The credit for first-time purchasers is scheduled to expire November 30. Meanwhile, housing lobbyists are busy at work gearing up a major campaign to extend the $8,000 home buyer tax credit.
Home builders, Realtors and the Mortgage industry mounted an aggressive campaign during the recent congressional recess.
The expansion — or, at a minimum, extension — of the $8,000 first-time-home-buyer tax credit is at the top of the legislative agenda for the Mortgage Bankers Association, with one of the MBA’s leaders saying the trade group is “very close” to winning that battle in Congress.
The Effects of the Tax Credit So Far
Nationwide, pending home sales have been on the rise for seven months in a row, according to the National Association of Realtors. But just as auto sales dropped sharply once the government’s Cash for Clunkers program ended, real estate pros are bracing for a letdown if this tax credit disappears.
The IRS estimates that 1.4 million taxpayers have utilized the program. At these numbers, the total cost of the tax credit is slightly over $11 billion or less than 4% of the overall stimulus package (didn’t AIG get about fifteen times that???).
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We often get the question from first time homebuyers, “How do I pick a realtor?” It’s a great question and there are several angles to take and nuances to consider. First and foremost, if you are looking to buy a home, you should obtain a Realtor© to help you. The best part of doing do is that obtaining a Realtor should cost you nothing. Realtors, even your (the buyer’s) realtor, are paid by the seller of the home. So don’t worry about price shopping, all you need to shop for is service.
Buying a house is the most important, and often the largest, financial transaction most people will make in a lifetime. You want to make sure that you have an expert helping you through the process. If you don’t know a Realtor, there are a few items to think of when finding and selecting one. The next few paragraphs should help you through the process.
How Do I Begin Finding an Agent?
The first thing you want to do is ask around. Word of mouth may be the very best way to pick a realtor. Talk to everybody you know about the realtor they used and if they would use that realtor again.
If you are new to the area and are unable to find any referrals, there are several ways to go about finding a realtor you like:
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es·crow (ěs’krō’, ě-skrō’)
n. Money, property, a deed, or a bond put into the custody of a third party for delivery to a grantee only after the fulfillment of the conditions specified.
First of all, what are escrow impounds and why should you care? Escrow impounds (often just called ‘escrows’ or ‘impounds’) are fees collected by the lender at closing and then each month in order to pay third party bills on your behalf. Lenders do this to ensure important bills are paid and to help budget for these payments because they are due in lump sums which are often quite large. The homeowner pays these fees each month and the bank holds them in a separate ‘escrow’ account and pays the bills when due.
Typically, for single family homes, the impounds cover the insurance and property tax bills. For condos, insurance costs are paid by the condo association and the condo fees are paid monthly by the homeowner to the condo association, so impounds solely cover property taxes.
Taxes are typically due twice a year, while insurance is paid annually. The lender does not charge for this service and often requires it. For all government insured loan programs (FHA, VA and USDA), impounds are required. For conventional loans, many lenders require it and will charge a fee of 0.25% if a borrower wants to manage these payments on their own. For a $400,000 loan that becomes a cost of $1000.
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In this current mortgage environment, the VA loan program is arguably the best loan program available to help veterans become a homeowner. Despite the fact that VA loan guidelines are generally more flexible than their conventional loan counterparts, there are still many potential pitfalls that can delay or ultimately kill your VA loan transaction. Here are the 5 most common mistakes to avoid:
Mistake #1: Putting an offer on a condominium that is not eligible for VA financing:
One thing to always keep in mind; not all condominiums (this also includes townhomes) are eligible for VA financing. I’ve seen people fall in love with a particular condo, only to find out later that the condo is not approved for VA financing. If you are certain that you will use a VA loan to finance your purchase, don’t waste your time looking at condominiums that are not eligible for VA financing.
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Earlier this year Congress & President Obama signed into law the American Recovery and Reinvestment Act of 2009. This bill, enacted to help stimulate the battered economy, included a tax credit of up to $8,000 for First-Time Homebuyers, replacing the old $7,500 tax rebate program.
According to industry reports, first-time homebuyers now account for more than one-half of all home sales. It’s obvious that this tax-credit, as well as historically low interest rates, are providing huge incentives to potential home buyers who were previously sitting on the fence to now make a move. In addition, those who were not interested in buying a home in this market, are seriously reconsidering with these new incentives dangling in their face.
