IF You Are Thinking of Buying Portland Real Estate…Why Buying Now Will Save You $$$!!!

Portland Oregon Real Estate Update!  Homeownership doesn’t always make sense and so you need evaluate if the time is right for making that new purchase, moving up or moving down or procuring an investment property.  However, as my Father used to say there’s never a “perfect time” to “buy a home”, “get married” or “have children”, but if you’ve decided it’s something you desire you just need to make it happen (with the proper due diligence, of course)!  Here are some factors that could and should impact your decision!!  Most everyone is probably aware by now of the first-time buyer tax credit (go to http://bit.ly/Original1stTimeBuyerCredit  for more information).  And, you’ve probably heard about the repeat or existing homebuyer tax credit (go to http://bit.ly/RepeatBuyerTaxCredit for more details).  Both of these incentives end April 30th, 2010.  But, there are other factors in play behind the scenes right now.  The Federal Reserve Bank of New York has been the buying up “mortgage-Backed-Securities” (MBS) on the Bond Market since November 2008 (and have been the single largest buyer).  This is where interest rates are determined.  Investors buy MBS securities as investments.  The larger the demand, the lower interest rates need to be.  If demand falls, then interest rates will need to rise to make the MBS more attractive to investors.  Part of the stimulus bill included the Federal Reserve’s purchase of over $1trillion in MBS and this has kept rates very low.  This program was scheduled to end December 31st, 2009 but has been extended through March 31st, 2010!  Many experts predict that interest rates will begin to rise then.

So, are you following me so far?  We have the impending end of the tax credit, the possibility of interest rates rising, lots of existing inventory and low pricing.  Most of the tricky, sticky, weird and wild loans are gone but other mortgage issues could have a negative impact on buyers relying on FHA (Federal Housing Authority) insured loans.  The FHA upfront mortgage insurance (MI) premium is going from 1.75% to 2.25% of the base loan amount on April 1st, 2010.  For example, on a $275,000 purchase price with an FHA loan, the down payment would be $9,625 with a base loan amount of $265,375:

Before April: Upfront MI FHA =$4,644 (1.75%), Tax Credit=$8000

After April:  upfront MI FHA=$5,971 (2.25%), Tax Credit=0

Many people rely on FHA secured financing because they are more forgiving on credit scores and homeowners can have a higher loan-to-value ratio (less money required for a downpayment). 

Forbes.com recently has an article on the Top Ten cities where it was a good time to make the jump to homeownership because of increasing rents (and Portland Oregon made the list) (go to http://www.forbes.com/2010/01/21/buying-versus-renting-lifestyle-real-estate-homes.html  and http://www.forbes.com/2010/01/21/buying-versus-renting-lifestyle-real-estate-homes_slide_11.html to read more).  And, if you’d like to explore a good rent-vs-buy calculator go to http://www.gonorthwestloans.com/mortgageLoanCalc.html

If you have decided that a new home is in your future, let’s make it happen!!!

Getting a Loan in a Challenged Lending Market!

Okay….getting a mortgage is definitely not the “loosey-goosey” program it used to be.  You want a home or investment property and are afraid of the looming and blooming credit crunch?  Be not afraid!

• Mortgages are pretty straight-forward.  Not many options, so choices are simpler.  You have 30-year fixed, 15-year fixed, a few ARMs (adjustable rate mortgages) and occasionally another option.  But, the exotic loans of a few years ago are a thing of the past, so less confusion!
• Interest Rates are still VERY Low!  How long will they last?  I certainly don’t know.
• The new Good Faith Estimate guidelines (mostly) protect consumers.  But, the fact is they will protect the consumer from sleasy loan officers.  All fees are disclosed upfront and that amount must stay the same or you will be given up to 7 days to think about it!
• Tax Credit has been extended and EXPANDED!  The tax credit for first time home buyers has been extended till April 30th and the repeat home buyer tax credit has implemented.  See: http://bit.ly/ExpandedBuyerTaxCredit

Change is hard, but the new direction will be good news to the mortgage industry and the consumer!  Appraisers are under a lot of scrutiny, underwriting is a nightmare and if you get a loan you feel like you just got “vetted” for public office!  But, all this new direction in the mortgage and housing industry will ultimately make for a saner housing market…..someday!!!!!

