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July 2008

Housing Bill: What It Means to Buyers & Sellers

Posted at 9:28 AM, Jul. 30, 2008

The housing bill being signed by the President today was designed to help the ailing housing market.  There is a little bit of everything in this bill not all of it good but most of it good for the big banks and lenders who have bad loans on the books.

Homeowners in Distress
The bill would help approximately 400,000 homeowners avoid foreclosure by allowing them to refinance into lower-cost mortgages insured by FHA. The borrowers must have a relatively high level of debt to income; their homes must be their primary residences they must agree to share any profits from any eventual resale with the government. The lenders must agree to write down the loan principals. The positive to this is that some homeowners may be able to avoid foreclosure, but, with any kind of loan or financing, they are still going to have to qualify for the new loan.  The downside is that they must share a portion of any future profit upon resale. 

First Time Buyers
With the lower housing prices, many first time buyers who could not qualify for a mortgage before now have a better chance of getting into their first home.  First-time home buyers who purchase a primary residence between April 9, 2008, and July 1, 2009, will be eligible for a tax credit of $7,500 or 10% of the purchase price, whichever is less.  While this doesn't provide a buyer with much needed down payment money, it does provide them with a nice tax deduction.

You'll have to pay it back. While this break has been labeled a tax credit, it's really an interest-free loan. Home buyers who claim the credit will be required to pay it back in equal installments over 15 years, starting in the second year after the home is purchased. If you buy a house this year and claim a $7,500 credit on your 2008 tax return, you'll have to pay an additional $500 a year in taxes for 15 years, starting in 2010.

Down payment assistance programs are being phased out with this new bill and will no longer be available after October 1st.  However, there are still ways for sellers to help buyers with contributions to closing costs, up to 6% with FHA loans.

Banks and Mortgages
The banks and mortgage lenders may have one of the best outcomes because they can relieve themselves of a fair amount of bad debt by letting them be financed by FHA, resulting in them having more money to lend.  What these institutions will need to be careful of is falling back into reckless lending

Sellers
What this bill may mean to sellers who are not in distress is that there may be more buyers coming into the market as a result of the first time buyer incentive and, as a side effect of the perhaps more money being freed up for mortgages.

And, while there may be more money available, sellers must still be realistic about the market and price their homes accordingly.  Their homes have to be in very good condition up to and including freshening up with a new coat of paint, fixing those "Ill get around to it one day" items and giving the home the best possible curb appeal.  It's amazing what power washing a deck, keeping the lawn trimmed, and colorful plants can do to improve the desirability of the house.

First Time Buyers And Others - Where Do I Get The Down Payment?

Posted at 3:50 AM, Jul. 14, 2008

Many prospective buyers are ready to get into the housing market but wonder how they can come up with the down payments that lenders require. 

Depending upon the type of loan, a home mortgage typically requires anywhere from 3% down for an FHA or VHDA loan or 5 percent down for a conventional loan.   If you have the money, then you’re set. But what if you don’t?  What if you’re renting? You can afford a mortgage within your budget, but coming up with the down payment money needed to begin the transaction can be challenging. So, where can you turn?

One of the most overlooked sources of down payment funds is likely right under your nose—in the form grant programs.  These programs either provide outright monetary grants for down payment or money to buyers in the form of a forgivable loan. 

Recently there was an article in The Richmond Times Dispatch about a Workforce Housing project where Virginia Commonwealth University Health Systems helped one of its employees buy a home using the "forgivable loan" process for the $5000 down payment.  In essence, VCU helped her buy the home and she would not have to pay it back if she kept the property for a certain number of years.  The City of Richmond has a similar program for qualifying employees.

So, what if you don't work for VCU or the City of Richmond?  Take heart, because unless or until the federal government bans down payment assistance grants, a home buyer can get this help with the combined efforts of a non-profit down payment assistance program such as Nehemiah and Seller contributions.

In the past it was challenging to find these special programs, but now all you need is your agent or your lender, and you will find the programs that may just be the answer to your down payment quanadary and the way to open the door to home ownership.