ability to take advantage of this program will also depend on your credit score, the way your current home financing is structured and other lender specific guidelines. It won’t help everyone, but it could help you and it’s worth looking into. HARP can literally shave $200 to $400 off your monthly payment and can make the difference in your being able to keep your home.
Option two is HAMP, or Home Affordable Modification Program. (Not quite as catchy an acronym as the former, but it’ll do.) To qualify for this option you will need to prove financial hardship that puts your mortgage in imminent danger of default. If you travel down this path, be prepared for a thorough personal financial audit of all income and assets. It’s guaranteed not to be a pleasant experience having someone comb through your personal finances, but it could mean the difference between keeping and losing your home.
Again, this program requires that your current loan be owned by Fannie or Freddie but this program includes those home loans owned by the U.S. Treasury. There’s not website for easy look up of Treasury owned loans, you’ll have to make some calls to find out. Your lender should be able to help you ferret this out.
The federal government provides up to $1,500 to lenders for processing these modifications, but the final approval rests with the lender, not the government.
HAMP is not a refinance program, it is a restructuring of the terms of your current note. This restructuring can lower your payment for up to five years (that’s 60 months). Then beginning in the sixth year the borrower’s interest rate may begin to increase but no more than one percent per year until it reaches the “market rate at the time the modification agreement is prepared,” this according to the Making Home Affordable website.
Some of the options available to the mortgage company are re-amortize your loan to a longer term, lower your interest rate, or forgive some of the principal balance of your loan. But in the final analysis, the decision rests with your lender. Once the new agreement has been reached, the modification has a ninety-day trial period where the lender evaluates your ability to meet the terms of the modification before setting the changes permanently in place.
Option three if you don’t qualify for HARP or HAMP, there’s nothing to keep you from trying to negotiate a modification with your lender. Call them up and give it a try. Whatever you do, don’t bury your head in the sand and ignore the problem. Ignore it long enough and your lender will foreclose on your home.
If modification or restructuring your home loan is not an option for you, consider a short sale which means selling your home at market value with the remaining loan balance being forgiven by your lender. It will take some negotiating with your lender, but this option is better than foreclosure.
Friday, March 5, 2010
Friday, February 26, 2010
Say Good-Buy to Home Buyer Tax Credits
Late in 2009 President Obama signed legislation extending the home buyer tax credit through the first third of 2010. Well, here we are at the end of February and we’re counting down the days until the home buyer tax credit becomes a thing of the past and a topic of regret for many would be home owners.
April 30th is the drop dead deadline for anyone wishing to take advantage of these tax credits to be “under contract” to purchase a home. The term “under contract” literally means that you have a signed purchase agreement with the seller of a home that you want to buy. If you decide not to buy that specific house, not only do you run the risk of losing your earnest money but if you make that decision after April 30th, you will no longer qualify for the tax credit.
Attention. If you have thought about buying your first home, or selling the one you are in and buying a new home, today is the day to take action on those thoughts. This generous legislation has only 62 days remaining before it is gone.
I’ve heard many people speculate, “Oh, the government extended it once, they’ll extend it again, so I’ve got time.” Really? Don’t be so sure about that. I’ve got my finger on the pulse of the housing and home financing market and I’ve heard no such chatter about extending the tax credits.
“Yeah, but when April gets here, the government will see that there are still too many unsold houses and they’ll extend it again.” Again, really? Over the last year and a half, the number of unsold homes in the nation has dropped. According to Harley Wood Market Intelligence, “Existing home inventory levels posted its fifth consecutive month of declines in December. Inventory of existing homes dropped 6.6% percent to a preliminary 3,289,000 units from 3,521,000 units in November. This is the lowest level of existing home inventory units on the market since March 2006. December's inventory level is 11.1% lower than the 3.700 million units of inventory a year ago. Existing home inventory has recorded year-over-year declines for the past seventeen straight months. Recent increases in sales activity due to lower rates and the extended homebuyer tax credit have helped to improve inventory levels.” (February 26, 2010 at www.hwmarketintelligence.com).
So if you’re still wondering if now is the time to shop for a home, let me review the dollars that make sense in this equation.
If you haven’t owned a home in the past three years (that’s 36 consecutive months) you qualify for the maximum tax credit of $8,000. The tax credit can be applied when you file your 2010 taxes or you can file an amended 2009 tax return to include the credit. Either way, that a credit directly applied to the taxes you owe. I don’t know about you, but $8,000 is a lot of money. If you have owned a home and have lived in that home for 5 (five) of the past 8 (eight) years, you qualify for the $6,500 tax credit when purchasing a new home.