How Bankruptcy Affects Mortgage Loans!

Credit guidelines for mortgage loans are quite fluid these days and continue to change with time.  This information is based on current rules!  The Portland, Oregon housing market has not been hit as hard as some areas of the country but our unemployment remains high.  I see lots of commercial space sitting empty.  Of course, that suggests that “bankruptcy happens” (among other things).

CHAPTER 7 BANKRUPTCY:

FHA FINANCING

HUD requires that a minimum of two years from the date of discharge has passed AND good credit has been re-established.  To get the best interest rate, lenders require a minimum qualifying FICO score of 660 or higher.

CONVENTIONAL FINANCING

The wait period is four years from the discharge date.  To get the best interest rate, you need a minimum qualifying FICO score of 720.

Both loan programs allow an exception to the wait period for cases with extenuating circumstances.  For example,  if the bankruptcy was the result of a job loss, medical bills due to no insurance, disability, etc.  If you qualify for the exception, the wait is one year for FHA and two years for Conventional.

Different rules apply for Chapter 13 AND for consumers who have more than one bankruptcy within seven years.

CHAPTER 13 BANKRUPTCY:

FHA FINANCING

The filing of the Chapter 13 bankruptcy must be approved by the court and the debtor must have been in repayment for at least 12 months.  The repayment history as established by the Chapter 13 must be satisfactory and a credit history must be re-established.  The new mortgage must be approved by the bankruptcy court.

CONVENTIONAL FINANCING

The filing of the Chapter 13 bankruptcy must be approved by the court and the debtor much have been in repayment for at least 24 months.  The payment history must be satisfactory and a credit history re-established.  The new mortgage must be approved by the bankruptcy court.

If the Chapter 13 filing is not approved by the courts (meaning it was dismissed), then the buyer would need to wait four years to obtain a convention loan or two years to obtain an FHA loan!

More Changes Coming in the Mortgage Industry! An FYI for Portland, OR Buyers & Sellers!

Again, more changes coming in the mortgage industry!  This time it involves “Good Faith Estimates” for potential buyers.  In order to compare “apples to apples” you must compare a combination of elements when interviewing Mortgage Brokers to partner with you on your next real estate transaction.  One of the first is to speak with other friends or trusted advisors (such as your Real Estate Broker) to get the names of mortgage brokers they have found reliable and referred.  The 2nd step has always been to ask for a “Good Faith Estimate” or GFE.  A GFE has always been a list of closing costs to acquire the loan plus the most appropriate interest rate available from the lenders available to that Broker and, finally, the monthly PITI (principal, interest, taxes, insurance).  Beginning January 1st, 2010 we will see some changes in the industry.  Now a GFE will be more akin to a “Truth-in-Lending” document that was formerly provided during the loan process and, again, with the closing papers.  Truth-in-lending gave you the APR or annual percentage rate (the full cost of the loan including closing costs) and the total of your payments over the life of the loan (never a pretty sight).  Now GFEs will look more like truth-in-lending and the other information, such as closing costs and PITI will be in a summary sheet provided by each mortgage brokerage house.  Another big change is the new requirement for getting a GFE from a mortgage broker or lender and that will include pulling a credit report.  Thus, receiving this document will take a bit more time!

Other changes include that the “Owners Title Policy” (usually a seller paid cost) will show up on the buyer’s GFE (and will be very confusing for buyers…just know to subtract that amount, but it must now be disclosed). Also, the escrow officer in charge of preparing the documents for signing and recording must now compare the original GFE to the final HUD closing document to make sure they are in line.

