Tax Credit for Home Buyers who have Owned a Home

November 24, 2009 by Leave a Comment

I was asked this question by one of my friends on Facebook:

"I was listening to one of your videos from last Monday and you mentioned something about a tax credit for people who has owned their homes for the past 5 out of 8 years… Do you know what that is all about yet?"

When the first time home buyer tax credit was extended with the "Worker, Homeownership, and Business Assistance Act of 2009", Congress added a few goodies, including increasing the qualifying income limits and allowing folks who have owned a home out of the past 5 out of 8 years to participate with a tax credit of up to $6,500.   This tax credit has been pegged as one for a "move-up" home buyer, however it just needs to be a primary residence–it does not need to be larger or more expensive than the last residence.  In the Act, these home owners are referred to as "long-time residents of the same principal residence".

One does not have to sell their current residence in order to qualify, from the IRS:

If you meet all of the requirements for the credit, the law does not require you to sell or otherwise dispose of your current principal residence to qualify for a credit of up to $6,500 when you buy a replacement home to use as your principal residence.

The IRS uses this example for occupying your home in the last five out of eight years:

The requirements are that you must buy, or enter into a binding contract to buy, the replacement principal residence after Nov. 6, 2009, and on or before April 30, 2010, and close on the home by June 30, 2010. Additionally, you must have lived in the same principal residence for any five-consecutive-year period during the eight-year period that ended on the date the replacement home is purchased. For example, if you bought a home on Nov. 30, 2009, the eight-year period would run from Dec. 1, 2001, through Nov. 30, 2009.

The tax credit is only valid for homes priced under $800,000.   I'm not sure why they put this limit on the sales price when there are all ready income limits and limits to the amount of the tax credit in place.   The upper end of the housing market can really use some help.

Qualifying adjusted gross income limits have been raised for first time home buyers and repeat home buyers to $125,000 for single people an up to $225,000 for married couples for the full tax credit.

If after 36 months from purchasing the home, if it ceases to be the residence that you occupy (you've sold the home or converted it to a rental, for example), the tax credit may be required to be repaid.

I don't recommend buying a home just because of the tax credit.  There are costs to owning a home that will present themselves long you've enjoyed your $6,500.   If you are counting on receiving the tax credit, do visit the IRS's site and make sure you will actually qualify by completing the proper form.  I remember meeting with one of my clients who was buying her first home, when we reviewed the tax form together and she discovered she barely made too much money to qualify, she was disappointed.  She did go through with her purchase and she loves her home…but knew before getting too far into a purchase transaction that she was not going to qualify for the $8,000 first time home buyer tax credit (she would now with the increased income limits).

Check out this FAQ for the Repeat Homebuyer Tax Credit for more information. 

Filed Under: First Time Home Buyer, Legislation, Residential Purchase

The Last Word: Page 3 of the Revised HUD-1 Settlement Statement

November 20, 2009 by Leave a Comment

If we mortgage originators had more flexibility of when a good faith estimate could be revised for our clients, I would be applauding the last page of the revised HUD-1 Settlement Statement.  On this page, the borrower actually get to compare the closing costs on the good faith estimate directly to the those shown at closing on the estimated HUD-1 Settlement Statement side by side.  My beef is that we are very limited by HUD's grey definition of "changed circumstances" which allows us to issue an updated good faith estimate.

The page 3 of the HUD-1 also breaks the fees into the various tolerance levels.   The first section has the fees that cannot increase.  If the HUD-1 fees in the right column are higher than those in the Good Faith Estimate column on the left, the mortgage originator will have to refund the difference.

HUD3zeroTol

The next section has the fees where HUD will allow an accumulative variance of up to 10%.

HUD3tenPerTol 
Followed by the last section where the tolerance does not apply.   The fees shown in the section below can change from the good faith estimate.

HUD3tol

Page 3 of the HUD-1 Settlement Statement concludes with a summary of the loan terms.  Hopefully none of these terms (or fees) are a surprise to the borrower, their mortgage originator should have explained the details fully well in advance of the signing appointment. 

HUD3loanTerms

Ideally, mortgage companies will provide loan documents a few more days in advance than what is taking place with our current GFE/HUD and RESPA guidelines…this means longer transaction times for consumers.   I also highly recommend that consumers obtain a copy of their estimated HUD-1 Settlement Statement two days before their scheduled signing appointment.

