Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – September 18, 2009

Probably A Good Day To Lock

Ben Bernanke Bobble-Heads

That’s right!  I’m mass producing and selling them for only $11.50 per bobble head!  Just touch his head and the “up, down, up down” movment is an indicator of where interest rates are…up, down, up, down.  Order forms hidden in “Industry Updates.”  Keep Looking!

Where The Market Is Headed

So, we bounced off of the 25-Day Moving Average, and we keep toying with the 200-Day Moving Average.  As I write this, we’re sitting above that 200-Day trend line, but Stocks are up, and that scares me.  Generally, when Stocks are up, Bonds are down…and when Bonds are down, rates move up!  I might consider locking, here!  Another concern is that it’s Quadruple Witching Day, and Rosh Hashanah.  That may mean a light day of trading for certain parts of the world. 

$8,000 Tax Credit or $15,000 Tax Credit?

White House Spokesman Robert Gibbs, announced this morning that government officials are considering either extending the $8,000 Tax Credit, or even increasing that amount to $15,000 for qualified First Time Home Buyers.  There is legislation in the House and Senate, AND there’s talk of removing the income limit restrictions.  It’s just talk, right now, but this may be a huge opportunity for some.  Keep your mouse posted on this blog for more information.

Chico, CA Interest Rates Market Report – Economic Influences – September 9, 2009

3-Year Treasury Auction Bids Well

The Auction for the Treasury Departments 3-Year Note fared quite well yesterday.  I, nervously however, still have my finger on the lock button, as we hover right around the 200-Day Moving Average. 

Why So Nervous?

The nervousness is regarding today’s announcement of how well the 10-Year Treasury Auction went, compared to yesterday’s Auction.  The longer the term, the higher the risk.  The Annoucement of the Auction will be release at 10:00 a.m., PST.

Fed Beige Book Released Today

This will give insight into each Federal Reserve District and how the economy if doing in each of these areas.  This could also shake up the interest rate situation.

$8,000 Tax Credit Ending

Think about this.  If you are a fence sitter, or have clients that aren’t moving on a purchase, you don’t have long for them to qualify for the $8,000 Tax Credit.  It expires 11/30/09.  So, if you’re negotiating for an offer, and get into escrow next week; you’ll have if your escrow goes over 60 days, you’ll only have two more weeks to close the deal, and qualify!  There is talk about a Mortgage-Backed Security Purchase extension, and a First-Time Home Buyer Tax Credit Extension, but at this point, it’s only talk.

$8,000 Tax Credit “FAX”

FACT Or MYTH?

Many people are quite confused about the $8,000 First Time Home Buyer Credit offered by the Federal Government as part of the Stimulus Package through November 30th, 2009. This article is designed to state the facts, and stall the myths associated with this incredidible opportunity.

Who Qualifies?

If you have not owned real estate in the last three years (36 consecutive months), before the close of escrow, than you qualify. So, even if you have owned before, as long as it hasn’t been in the last three years, than you will qualify. EVEN if you need a non-owner occupant co-borrower to co-sign with you, the owner occupant will still qualify, if they meet the other criteria. That’s big!

Everyone Qualifies for $8,000?

There are income restrictions: $75,000 for individuals and $150,000 for married couples, however, if you make more, don’t be too discouraged, as you may qualify for a portion of the $8,000 refund. Consult an accountant for particulars. Plan on residing in the home for the next three years, or you’ll have to pay that money back!

What $8,000 Means

Think about it…you get an $8,000 gift for a down payment. $8,000 is 3.5% of $228, 571.43. So, if you make an offer on a $228, 400 home, put 3.5% down, ask the seller to pay your closing costs, close the deal before December 1, 2009, and file IRS form 5405, a few months later you get your $8,000 check from the Treasury Department, and viola…you’ve just bought a home which cost you pertineer NOTHIN’! NADA, Ziltch! It’s an incredible opportunity that MOST that could…should!