Just know that you will want to compare both the GFE and the summary to get a true picture of which loan would fit your needs.  This is simply another example of the pendulum swinging (and, perhaps, occasionally “over-swinging”) to compensate for the former “loosey-goosey” lending practices that helped propel us into this new era of real estate.  Sighhhhhhhhhhhhhhhhhhhhhhh!  However, the good news is these new regulations will force marginal Mortgage Brokers to stay the course on fees.

“It’s Hard out There for a Mortgage Broker”!

It’s a difficult time in the money-lending business and Portland Mortgage Brokers are not escaping!  Man, I would not want to be in the business of trying to get loans approved right now.  As if the real estate market needed MORE challenges, getting $$$ has become much more difficult.  It started with condos and new regulations and has filtered throughout the lending world and impacts all property types.  FHA paperwork has become amazingly more redundant and conventional financing demanding higher credit scores and/or more money down.  As a buyer and self-employed small business owner, it has always been a trying process for me.  So, I feel your pain.  It almost becomes a full-time job getting all the reports, paperwork, verifications, letters of explanation and notes from your dead great-great-grandmother.  It’s a wonder we don’t all lose our existing employment while trying to comply with the almost daily requests for additional information.  Well, “it is what it is” for awhile I suspect.  This is the pendulum swinging way too far the other way to compensate for years of “loosey-goosey” lending practices.  I would definitely rely on your Real Estate Broker or the referral of a trusted friend or family member to connect with a reliable Mortgage Broker.  Otherwise, a little patience, understanding and resiliency will help get us through the process.  I often compare the loan and escrow process to childbirth, the memory fades and we have that second child (or get that next loan).  It’s all good!

How Interest Rates Affect the Bottom Line!

Did you know that a ½% change in interest is approximately equal to a 5% change in sales price? It’s powerful to realize the importance of the relationship of interest rates to your monthly payments.  This is the reason why our present low interest rates are so important!!  When I started my real estate professional life, interest rates were at 13% and when they dropped below 10%, we thought we’d just won the lottery!!!  So, our historic low interest rates coupled with the present market reality of decreased pricing is a serious reason to consider real estate as an investment!!!

All About the Move-Up/Repeat Homebuyer Tax Credit!!

It’s time to celebrate!!!  Not only did the “powers that be” see fit to extend the first-time home buyer (for actual 1st time home buyers OR those that have not owned a home for three years), but they have expanded this credit to include repeat buyers (with certain specific parameters).  Go to http://fabulousportland.com/2009/06/08/free-money-first-time-buyer-credit-update-and-faqs/ for information on the extended “First-Time Home Buyer” Tax Credit and read on for frequently asked questions concerning the NEW extended “Move-up, Move-down, Move-around, Repeat Home Buyer Tax Credit”!!  Here are some facts and figures:

The Worker, Homeownership and Business Assistance Act of 2009 has established a tax credit of up to $6,500 for qualified move-up/repeat home buyers (existing home owners) purchasing a principal residence after November 6, 2009 and on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010).  The following questions and answers provide basic information about the tax credit.  If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

•1)       Who is eligible to claim the $6,500 tax credit?

Qualified move-up or repeat home buyers purchasing any kind of home are eligible to claim this credit.

•2)      What is the definition of a move-up or repeat home buyer?

The law defines a tax credit qualified move-up home buyer (“long-time resident”) as a home owner who has owned and resided in a home for at least five consecutive years of the eight years prior to the purchase date.  For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.  Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.

•3)      How is the amount of the tax credit determined?

The Tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500.  Purchases of home priced about $800,000 are not eligible for the tax credit.

•4)      Are the any income limits for claiming the tax credit?

Yes.  The income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return.  The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) above those limits.  The phase-out range for the tax credit program is equal to $20,000.  That is the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

•5)       What is “modified adjusted gross income”?

