Gerry Suarez Jr- Your FHA Loan Pro!

Late last year the administration announced changes to the Home Affordable Refinance Program. These changes were designed to reach a greater number of families that had previously been denied from taking advantage of record low interest rates. Although the government sponsored programs have admittedly impacted fewer families than expected, these changes can help quite a few. More homeowners in states like Florida that suffered significant declines in value can now benefit from the program.

So what did they change? In a nutshell they have removed “loan to value” ratios from the equation. Whereas before your loan could not exceed 125% of the current value of your home, now that ratio is not even calculated. You can owe $300,000 on a $100,000 home and still possibly qualify. Homeowners must be current on their mortgage and have good payment histories to qualify, so this is no bailout. This is the much needed reward for those who have done the right thing and kept their payments current even though their mortgage rates were much higher than current rates.

There are certainly other limitations that will prevent this from benefitting as many homeowners as it should. Your loan must be owned by Fannie Mae or Freddie Mac. Also those who have second mortgages on their homes may find it difficult to qualify because those loans will have “re-subordinate” or stand down to the new refinanced first mortgage. Historically, and illogically, second mortgage lenders have not been accommodating. Also, many of the details to the program are still in flux. Income and credit standards (besides the on-time payment requirements) are supposed to be relaxed, but individual lenders can apply “overlays” (more stringent guidelines) in order to protect themselves from having to buy back loans that go bad. If you feel this program can help you, contact your current servicer or you can call 888-995-HOPE for the HARP hotline.

Amid much talk about a real estate "double dip", shadow inventory, and a continuing crush of foreclosures; the market seems to be reacting with a mind of its own. Here in the middle of Florida, a state hit hard by foreclosures, we are seeing what may be a new equilibrium.

Sure there is a lot of inventory, but not nearly as much as we've had. It's true that the vast majority of sales are still under $180k, but more high end properties are selling and showing. Investors are having a field day with distressed properties and they are rehabilitating these homes into rentals or "flipping" them. What do the numbers look like? Well let's see...

After the stimulus

We all know the "post homebuyer tax credit" world is a different one. The rush to close those deals which resulted in an artificial spike in sales numbers is now gone, and five good months since then have seen inventory levels falling each month. According to Trendgraphix.com, Lake County inventory levels have trickled down to 4139 total units. Although that's only down from 4214 in August, it represents a decline from 5539 in December, 2008. Loosely translated, if you are a buyer this means you now have 1325 less homes to choose from when looking for your dream home.

Let's look at the pace of sales. December gave us 359 sales in Lake County, FL which was the best month since the expiration of the tax credit. The average number of sales, however, has been holding in the low 300 unit level. If we take current inventory and divide it by the average monthly sales we have a little more than a 13 month inventory of homes. That's high, and generally represents what we all know- it's a buyer's market. But what happens when we look at lower end homes?

If you are in the market for a home under $150k, know that at the current rate of sales there is an 8 month inventory for you to pick from. This number is down from 13 months in December, 2008 and represents the lowest level of inventory since the end of the tax credit. In short, buyers are buying and they are buying lower priced homes pretty fast.

So what of the higher end market? The $500k plus market yielded 44 sales in 2010. Although that compares well with the 47 sales in 2009 it must be noted that in December, 2008 there were 475 homes for sale in this price range. Now there are only 244. Clearly there is less inventory to choose from at all levels.

So what does this all mean?

Coupled with still great mortgage rates this makes a compelling argument to buy now rather than wait if you are considering a home purchase in the near future. If you are convinced that prices will continue to fall I will leave you with this fact:

If you bought a $150k home in October at 4% interest rate that was prevalent then, your payment could have been $716.87/mo. If you waited until that same home lost 10% of its value but bought at the more current rate of 5.25% your $135k purchase would be $746.07. Yep that's about $30/mo more that you are paying for having waited, and don't forget most predictions are that rates will be in the 6% range by end of year...

So you may not be best served by listening to the media hype and remember real estate is all about location. There are many other factors that can contribute or detract from you getting a great deal these days, but one thing is sure- if you are in the market to buy, now is a good time!

With 2010 behind us, there are many tax related considerations for those fortunate enough to have bought last year. From property taxes to income taxes and even home buyer tax credits- purchasing a home can have a huge positive effect on your tax bills.

Property Taxes

The start of a new year always marks the imminent deadline to file for homestead exemptions in Florida. Here in Central Florida the exemption can add up to $700/yr or more of savings, but it's important to know how and when you can file.

Each County in our area has a different procedure for filing so you will want to check with your local Property Appraiser office. The links for the various counties are:

Orange County

Seminole County

Osceola County

Lake County

Volusia County

You must file by the end of February to receive the exemption for 2011 and remember you must have purchased your home in 2010 to qualify, and the home must be your primary residence.