There are a couple of stipulations for both of these programs including income limits and purchase prices, but check with the lender of your choice to get the specifics. The most important stipulations are the deadlines. You must be under a binding contract to purchase a home no later than April 30, 2010 and you must close on that transaction no later than June 30, 2010.
The tax credit is a refundable credit which means that it reduces the tax bill you owe for the year you apply it. And if the tax credit reduces your tax bill below zero, you’ll get the difference as a tax refund. You’ll need to file tax form 5405 and include a copy of your settlement statement (a.k.a. HUD-1) from your closing to prove that you actually bought the home.
For parents considering this opportunity for their children, let me close with this information. The minimum age for claiming this tax is 18 years, at the time of closing. Also, anyone claimed as a dependent on someone else’s taxes is ineligible to claim the home buyer tax credit.
April 30th is the drop dead deadline for anyone wishing to take advantage of these tax credits to be “under contract” to purchase a home. The term “under contract” literally means that you have a signed purchase agreement with the seller of a home that you want to buy. If you decide not to buy that specific house, not only do you run the risk of losing your earnest money but if you make that decision after April 30th, you will no longer qualify for the tax credit.
Attention. If you have thought about buying your first home, or selling the one you are in and buying a new home, today is the day to take action on those thoughts. This generous legislation has only 62 days remaining before it is gone.
I’ve heard many people speculate, “Oh, the government extended it once, they’ll extend it again, so I’ve got time.” Really? Don’t be so sure about that. I’ve got my finger on the pulse of the housing and home financing market and I’ve heard no such chatter about extending the tax credits.
“Yeah, but when April gets here, the government will see that there are still too many unsold houses and they’ll extend it again.” Again, really? Over the last year and a half, the number of unsold homes in the nation has dropped. According to Harley Wood Market Intelligence, “Existing home inventory levels posted its fifth consecutive month of declines in December. Inventory of existing homes dropped 6.6% percent to a preliminary 3,289,000 units from 3,521,000 units in November. This is the lowest level of existing home inventory units on the market since March 2006. December's inventory level is 11.1% lower than the 3.700 million units of inventory a year ago. Existing home inventory has recorded year-over-year declines for the past seventeen straight months. Recent increases in sales activity due to lower rates and the extended homebuyer tax credit have helped to improve inventory levels.” (February 26, 2010 at www.hwmarketintelligence.com).
So if you’re still wondering if now is the time to shop for a home, let me review the dollars that make sense in this equation.
If you haven’t owned a home in the past three years (that’s 36 consecutive months) you qualify for the maximum tax credit of $8,000. The tax credit can be applied when you file your 2010 taxes or you can file an amended 2009 tax return to include the credit. Either way, that a credit directly applied to the taxes you owe. I don’t know about you, but $8,000 is a lot of money. If you have owned a home and have lived in that home for 5 (five) of the past 8 (eight) years, you qualify for the $6,500 tax credit when purchasing a new home.
There are a couple of stipulations for both of these programs including income limits and purchase prices, but check with the lender of your choice to get the specifics. The most important stipulations are the deadlines. You must be under a binding contract to purchase a home no later than April 30, 2010 and you must close on that transaction no later than June 30, 2010.
The tax credit is a refundable credit which means that it reduces the tax bill you owe for the year you apply it. And if the tax credit reduces your tax bill below zero, you’ll get the difference as a tax refund. You’ll need to file tax form 5405 and include a copy of your settlement statement (a.k.a. HUD-1) from your closing to prove that you actually bought the home.
For parents considering this opportunity for their children, let me close with this information. The minimum age for claiming this tax is 18 years, at the time of closing. Also, anyone claimed as a dependent on someone else’s taxes is ineligible to claim the home buyer tax credit.
Friday, February 19, 2010
FHA Loans to Cost More
Just a few days ago, the Federal Housing Administration (FHA) changed their rules for borrowers applying for their mortgage backed loans. These rules are in part in response to the growing number of FHA mortgages that are facing foreclosure and in part to crack down on unscrupulous lenders who, as Commissioner David Stevens implies are responsible for the FHA’s increasing defaults and diminishing financial reserves.
In the past few years more and more consumers have turned to the FHA for home financing and the agency has approved too many risky loans so they are now repositioning. Commissioner Stevens told a group of reporters, “Not everybody should own a home.”
A quick insight regarding the FHA. This agency is a government insurance company that backs mortgages and refinance loans for lenders who follow their established guidelines. In 2009 the agency insured about 1.9 million loans which amounts to about 30% market share of the mortgage business. In comparison FHA backed only 1.1 million home loans in 2008.
Recent reports from December 2009 report that the agency is insuring a total of 5.8 million single-family homes. This amounts to over $750 billion in loans. That same report revealed that over 500,000 of these government insured loans were either seriously delinquent or headed for foreclosure.