Example:

Let’s say that you are a W-2’s employee that has had enough taxes withheld each pay period that you are receiving a $750 rebate from the Federal Government. If you buy this year, your rebate would increase by the $8,000 amount (depending on purchase price and income qualifications), so your refund would be $8,750.00. These funds can be used to furnish your new home, purchase a new washer and dryer for the laundry area, etc. Even if you did not withhold enough funds throughout the year, and you end up owing an additional $5,000, again, should you qualify; you wouldn’t have to write a check to the Treasury Department. You would receive a check for $3,000.

How Quickly Should I Act

Most escrows are about 45 days. So…it takes time to find a home, negotiate offers, etc. So, work backward from the date that this offer expires. November 30, 2009. If your escrow has not closed by that date, and there is no extension to the program, that’s it, you won’t get the refund check.

What If I May Owe for 2009 1040’s?

You will fill out IRS form 5405. It’s an addendum to 2008’s 1040 Tax Returns. So, regardless…if you’ve filed ’08’s returns, than you will get an $8,000 check in the mail. It will take about two to three months, from what we’ve experienced.

May I Use The Credit For My Down?

Congress amended this decision and said, “yes,” as long as you receive a “bridge” loan from either an institutional lender, or from certain Government approved Non-profit Down Payment Assistance (DPA) Type Entities. I have even had client inform me that they had been told “by two real estate agents” that they could use the funds toward the down payment. Here’s the twist…the program ends November 30, 2009. So, no bank was willing to take the risk on a “bridge” loan and wait for the government to send them the refund check, at a later date. Also, any DPA entity didn’t want to structure a complete not for profit, side business, that they MIGHT be able to collect $500 to $1,000 for each transaction, obsorb the costs to do so, when the programs going away in November. So, non of that ever came to fruition.

HR 600 was a proposal to bring back the Nehemiah program, and if the government isn’t going to allow 100% financing with sellers paying the buyers’ closing costs, than hopefully, Nehemiah will come back into the picture. This would enable buyers to have the down payment and closing costs, stimulate the economy with the refunds, help the housing industry, and stimulate the economy by freeing up more money for people to fill up the new houses with new necessities. HR 600 did not pass with these requests, however, expect to see some changes when HR 600 is re-visited by Congress and The Senate, this coming year! Expect programs like Nehemiah to come back!

Is Payback Required?

Don’t get confused with President Bush’s $7,500 incentive passed by congress, and President Obama’s new Stimulus Bill. President Bush’s incentive was a loan to be paid back yearly. Obama’s is an actual credit.

Understanding FHA – Why It’s King

Why FHA?

When considering buying a home, the number of loan options available, are not as rampant as they were a couple of years ago.  The most popular loan, in the past eighteen months, has been a loan through The Federal Housing Administration (FHA).  FHA loans enable a small down payment that can be a gift from a family member, flexible underwriting guidelines, and the home that’s being purchased, while needing to be in somewhat good shape, doesn’t have to have the clearances, like a termite clearance, as they used to require. 

Down Payment

Again; 3.5% is the minimum down payment required.  This may be a gift from a family member, or even a fiance. 

Seller Credits

Another great aspect of FHA loans is that they work similarly to conforming loans.  Generally, when a home buyer puts less than ten percent down, the seller is restricted from contributing more than three percent, of the sales price, towards a buyer’s closing costs.  However, if a home buyer puts more than ten percent down, the seller may credit the buyer six percent, of the sales price, towards the buyer’s costs.  FHA still allows the smaller 3.5% down payment, however, enables the seller to credit a full six percent of the price. 

Why Is My Impound Account So Expensive?

With FHA loans, it is required that a buyer set up an impound account through the bank.  An impound account is a fund account used as reserves to pay incremental fees, like taxes, homeowner’s insurance, and mortgage insurance, when they become due.  So, it’s important to understand that the impound account funds are not costs, they’re just recurring fees that will need to be paid throughout the life of homeownership, anyway. 