Now before you rush out and start applying for a mortgage loan, here are 5 important things to know about this $8,000 First-Time Homebuyer Tax Credit:
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This is a question that may have a surprising answer. Many peoples’ first instinct is to conclude that if prices are falling, it would be smarter to wait for your dream home to decline in price and to buy at a later date and lower price. However, interest rates play a significant role in the home buying process and should also factor into the decision.
The truth is, interest rates are at historic lows and, as the graph shows, have not been lower in at least 45 years. The government has pledged to buy mortgages to help keep rates low, and they have done a great job keeping interest rates between 4.50% and 5.00% over the past few months. However, the government’s help won’t last forever and investors will need the higher returns they’ve demanded in the past. Without that support, interest rates would likely be significantly higher right now. With rates so low and the government intervention fully priced into the market, there is a greater likelihood that they will move up not down.
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There have been a lot of changes in the mortgage industry lately. Some of the most recent changes have been in the Mortgage Insurance (MI) industry. Private mortgage insurance is a type of insurance used by lenders to help limit losses in the event of loss or foreclosure of a loan. Lenders typically require MI for loans in which there is less than a 20% down payment (for purchases) or equity (for refinances). The mortgage insurance company will absorb losses up to a certain percentage of the value of the loan.
For example, if someone wants to buy a house and has a 10% down payment, a lender will provide a loan of up to 90% of the value of the home. Because there is less than a 20% down payment, the lender will require MI to cover losses equivalent to 25% of the loan amount. This insurance for the lender is a fee that borrowers pay monthly with their loan payment.
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2009 is sneaking upon us very quickly. In the mortgage business that means new loan limits. Hooray! Traditionally, this means that the OFHEO (Office of Federal Housing Enterprise Oversight) releases their Housing Price Index data, which results in higher loan limits for FHA, VA and Conforming (Fannie Mae & Freddie Mac guaranteed) types of loans. This year’s data doesn’t warrant an increase in the loan limits, but thanks to decisive action by our fearless leaders, we have new rules that expand the available loan amount limits by examining home prices at a more regional level. For many counties across the contiguous United States, the loan limits will stay the same, but for High Priced Counties, the loan limits are now adjusted according to the cost of an average home in the county. Here in Hawaii, each island has its own limit, but they all exceed the prior limit of $625,500 that had been in effect for the past two years.
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This is a tricky question and one that we, as VA Loan Specialists, have a hard time answering simply. The best answer is, in fact, “it’s complicated”. So, with that in mind, let’s take some time to see how the rules are applied. Thankfully, the VA has recently posted clarifications and examples to make it easier on all of us.
The first thing that we need to understand is that the VA now adjusts the maximum loan amounts by county thanks to recent changes intending to support the ‘Jumbo’ loan market that lenders have shied away from in the past year. Some counties may be at the national limit of $417,000 but if housing prices are higher than average, they may have a higher limit. Here in Honolulu, the limit is currently $793,750 but will adjust downward to $721,050 at the beginning of the year. Remember, that is the max for 100% financing, and that the VA program will actually allow for loan amounts greater than that as with a minimal down payment.
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One of the main reasons we started HawaiiVALoans.com was that we found that there were so many misconceptions about VA Loans. Whether it was the broker/lender giving the wrong information or Veterans finding outdated information from non-reliable websites – it was evident that for whatever reason, the facts about VA Loans were getting distorted.
Over the years – we’ve heard it all. I thought it would be a good idea to debunk the 5 most common myths we’ve heard about VA Loans:
1. “I can only use my VA Loan eligibility once”
This is by far the most common myth we hear – but this is definitely false. There is no limit on the number of times you can use a VA Loan. Now if you’ve had a VA loan previously, you need to have had your entitlement restored by paying off the mortgage (pay off balance, sell the property, refinancing into a conventional mortgage) in order to get another VA Loan. There is a possibility in which you could have more than one VA Loan outstanding at a time – but only if you didn’t use your entire entitlement on the purchase of the first property. Now if you’ve already used a VA Loan previously, you just have to keep in mind that the cost of the VA funding fee is increased from 2.15% to 3.3% (no down payment) for every subsequent use of a VA Loan. If you’ve accumulated equity on the sale of your first home, and you can put a 5% down payment the next time, your funding fee can be reduced from 3.3% to 1.5%.
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3 Minute Thursdays: What is Prepaid Interest?