Modified adjusted gross income or MAGI is defined by the IRS.  To find it, a taxpayer must first determine “adjusted gross income” or AGI.  AGI is total income for a year minus certain deductions (known as “adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted.  On Forms 1040 and 1040A, AGI is the last number on page 1 and the first number on page 2 of the form.  For Form 1040-EZ, AGI appears on line 4 (as of 2007).  Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

•6)      If the modified adjusted gross income (MAGI) is above the limit, can a buyer qualify for any tax credit?

Possibly.  It depends on your income.  Partial credits of less than $6,500 are available for some taxpayers whose MAGI exceeds the phase-out limits.

•7)      What is an example of how the partial tax credit is determined?

Just as an example, assume that a married couple has a modified adjusted gross income of $235,000.  The applicable phase-out to qualify for the tax credit is $225,000, and the couple is $10,000 over this amount.  If you divide $10,000 by the phase-out range of $20,000, the yield is 0.5.  When you subtract 0.5 from 1.0, the result is 0.5.  To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $6,500 by 0.5.  The result is $3,500.

•8)       How does this home buyer credit differ from the tax credit that Congress enacted in July of 2008?  How is this different from than the rules established in early 2009?

The previous tax credits applied only to first-time home buyers and were for different amounts of money.

•9)       How do buyers claim the tax credit?  Is there a special form or application?  Are there documentation requirements?

You can claim the tax credit on your federal income tax return.  Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount online 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns).  No other applications are required, and no pre-approval is necessary.  Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed purchase.

•10)    What types of homes will qualify or the tax credit?

Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000.  This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes and houseboats.  The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000/$500,000 capital gain exclusion for principal residences. You cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc), your lineal descendants (children, grandchildren, etc) or your spouse or your spouse’s family members.

•11)    What does it mean that the tax credit is “refundable”?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset.  Typically this involved the government sending the taxpayer a check for a portion or even the entire amount of the refundable tax credit.

•12)    Instead of buying a new home from a home builder, can someone hire a contractor to construct a home on a lot that I already own and still qualify for the tax credit?

Yes.  For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house.

•13)    Can a buyer claim the tax credit if the purchase of the home is financed under a mortgage revenue bond (MRB) program?

Yes.  The tax credit can be combined with an MRB home buyer program.

•14)    Can someone claim the tax credit if that is not a US citizen?

Perhaps.  Anyone who is not a nonresident alien (as definite by the IRS) and who has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date can claim the tax credit if they meet the income limits.  For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.  The IRS provides a definition of “nonresident alien” in IRS Publication 519.

•15)    Is a tax credit the same as a tax deduction?

No.  A tax credit is a dollar-for-dollar reduction in what the taxpayer owes.  That means that a taxpayer who owes $6,500 in income taxes and who receives a $6,500 tax credit would own nothing to the IRS.

•16)    Is there a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax return?

Yes.  Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding.  Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay.  This money can be applied to the downpayment.

•17)    HUD allows “monetization” of the tax credit.  What does that mean?

It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund.  These funds may be used for certain downpayment and closing cost expenses.

•18)    If a buyer is qualified for the tax credit and buys a home in 2009 (or 2010), can they apply the tax credit against 2008 (or 2009) tax returns?

Yes.  The law allows taxpayers to choose to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). 

•19)    For a home purchased in 2009 or 2010, can the buyer choose whether to treat the purchase as occurring in the prior or present year, depending on which year the credit amount is the largest?

Yes.  If the applicable income phase-out would reduce your home buyer tax credit amount in the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.

This Ain’t Scary: Tax Credit Extension AND Expansion!!!

HAPPY HALLOWEEN!!!!

What’s the Deal About Reverse Mortgages???