Okay, here’s the biggest change. Although no specific date has been given, starting sometime this spring borrowers will have to pay more upfront for the Up Front Mortgage Insurance Premium (UFMIP). This change may not become permanent, but at least for a while this premium will increase from the current 1.75% of the loan amount to 2.25%.
FHA charges homeowners this mortgage insurance as an up front fee and as an additional monthly insurance premium added to their payment. As an example on a $250,000 loan, the borrower would pay $4,375, or 1.75% at closing. This amount can be paid by the borrower, or added to the base loan amount effectively increasing the amount the borrower is obligated to repay. With the increase in UFMIP, the same loan would cost the borrower $5,625, and increase of $1,250.
Additionally the FHA has stated that it will ask Congress to raise the ceiling on the amount it can charge borrowers for the annual mortgage insurance premiums that are paid every month. Currently these premiums cannot exceed 0.55% of the loan amount. On that same $250,000 loan, that’s $1,375 a year broken down into monthly payments of $114.58. No estimates of just how high this increase may go have yet been released.
Two other significant changes are also coming. Borrowers with credit scores below 580 will be required to put down a minimum of 10% of the home’s purchase price. While FHA still insures loans with these low credit scores, good luck finding any lender who is willing to touch these loans. There area a few still out there, but most lenders have taken the opposite approach with some requiring borrowers to have credit scores of 640 and higher. Statistics show that most home mortgage defaults are by borrowers with credit scores below 580.
The other significant change is to seller concessions. Currently sellers who really want/need to sell their home are allowed to “help buyers” by conceding up to 6% of the purchase price toward the buyer’s closing costs. They are not allowed to apply any of these concessions toward the borrower’s down payment, but they can, in effect, reduce the home’s price by covering some or all of the buyer’s closing costs. FHA will reduce these “seller concessions” from 6% to 3%.
There are no announced plans to change the current guidelines allowing for family members to “gift” the down payment and closing costs which will most likely make this option more popular with some home buyers. However, before going down this path, check with your lender for the specific requirements and paperwork.
In the past few years more and more consumers have turned to the FHA for home financing and the agency has approved too many risky loans so they are now repositioning. Commissioner Stevens told a group of reporters, “Not everybody should own a home.”
A quick insight regarding the FHA. This agency is a government insurance company that backs mortgages and refinance loans for lenders who follow their established guidelines. In 2009 the agency insured about 1.9 million loans which amounts to about 30% market share of the mortgage business. In comparison FHA backed only 1.1 million home loans in 2008.
Recent reports from December 2009 report that the agency is insuring a total of 5.8 million single-family homes. This amounts to over $750 billion in loans. That same report revealed that over 500,000 of these government insured loans were either seriously delinquent or headed for foreclosure.
Okay, here’s the biggest change. Although no specific date has been given, starting sometime this spring borrowers will have to pay more upfront for the Up Front Mortgage Insurance Premium (UFMIP). This change may not become permanent, but at least for a while this premium will increase from the current 1.75% of the loan amount to 2.25%.
FHA charges homeowners this mortgage insurance as an up front fee and as an additional monthly insurance premium added to their payment. As an example on a $250,000 loan, the borrower would pay $4,375, or 1.75% at closing. This amount can be paid by the borrower, or added to the base loan amount effectively increasing the amount the borrower is obligated to repay. With the increase in UFMIP, the same loan would cost the borrower $5,625, and increase of $1,250.
Additionally the FHA has stated that it will ask Congress to raise the ceiling on the amount it can charge borrowers for the annual mortgage insurance premiums that are paid every month. Currently these premiums cannot exceed 0.55% of the loan amount. On that same $250,000 loan, that’s $1,375 a year broken down into monthly payments of $114.58. No estimates of just how high this increase may go have yet been released.
Two other significant changes are also coming. Borrowers with credit scores below 580 will be required to put down a minimum of 10% of the home’s purchase price. While FHA still insures loans with these low credit scores, good luck finding any lender who is willing to touch these loans. There area a few still out there, but most lenders have taken the opposite approach with some requiring borrowers to have credit scores of 640 and higher. Statistics show that most home mortgage defaults are by borrowers with credit scores below 580.
The other significant change is to seller concessions. Currently sellers who really want/need to sell their home are allowed to “help buyers” by conceding up to 6% of the purchase price toward the buyer’s closing costs. They are not allowed to apply any of these concessions toward the borrower’s down payment, but they can, in effect, reduce the home’s price by covering some or all of the buyer’s closing costs. FHA will reduce these “seller concessions” from 6% to 3%.
There are no announced plans to change the current guidelines allowing for family members to “gift” the down payment and closing costs which will most likely make this option more popular with some home buyers. However, before going down this path, check with your lender for the specific requirements and paperwork.
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