The Mortgage Scoop

On January 1, 2010 a new set of requirements kicks in for all mortgage lenders.  The biggest change will be to the Good Faith Estimate (GFE).  In the past this form could be used by a consumer to determine what their total monthly payment would be, how much money they would need at closing and what they were being charged for each individual item on the HUD-1 Settlement Statement.

The purpose of the new GFE has essentially been redefined.  It now is really going to become a tool for consumers to use to accurately compare and shop mortgage companies.  In the past, people would collect GFEs from several companies, compare them, and then chose a lender.  The flaw with this is that lenders were not bound by any of the numbers listed.  The could tell you one set of charges today and change them tomorrow if they wanted to, for no specific reason.

That has now changed.  Now, when a lender issues GFE they are essential required to make sure your charges at closing match what you were told up front.  There are certain events or “change or circumstance” that allows the numbers to be altered–but only in a way that directly follows whatever that change was.  So, essentially the days of consumers being jerked around by misleading or lying lenders should be coming to an end.

That is the good part.

The bad part–the new GFE will not tell you what your total monthly payment will be, because the property taxes and home owners insurance are not a part of it–at least not in the format of showing you a monthly payment.  Also, no where on the GFE does it tell you how much cash you will need at the closing.  It will tell you the closing costs, but not the money needed for prepaid expenses such as setting up your escrow account.  Also, there is no place for you to see if the seller is paying any of your closing costs and what that might do to lower your number needed.

I’ll go into more detail over the next several weeks on this topic as it becomes reality.  But, be warned, if you are getting a loan in the next couple of months there will likely be a fair amount of confusion.

Also, check out my new radio show: Sweet Home Minnesota this Sunday from 2-3 pm where we’ll get into this topic, what’s going on in the Twin Cities housing market and a preview of some upcoming tax benefits for home owners.

December 18th, 2009 | Category: Industry News | Leave a comment

This post first appeared on www.SweetHomeMN.com

After a lot of work getting ready, this Sunday we’ll get to launch Sweet Home MN on the air.

I’ll be on the show this week, along with Scott Wollmering and Kelly Guest both of whom I’ve done another show with for almost four years, so I know we’ll have a good time.  We will have two new partners in the both with us for this show: Brandon Hedges and Matt Barker whose “Homes of Minnesota” real estate team is one of the top RE/MAX teams in all of Minnesota.  I’m excited about the different expertise they will add to the show.

This first week we’ll get into some of the more “macro” issues with real estate–why real estate matters to everyone, especially the economy.  We’ll also touch on some of the changes in the mortgage world–where even more big changes are looming and will change how everything works in the mortgage business starting January 1, 2010.

Tax Credits are always confusing to people, so we’ll break down the existing ones.  But, we’ll also talk about the proposed Job Stimulus Package that Obama began previewing this week.  There will be billions of dollars pumped into helping home owners make their homes more energy efficient.  So, you will get to hear some tips about what you can do to prepare yourself to take advantage of these credits when they become available.

Check us out, Sunday from 2-3 pm on 107.1 FM.  Also, be sure to sign up for our newsletter, you can do it on the left hand side of this page.

December 9th, 2009 | Tags: real estate radio | Category: Miscellaneous | Leave a comment

Nice article written by Kara McGuire at the StarTribune today.  She detailed several people’s agony in the ever increasing wait to receive their $8,000 check from the IRS for their first time home buyer tax credit.

According to the article, the IRS has to review each amended tax return by hand.  Since there are over one million of these potentially rolling in, you can see why it’s going to take a while.  In the past amended returned were to be reviewed within 8 to 12 weeks but the IRS has extended that to 12 to 16 weeks due to volume.

There were several stories of people who bought a home in May or June that are still waiting to get their money.  It’s a perfect example of what can go wrong with using tax money to stimulate the economy.  Based on what I read, I’m estimating that about $3 billion of the tax credit money that should have already been spent at stores like Home Depot is still sitting in the vast government abyss, just waiting to be released…oh well, at least there’s tens of billions of more dollars about to come our way soon (we’ll see how badly that gets messed up).

December 9th, 2009 | Category: First Time Home Buyer | Leave a comment

On Wednesday afternoon (the day I write this) HUD Secretary Shaun Donovan will be making a presentation to the House Financial Services Committee.  According to a story first reported by national real estate columnist Kenneth Harney a number of changes, including increased down payments, higher minimum credit scores and raising the cost of mortgage insurance could very well be asked for before the day is done.

Diana Olick reporting for CNBC.com saw an advanced copy of Donovan’s remarks that matches much of what Hanrey speculated in his article 10 days ago.  I’ll write more later once I have more exact details, but it looks like another important twist is about to show up…ugh.