For example, taxes are due twice a year; April & November.  So, let’s take a borrower whose escrow is closing in September.  If the seller is current on their taxes, then they would have paid for the July through December Tax Bill, in April.  When a home buyer closes their escrow, they would owe the seller September through December.  Also, due to the fact that real estate interest is paid in arrears, the first borrower’s payment wouldn’t be due until November…when the 2nd tax installment is due.  So, if a borrower closes in September, the impound account would want four months, plus, the six month installment, plus one extra month, so that there are funds in the account at all time, and never short. 

Buyer’s Market

In a market like the one we’re in, currently, bear in mind that sellers need to sell.  Most of the transactions that I’m financing have some sort of credit from the seller, to the buyer.  Even foreclosed upon banks are crediting buyers.  And, quite a few have a full six percent seller credit.  Here’s how it can benefit the buyer.  Again, with FHA financing, the seller may pay six percent of the sales price.  So, closing costs generally run about 2.5% of the sales price.  Impounds can run from one to 2.5%  of the sales price.  This depends on when the escrow closes.  So, what do you do with the remaining credit amount, if the total closing cost and impound account only totals 4.5%?  Pay down the buyers interest rate!  That’s right, the remaining funds can be used to pay points to lower the interest, and therefore, monthly payment of the buyer. 

3.5% Down and Nothing Else

With the above mentioned example.  A buyer can move into a home, put only 3.5% down, have the seller pay their closing costs, their impound account, and their interest rate down to more comfortable monthly payment.  And, let’s say the buyer closes at the beginning of the month.  September, in this example.  Their first payment wouldn’t be due until November 1.  So, they would move into the home and not have a payment for the whole month of September and October.  Not to mention the $8,000 tax credit…

Credit Scores

FHA has a credit risk score requirement of 620 or greater.  However, there are still banks that will allow less than this.  very few of them, and they may run out of their ability to fund loans with scores lower than 620, in the very near future. 

Qualifying Ratios

I’m still getting approvals with front-end ratios up to 47%.  That would be forty-seven percent of a buyer’s gross income going toward their housing costs.  Principal and interest, taxes, and all insurances.  And, on some occassions, the back end ratio is still going up to 65%.  That would be sixty-five percent of the clients gross income going toward principal and interest, taxes, all insurances, and other monthly obligations.  Other monthly obligations might be items like a car payment, credit card debt, alimony or child support, and any other financial obligation that the bank will obtain information on. 

The Property Itself

In the old days, FHA required that a homebuyer receive a termite inspection and clearance.  A few years ago, FHA wanted to be as competative as conventional loans, and therefore, they changed their policy to match Fannie Mae and Freddie Mac’s.   Even if an agent writes into the purchase contract that an termite inspection will be ordered, a buyer and seller may change their minds, and write an addendum to the contract stating, “buyer and seller waive the right to a termite report and clearance.” 

Mortgage Insurance

Many years ago, you couldn’t buy a home, unless you had twenty percent down.  Then the insurance companies got involved and requested to the banks that they be able to insure a percentage of the loan amount, to enable buyers to put less than twenty percent down.  The monthly insurance payments were costly, however, it did enable more homebuyers to participate in the American Dream.  Then FHA stepped in and wanted to lower that monthly mortgage insurance payment, however, they still needed to cover their risk.  So, they split up the mortgage insurance into two parts.  One part would be financed into the loan amount, and the other part would be paid on a monthly basis.  Financing the portion in the loan amount would lower the monthly payment for the homebuyer, making the purchase more affordable. 

$8,000 Tax Credit

If you purchase your home and the escrow closes before November 30, 2009, you qualify for the $8,000 tax rebate from the federal government.  2008 Tax Form 5405 is an amendment to a first time home buyer’s 2008 returns.  So there is no waiting for filing your 2009 1040 tax returns.