Chances are your tax payment is escrowed (included with your mortgage payment) if you have financing. It's important to note that if you fail to file homestead your monthly payment will not immediately increase, but it will take an inordinate jump a year or more later. This jump in your monthly payment can easily exceed $100/mo so to avoid a costly mistake, make sure you file on time.

The documents usually required to file are your recorded deed, tax bill or property record card; Social Security Numbers for applicants and spouses; Florida Driver's License or if you do not drive Florida Identification Card; Florida Vehicle Registration; and your Florida Voter's Registration Number. Again some counties may have different requirements so check their websites.

Don't forget if you had a previous homestead in Florida you may qualify to transfer some of the "Save our Homes" benefit to your new property. Amendment 1 passed on January 29, 2008 allows "portability" of certain tax benefits from a previous homesteaded property, even if it hasn't been sold. For more information about this check your local Property Appraiser's link as well.

Federal Income Tax

Remember that mortgage interest is generally still tax deductible (make sure you talk to your tax preparer!) and some other costs associated with a mortgage may be deductible as well. Advise your tax preparer that you purchased a home and provide them with your HUD1/Closing statement to maximize your potential write offs.

Homebuyer's Tax Credit

Many of you qualified for the tax credit but did not file or amend your 2009 return to receive it. Your payday has arrived! For most people this credit of up to $8,000 was contingent on having your contract dated by 04/30/10 and your purchase closed by 09/30/10. Service members who were on official extended duty outside of the United States for at least 90 days between Jan.1, 2009 and May 1, 2010, may qualify for a one-year extension.

You tax preparer will have the proper form for you to complete or you can access the IRS site here to download it. For more information on the tax credit, how it worked and if you may still qualify access this site from the National Association of Home Builder's here.

Buying a home can have many tax advantages as long as you do your part. Don't lose out on the money you can save just because you didn't take action!

The USDA issued a memo yesterday, May 26, 2010, reauthorizing the issuance of conditional commitments for USDA loans. What that means is that your better lenders (the ones that usually close USDA loans while funds are waiting to be allocated) will immediately be able to continue closing loans. The amount that has been authorized is $2.5 billion and it's expected that new funding will be available from Congress before this is exhausted (there are currently a few bills, but HR 4899 is the most likely to pass quickly- possibly by today).

Do know this money comes at a cost. Per the memo, lenders are asked to call their state USDA coordinators to determine the amount of the guarantee fee that will be charged. This fee was 2% and it is generally accepted that it will increase to 3.5%. This means any loans, regardless of when the application was taken, that receive their commitment to fund from these new dollars will have the higher fee. I've spoken to a number of lenders and so far all are treating it as a legitimate "change of circumstance" that requires redisclosure of the good faith estimate and the truth in lending disclosures.

Also be aware there is a backlog of files that were not underwritten by USDA, This will likely result in delayed turn times from your USDA offices in the short term. Locally my office in Central Florida (Ocala for me- not Davenport!) is quoted 7-10 business day turn time.

Thankfully the increase in the guarantee fee will make the USDA Guaranteed Rural Development loan self funding- much like FHA. That means no more October delays and a much smoother future for the program, which remains the one of the last 100% financing programs in the country (VA is the only other one).

Gerry Suarez, Jr.

Your FHA Loan Pro!

The Mortgage Bankers Association reports that mortgage applications for the week ending April 9^th are down almost 10% from the previous week. They go on to cite the recent increase in FHA upfront mortgage insurance as the main factor, and they likely have numbers to back up that statement. What the press release says is that a 19.1% decrease in "government purchase applications" fueled the drop, but do their numbers break down what specific programs were impacted most?

My point is that as of last week most lenders in the country have given up on taking USDA Guaranteed Rural Development loans since the program is anticipated to run out of funds later this month. If the MBA is counting these USDA loans as "government purchase applications" (isn't everything a "government purchase application anymore?), then it stands to reason the USDA issue may be much bigger than anyone is anticipating.

A Bloomberg commentary on the matter states the setback raises "new questions over what should be a strong month for housing demand given the pending expiration of second-round stimulus". These are the very thoughts Congress should be considering while they let the final round of Homebuyer Tax Credits expire while not providing additional funding to a program that has resulted in some 3500 closed loans from October, 2009 thru February, 2010 in Florida alone!

Hopefully it will soon be announced that efforts are underway to allocate more funds to the USDA Rural Development loans. In the interim, huge efforts that have been made to help the housing industry are being wasted and opportunities are being lost. Please contact your representatives in the Senate, the House or most importantly the Senate Appropriations Committee and urge them to provide funds for the USDA loan programs.

Gerry Suarez, Jr.

Your FHA Loan Pro!