December 2nd, 2009 | Tags: FHA | Category: Buyer Info, Industry News | Comments (1)

A number of you emailed asking where in the world I went to for the past month.  I wish I could answer something ridiculously fun like hanging out on the beach in Tahiti or Costa Rica.  But, it’s still something pretty cool.

I will be launching a new radio show starting in about two weeks.  So, I’ve been busy working on materials for the show.  I’ll post more details in a couple of days.

By the way, thanks to those of you who did ask

–Alec

December 1st, 2009 | Category: Miscellaneous | Leave a comment

In case you live in a cave and didn’t hear, the Government extended the tax credit for first time buyers to the end of April 2010.  It also expanded the program to include up to $6,500 in tax credits for buyers looking to move up or down.  The biggest rule to follow if you are a repeat buyer, is you must have lived in your home for 5 consecutive years (out of the last 8).

The National Association of Home Builders has done a great job of breaking out these credit since it was first created.  So, rather than put it in my own words, let’s just look at what they wrote.  This information can be found at www.federalhousingtaxcredit.com.

$8,000 First-time Home Buyer Tax Credit at a Glance

·   The $8,000 tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.

·   The tax credit does not have to be repaid unless the home is sold or ceases to be used as the buyer’s principal residence within three years after the initial purchase.

·   The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

·   The tax credit applies only to homes priced at $800,000 or less.

·   The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.

·   For homes purchased on or after January 1, 2009 and on or before November 6, 2009, the income limits are $75,000 for single taxpayers and $150,000 for married couples filing jointly.

·   For homes purchased after November 6, 2009 and on or before April 30, 2010, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

The $6,500 Move-Up / Repeat Home Buyer Tax Credit at a Glance

·   To be eligible to claim the tax credit, buyers must have owned and lived in their previous home for five consecutive years out of the last eight years.

·   The tax credit does not have to be repaid unless the home is sold or ceases to be used as the buyer’s principal residence within three years after the initial purchase.

·   The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500.

·   The tax credit applies only to homes priced at $800,000 or less.

·   The credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, the home purchase qualifies provided it is completed by June 30, 2010.

·   Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

December 1st, 2009 | Tags: Add new tag, First Time Home Buyer, Obama Plan, Tax Credit | Category: Miscellaneous | Leave a comment

The 2009-2010 version of the home buying tax credit has passed through Congress and the bill should be signed tomorrow by President Obama CNBC.com is reporting.

The details did not change much from the last posting I wrote.  Here are the basics:

• The tax credit will apply to purchase agreements accepted on or before April 30, 2010 and must be closed by June 30, 2010.
• First Time Home Buyers will be able to receive 10% of the home’s price or $8,000 (whichever is less)
• The income limit for first time buyers was raised to $125,000 and $225,000 for couples
• Existing Home Buyers who have lived in their current home for 5 consecutive years during the past 8 years will be able to receive 10% of the home’s price or $6,500 (whichever is less)
• If the buyer lives in their new home for 3 years they will not need to pay the credit back.
• Homes must cost less than $800,000

It was attached to a bill extending unemployment benefits.  It passed the Senate 98-0 and the House 403-12

November 5th, 2009 | Tags: First Time Home Buyer, Home Buying Tax Credit | Category: Buyer Info, First Time Home Buyer, Market Update | Leave a comment

Tonight Calculated Risk is reporting the details of what the final negotiations have pulled together.  Citing a report on Bloomberg  Calculated Risk is reporting the following details in this new version of the tax credit:

Income eligibility for first-time home buyers stays at $75,000 for individuals and $150,000 for couples.
For move-up buyers, income eligibility is $125,000 for individuals and $250,000 for couples.
There is a minimum 5 year residency requirement in their current home for move-up home buyers.
The tax credit is the lesser of $7,290 or 10% of the purchase price.
The credit runs from Dec. 1, 2009 to April 30, 2010, with an additional 60 day period to close escrow. (So end of April to sign contract, end of June to close escrow)
Expect bill to be signed by Friday.

Calculated Risk finished with saying:

This is obviously bad economics, but it must be good politics. The first-time home buyer impact will fade (and will probably cost over $100,000 per additional home sold). The move-up portion will probably be even less effective.

Apparently this tax credit will be combined with the extension of the unemployment benefits to avoid a veto (the real reason the extension was being held up).

I’ll wait for the final details to get confirmed before commenting too greatly, but it’s an interesting combo platter.  The Obama administration had really been pushing to only provide the benefit for first time buyers, so it will be interesting to see if they got something in return for backing off that requirement.