What is a reverse mortgage?  Simply a way for those 62 years of age and older, to tap into existing equity in a home to purchase a primary residence!  Reverse mortgages got a “bad rap” in the ’60s, as the original incarnation involved the bank actually taking title to your home.  In the ’80s, FHA (Federal Housing Administration) got involved and started revising this mortgage instrument.  A reverse mortgage or HECM (Home Equity Conversion Mortgage) is an FHA-insured reverse mortgage which enables home buyers, 62 years or older, to purchase a primary residence and obtain a reverse mortgage in simultaneous transaction with no monthly mortgage payments.  It also allow these buyers to combine reverse mortgage proceeds with a down payment from their current home sale or other assets, to purchase a new home. 

• There is no income, health or credit score qualification
• There are “purchase and “refinance” options
• Must be a primary residence
• Down-payment is based on age, interest rate and home value
• Interest is added to the balance and the borrower gets the principal payment

So, a reverse mortgage is really just a negative amortization loan.  The maximum loan amount, at least through 2009, is $625,500.  But, the buyer can pay the difference is they purchase a more expensive property.  There is a 2% origination fee on the first $200k and 1% on anything above that. 

Eligible properties include:

• HUD approved condos
• Single family
• Owner-occupied, 1-4 units
• Manufactured homes built after 06/15/1976

Not Eligible:

• Bed & Breakfast
• Co-ops
• 2nd home
• Manufactured homes built before 06/15/1976

This is just another tool available to buy and sell homes in the Portland Oregon real estate market.  If you need more info for yourself or a family member, do call or write and I’ll refer you to some loan officers familiar with the process!

And, We Wonder Why We Have a Banking Crisis???

After this posting, I might have to rename my site from “Portland Real Estate Update” to “Portland Real Estate Rant”!  But, my recent short sale experience should make us all “mad as hell and we’re not going to take it any more”!!!  So, here’s my current short-sale story.  Due to the unfortunate circumstances of a job loss, my client had to sell her home.  After researching the market, we realized that we would be forced to negotiate with the 1st and 2nd lenders to accept less than was owed on the home.  In other words, we would “sell short”.  We began the long and arduous process of collecting the stacks of information needed by the lenders to review in order for them to agree to sell short.  We also began the marketing process to find that sweet spot in the pricing continuum and the buyer willing and able to purchase.  On a good day, it takes a VERY patient buyer to want to play that “waiting game” (with no definitive closing date and no assurance of the eventual acceptance of their offer).  Plus, the buyer makes an offer and during the wait there is the opportunity for other competing offers to be submitted and to be outbid!  So, the buyer attrition rate is HUGE!  Buyers continue to look for houses while waiting for an answer, ANY ANSWER, from the lenders and will often eventually just tire of the suspense and withdraw.  Well, in my current short sale case, the buyers patiently waiting and really wanted the house.  The 1st lender agreed to the short sale and offered the Freddie Mac “standard for the industry” (which is 10% of the amount owed) to the 2nd lender (who actually has no power in the transaction other than the ability to say no).  US Bank holds the 2nd mortgage in the amount of $25,000, thus the 1st lender was offering them $2,500.  US Bank said “they would disapprove the sale unless they received $5000″.  Provident Bank, the first lender, said “their hands were tied as Freddie Mac (the secondary market banks) only allow 10%”.  The Real Estate companies involved were willing to contribute via their commissions, even the buyers were willing to come to closing with the extra $2,500 and neither bank would budge.  I can almost forgive Provident as Freddie Mac does control the buying of packaged loans on the secondary market, but US Bank IS the problem!!  Not to mention my associate (who helps me with the short-sale process) last phone conversation involved the US Bank loss mitigation rep saying that the only answer was for someone to mail them $2,500.  If money is exchanged in a real estate transaction, isn’t it “mortgage fraud” if it’s done outside of escrow and not acknowledged on the final HUD-1 statement?  This stubborn nonsense will force Provident to go through a costly foreclosure process and US Bank will get nothing!!  But, they don’t care.  My seller will now have a foreclosure on her record, the buyers don’t get the home they wanted and several real estate agents worked for months for nothing.  What kind of “kinder, gentler, wiser, more diligent” banking system is this????

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