I've always recommended that borrowers bring their good faith estimate with them to their signing appointment, maybe now they won't need to!

Filed Under: Escrow and closing, Good Faith Estimate

Overdraft Protection and Your Credit Score

November 18, 2009 by Leave a Comment

I have to admit, a lot of my content for the articles I write come from my clients or other home owners who have really good questions.  When I can't find an answer ready to refer them to here at Mortgage Porter, it's time to write a post!   Here's a great example of a question I recently received from one of my refi clients:

"I have a question about a possible impact on our credit score, which you may have some insight into.  We have been meaning for some time to get overdraft coverage on our checking account for "just in case" and today, we got that lined up.   However, I'm reading over the documents from our bank this evening and it looks like they just issued us a credit card.  Is this something that would play poorly on our FICO score?"

Overdraft protection is often a new credit card issued from your bank that is attached to your bank account.  Because this is "new credit" it will impact credit scores.

According to Linda Ferrari's book "The Big Score – Getting It and Keeping It"

"New accounts will lower your overall account age and diminish your length of credit history for a period of 3-6 months, so be sure to have cushion in your score.  Even if you've used credit for a very long time, opening a new account can lower your credit scores."

How much your score is impacted is hard to say–it depends on your overall credit picture.  If you're someone with perfect credit and 800 scores, your credit score may be barely impacted.  However, if you are someone with pretty good credit (around 720) BEFORE the new debt (over-draft protection) and you're considering a refinance or using a mortgage to purchase a home, you might have just dipped your credit low enough to have been impacted by higher mortgage loan rates.

Overdraft fees can add up quick and due to recently regulations by the Fed preventing banks from charging overdraft fees on certain transactions (ATM/debt cards) which will go into effect July 1, 2010, banks are sure to offer overdraft protection to help make up for lost revenue.

The Federal Reserve Board on Thursday [November 12, 2009] announced final rules that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.

If you are considering adding overdraft protection to your bank account, do find out what type of account it is: a line of credit (or credit card) or maybe it's attached to your savings account.   If you are considering a mortgage (or other type of financing where credit scores are considered) you may want to delay obtaining overdraft protection until after your transaction has closed to avoid having your credit score dinged.

Filed Under: Credit Scores and Reporting, The Fed - FOMC

Late Night Friday Fun

November 13, 2009 by Leave a Comment

Please don't count on this type of entertainment from me… I just had to share this incredible video from Seattle's Shorecrest High School with one of my favorite tunes "Hey Ya"  

Hat tip to West Seattle Blog via Gabby Cat

Filed Under: Just for Fun, Seattle

2010 Conforming Loan Limits for Washington State

November 13, 2009 by Leave a Comment

Fannie Mae along with FHFA have announced that the 2010 conforming loan limits will be the same as 2009.   FHA's 2010 loan limits will follow from HUD:

However, as noted in FHFA's announcement, high-cost area loan limits are derived from median home prices estimated by the Department of Housing and Urban Development (HUD).  HUD has a 30 day appeals period where requests for indiviual area median home price increases are evaluated.  FHFA will issue a subsequent announcement if any invididual high-cost area loan limit is increased as a result of HUD's apppeals process.

Conforming Loan Limits for 2010

1 Unit – $417,000

2 Unit – $533,850

3 Unit – $645,300

4 Unit – $801,950

NOTE:  The following Washington counties do not have "high-cost area loan limits": Adams, Asotin, Benton, Chelan, Clallam, Columbia, Cowlitz, Douglas, Ferry, Franklin, Garfield, Grant, Grays Harbor, Island, Kittitas, Klickitat, Lewis, Lincoln, Mason, Okanogan, Pacific, Pend Oreille, Spokane, Stevens, Thurston, Wahkiakum, Walla Walla, Whatcom, Whitman and Yakima.

