The National Association of Realtors is talking with people all over the nation and asking for help to take action and let your representatives in congress know that Home ownership does Matter and that the mortgage interest deduction matters too. This issue is extremely critical and important to all Americans. Mortgage Interest Deduction.
First of all, what is “flipping“; this is when a buyer purchases a home and then almost immediately places the home on the market for sale at a profit. This kind of activity is usually accomplished by investors who typically purchase a property in need of repair or improvements, then they complete the repairs / improvements and sell the home at a profit.
The Federal Housing Administration in the past has frowned upon this type of activity; that is to say flipping, due to the tendency to have prices over inflated. During the real estate boom many people conducted flips in a not so legitimate format. However, most investors are very legitimate and are simply looking to make a living by doing what they do best – improving properties. A good flip deal usually benefits everyone: the investors buys a property under market and makes a profit at the sale, the end-user buyer will buy an improved property that more than likely they would not have been able to improve themselves.
Now the FHA as of February 1st has loosened rules on flipping. The FHA will begin to offer financing on some properties in which the sellers has owned the property for less than 90 days. These less strict anit-fligging rules are being made in an effort to speed up sales in communities in which the rate of bank owned or foreclosure properties is too high.
This is most certainly going to be a positive effect on the market. hopefully the new rules will allow for a faster absorption of inventory.
South Florida Brokers & Associates, Inc.
The Federal Housing Administration or FHA has announced some changes which are geared at strengthening the capital reserves as well as manage risk. These changes will affect borrowers abilities to secure a loan, they are changes that should be reviewed prior to making a loan application. The following is a list of changes:
1. The mortgage insurance premium (MIP) will be increased to 2.25% of the loan amount. In addition, the FHA will seek approval to increase to the maximum annual MIP that the FHA can charge. However, if the maximum is charged then the premium or at lease a portion of the premium will be spread out through the term of the loan versus being paid upfront; this will enable the borrower to feel less upfront impact of the premium while still building the proper capital reserves. The initial MIP increase should go into affect this coming Spring.
2. The credit and down payment requirements for borrowers will also be updated. In order to qualify for a 3.5% down payment they must have a 580 or greater FICO score. Those borrowers with a lower than 580 Fico score will be required to place 10% down payment. This change is being made in an effort to balance the risk factor involved with these loans.
3. Seller concession or contributions will be reduced to an allowable 3% this is down from 6%. This change was made in order to eliminate the tendency to over inflate appraised values.
The Federal tax Credit Program has recently spawned much activity in the real estate market. Sales spiked in November 2009 as buyers rushed to meet the deadline for the incentive and many economists are predicting another spike in sales as the summer 2010 deadline approaches. However, many buyers have tons of questions regarding this incentive programs. I must admit that even those of us in the business have had trouble understanding these programs.
Please keep in mind that an excellent source for these answers will be with your tax attorney or your accountant. Regardless the following are some bullet points which should clarify some of questions:
1. The tax credit is for the amount of $8000.00 and unlike the previous incentive this credit does not have to be paid back.
2. In order to qualify for the credit the purchase must be made for a primary residence.
3. The purchaser which is applying for the tax credit must be a first time home buyer; this is defined as someone who has not bought a home in the past three years.
4. The purchase must close between January 1, 2010 to April 30, 2010.
5. Second home buyers may qualify for the $6500 tax credit.
6. To qualify for this 6500 credit the buyer must have owned a home for 5 consecutive years of the last 8 years.
7. The purchase must be made after November 6, 2009; for the $6500 credit.
8. To qualify for the 6500 credit the buyer must make no more than $125K annually as a single person and $250K for couples.
9. Both tax credits may be claimed on 2009 taxes.
10. If the property is rented or sold within the first 3 years the tax credit of $8000 must be re-paid.
I hope that this clears up some of the recent confusion surrounding the Federal Tax Credit.
As of the first of the year HUD issued new rules regarding Good Faith Estimates (also know as GFE’s). These newly adopted rules called for stricter guidelines for the preparation of GFE’s by lenders, mortgage bankers and mortgage brokers. Obviously the look of the GFE and layout has changed; however, the real change in the rules is how accurate the preparer must be in estimating closing costs and loan origination fees. In the past there were not many guidelines regarding the accuracy of these items. Although, I feel that there are many great mortgage brokers and lenders working in our market; I must also admit that I had many instances where the final HUD at he closing table had significant differences from the original GFE, and trust me, it was never in the favor of the buyer. Although, there is no way to prove it; it would appear that preparers of GFE would under estimate closing costs, prepaid items and origination fees in order to get the buyer / borrower to commit to them, only to later at the closing table, at the 11th hour change-up the numbers. “Well, now what here we are a the closing table, with a ton of deposit money in escrow at risk if we don’t close.” Naturally, this would anger any buyer and anger any agent or broker representing the buyer.
I for one am glad that the new rules are in place. The rules basically state that there is only a small margin of acceptable variance from the GFE to the final HUD for the previously mentioned fees. Also, if these fees do vary by more than the acceptable margin then the lender must absorb the difference. I feel that this will help in more honest and responsible lending.
Lenders are naturally concerned about this rule as they see it as potential losses. Therefore, many lenders have responded by creating “initial fees worksheet”. This worksheet will give an estimate of fees and prepaid items, etc. However, this particular worksheet will be provided prior to application, that is prior to the borrower having their credit pulled, or even providing the property address. The main thing for a buyer / borrower to remember is that this is not a GFE and should not be taken as such. The “initial fees worksheet” offers no guarantees whatsoever.
South Florida Brokers & Associates, Inc.
OK, so you found your dream home and you have 20% of the purchase price to put down, plus you dont need any seller contribution for closing as you also have that money set aside. Your dream home is listed under market value and will easily appraise, it isnt a short sale and it isnt a foreclosure; just an old fashioned GOOD DEAL. This should be a breeze, you simply apply for a loan and wait for your approval and then go to the closing table. Oh, wait a minute may not be exactly that simple.
The new Fannie mae loan guidelines may affect you. Effective today (December 15, 2009) you credit score will play a much bigger roll that in the past. Effective immediately the new required credit score needs to be at a minimum of 620; this is a drastic increase in credit requirement from the previous 580 score requirement. In addition to the stricter credit requirement Fannie Mae is also concerned with you current obligations. In other words, a maximum of 45% of your income can go toward current debt or obligations. These obligations would include debts such as car payments, credit cards payments, and other loans. Add to this that fact that if you are purchasing a condo there will be a condo questionaire which will depict condo maintenance dues delinquecy rates and forclosure rates in the building; this will also be taken into consideration when the lender is evaluating the risk involved with your loan.
It is expected that most banks will adopt the new higher standards imposed by Fannie Mae; considering that Fannie Mae buys loans from lenders inturn providing needed financing to these institutions.
If you are in the market to buy a home some good steps to take are: lowering currect debt, do not open additional accounts, and do not make any other major purchases (ie, a vehicle).
Also, it is a great idea to keep an eye on your credit score. One good website to use is annualcreditreport.com , there is a small fee associated witht the complete report, but if you are in the market for a purchase it is well worth it.
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