The biggest thing that hits me is the idea of allowing a deal to be put together by the end of April but have until the end of June to close.  How in the world are they going to police that?  That sticks out as an obvious place for fraud to show up.

October 28th, 2009 | Tags: First Time Home Buyer, Housing Bail Out Plans, Tax Credit | Category: Industry News, Market Update | Comments (1)

This article  first appeared at www.MyFirstHome.biz

What makes negotiating on a bank owned property different?  The main difference is understanding the motivation of the seller.  (According to the Minneapolis Area Association of Realtors recent report, the amount of homes for sale by banks has dropped 60% since last year.  So, the dynamic of buying a home in the Twin Cities has changed again–at least until the next wave of foreclosures hits after entering 2010).

In a transaction with a traditional seller, the owner usually needs the profits from the sale to help fund the purchase of their next home.   Unless they can afford two mortgages, they also need to time the sale of the home with buying their new home.  They need to sell their home in south Minneapolis before they can qualify for the mortgage to buy the home they want in Eden Prairie.  This puts a greater emphasis on both the time frame in which a buyer can close, as well the the buyer’s financial strength–specifically what is the likelihood their financing would encounter problems that would prevent them from buying the home.  So, in order of importance to the traditional seller are: price, time frame, strength of buyer.

When dealing with a bank, the core issues are the same: price, time frame and strength of the buyer.  But the order of priorities changes.  Because banks have so many properties they need to sell, they need to avoid having their staff getting bogged down “baby sitting” deals until they close.  The easiest way to do this is for them to look for the strongest buyers possible first. 

Typically this means a bank will take a cash buyer’s offer above all others–sometimes even if it is tens of thousands of dollars less.  By making these buyers provide a financial statement showing their ability to pay cash for the property the bank can avoid delays tied to a buyer’s mortgage approval getting delayed.  It also allows for a faster closing because all the steps to the mortgage approval can be cut out, which usually takes weeks to happen.  This is why you see investors snapping up lower priced homes in St. Paul instead of being purchased by first time home buyers.

The need for speed

The financial strength of a buyer is tied to the second thing banks want to see–how fast can you close?  Each month banks are putting together financial reports and each quarter they are reporting their balance sheets to investors.  The more properties they can sell before preparing the next report, the better their bottom line looks.  This need for speed often will create an ideal buying opportunity if you can close before the end of the quarter.  I have had clients negotiate lower prices on homes if they could promise to close by a certain date, which would allow enough time for the bank to show the sale on their reports.

By saying price is the third component isn’t meant to imply banks will give the homes away.  But, unlike a traditional seller, this is one of many homes the bank will be selling that month.  If they sell a couple for more than they expected, they can afford to sell some for less than they planned on getting.  They are essentially managing a portfolio of homes and need to bring in a certain overall price for those homes.  They don’t have to get the absolutely highest price for each individual home.

This is where your real estate agent plays an important role.  Having the agent prepare a Competitive Market Analysis (CMA) to really dial in the market value for a home you are interested in is very important.  The bank is using that same data to set the price they are willing to sell in, as a range.  Once your agent helps you pin in the market value you can compare that to the bank’s asking price.  This will give you an idea of what the bank’s motivation is in selling that home.  Are they trying to move it as fast as possible by under pricing the home–or are they really under pricing it hoping to create a feeding frenzy of multiple offers that will drive the final price above its market value?

What should a buyer do?

Assuming you are like most first time buyers, you are not sitting on a pile of cash.  So, you are at a disadvantage that way.  But, because you don’t have a house to sell you should be able to move quickly for the right home which will help your offer.  The type of mortgage financing you are using is important to the bank.  You will see many banks will only accept Cash or Conventional offers.  So, try to find a lender that can approve you for a Conventional loan with a smaller down payment, like 3% down.

Another step you can take to strengthen your offer is the amount of earnest money that you put up.  If you are willing to put in a larger cash deposit, this shows the bank you are very confident in your ability to buy the home.  There are times where a larger earnest money offer has allowed a buyer to beat out others who offered a slightly higher price but only a standard earnest money of $1,000.  You would need to get in the $3-5,000 range for your offer to look stronger.

The number one trait first time buyers in the Twin Cities need right now is perseverance.  Until the inventory levels of bank owned homes increases, there are too many buyers chasing after too few quality homes.

About the author: Alec Grebis is a mortgage lender who has specialized in helping first time buyers in the Twin Cities over his 15 years in the mortgage business.  You can reach him at agrebis@bellmortgage.com.

October 27th, 2009 | Tags: bank owned, First Time Home Buyer | Category: Buyer Info | Leave a comment