High Balance Loan Limits for Washington State

King, Pierce and Snohomish Counties

1 Unit – $567,500

2 Unit – $726,500

3 Unit – $878,150

4 Unit – $1,091,350

Clark and Skamania Counties

1 Unit – $418,750

2 Unit – $536,050

3 Unit – $648,000

4 Unit – $805,300

Jefferson County

1 Unit – $437,500

2 Unit – $560,050

3 Unit – $677,000

4 Unit – $841,350

Kitsap County

1 Unit – $475,000

2 Unit – $608,100

3 Unit – $735,050

4 Unit – $913,450

San Juan County

1 Unit – $593,750

2 Unit – $760,100

3 Unit – $918,800

4 Unit – $1,141,850

Fannie Mae also announced a loan limit for second mortgages:

For second mortgage loans, the loan limit for 2010 is $208,500…. Furthermore, the sum of the original loan amounts of the first and second mortgage loans may not exceed the applicable loan limit for first mortgage loans based on the location and the number of units of the subject property. These loan limits apply whether or not Fannie Mae owns or has an interest in the first mortgage loan.

When I began my mortgage career back in 2000, the conforming loan limit for a single family dwelling was $252,700. 

Filed Under: Fannie, Freddie and FHFA

December’s Recorder’s Office Closures for King, Pierce, Snohomish and Kitsap Counties

November 12, 2009 by Leave a Comment

December 23, 2009 – Snohomish County closing early at 3:30 pm

December 24, 2009 – King and Snohomish County closed.

December 25, 2009 – Christmas (all offices closed)

Filed Under: Interest Rates

Only 5 Days Left for FHA Streamline Refi’s Without Appraisals

November 10, 2009 by Leave a Comment

EDITORS NOTE 6/28/2010:  Since writing this post, many FHA home owners have opted to reduce their mortgage rate via the streamline refi without an apprasial when they have the funds available.

If I wanted a super long title to this article–it should actually read:  "5 Days Left for FHA Streamline Refi's Without Appraisals with Closing Costs Rolled Into the Loan Amount"… but that's just too long.

Back in late September I warned that FHA guidelines are dramatically changing effective on FHA case numbers issued after November 17, 2009.

Considering our current home values, if you currently have an FHA mortgage, this could be your last chance to reduce your rate without having to shell out your hard earned money on an appraisal!

If you have a home located in the State of Washington, I'm happy to provide you with a good faith estimate at no obligation to you.   In order to provide an accurate estimate for you, it would be ideal to have the following information (which you can find on your HUD-1 Settlement Statement):

  • Original base loan amount
  • Amount of your FHA upfront mortgage insurance premium (or portion of your upfront MIP may be credited towards your new FHA loan)
  • Estimated credit score (we currently require a minimum credit score of 620 or higher)
  • Home address (so we can obtain accurate property taxes).

Our company does require that you are employed and will verify your income and credit with an FHA streamline.   We have our own in-house FHA underwriting and are a HUD approved Direct Endorsed lender.   You can apply on line (only for homes located in the State of Washington) by clicking my "apply on line" link on the top of this web site.

You will be able to do FHA streamlines after November 17, 2009…they just won't seem so "streamlined" anymore.

Attention Real Estate Agents: if you have buyers who used FHA financing to purchase their home with mortgage rates around high-5's or higher, you can be a real hero by sharing this article with your clients.

Filed Under: Appraisals, FHA, Refinance

What a Relief! The Home Buyer Tax Credit is Extended

November 7, 2009 by Leave a Comment

Whether you are for or against the tax credits created by our Congress and President Obama trying to recover our housing industry, you could hear a huge sigh of relief from professionals in the mortgage, escrow and real estate industry on Friday when President Obama signed the extension for the first time home buyer tax credit which was set to expire at the end of this month.

If you've been reading my posts for the last few months, you know I've been trying to warn potential home buyers eying that credit of what a short month November is for closing real estate transactions–with or without the tax credit.   The November 30th deadline did spur on some last minute transactions for first time home buyers.  Many mortgage companies issued memo's to borrowers regarding the tax credit stating they would not be held liable in the event the transaction did not close in time. Now, if the transaction closes on December 1, and the borrower qualifies for the credit, the home buyer won't be robbed of the credit…which could be up to $8,000.   Whew!

Speaking of relief, check out this vintage Alka Seltzer commerical singing about passing bills in Congress.  

Not only was the first time home buyer tax credit extended to April 30, 2010, Congress added a tax credit for existing "long time residents" (defined as owning a home during the last 5 out of 8 years) buying another home of up to $6500.  In addition, income limits for the tax credits have been dramatically increased. 

I will be providing more details soon about both of these tax credits for home buyers at Mortgage Porter soon!

Filed Under: First Time Home Buyer, Legislation, Residential Purchase
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