Nicole Lahti, Austin Texas Mortgage

Have you tried buying a home in the last year or so only to find "moving up" isn't easy when you're keeping your existing home? This may be due to the conversion underwriting rule adopted by Fannie, Freddie and FHA. Now this rule has been in effect for a while, so most Realtors know it exists and warn buyers before they make plans to buy a new home. However, I still get a couple calls a month asking for clarification on the rule, so here's a pretty detailed explanation on how to determine whether you can buy a new home if you're keeping your existing home.

What is the conversion rule? The conversion rule applies to buyers who are obtaining financing on the purchase of a new home, and keeping their existing home. If the existing home is "converted" to a rental property, the buyer must prove the existing home has 30% equity in order to use the rental income to offset the existing home's mortgage when qualifying for the new home's financing. The equity requirement is 25% when the new home will be secured by FHA financing.

How is the equity in the existing home determined? Through a property appraisal, or county tax records.

What if the 30% equity (25% for FHA financing) cannot be proven? Then the borrower must qualify for the new home's financing by supporting both new and existing mortgage payments against their income. This can prove difficult for some borrowers.

How do I estimate the value of my existing home before ordering an appraisal? Ask your Realtor to perform a Comparative Market Analysis (CMA). This will at least give you an idea if your home is close to meeting the equity requirement. Its also important you speak with a lender (eh-hmm) to determine whether you need to use the rental income to qualify for the new mortgage. Why order an extra appraisal if not using the rental income doesn't affect your mortgage qualification?

Are there any additional asset requirements? Yes, in addition to the cash you'll need to meet the closing and reserve requirement on the new home, you'll also be required to have between 6-12 months worth of mortgage payments in reserves for your existing home.

Mortgage Rates

Rates ended nearly unchanged for the week, but the biggest news last week was the Fed signaled higher mortgage rates are in the near future.

The low mortgage rates we've enjoyed were due in large part to the Fed's purchase of Mortgage-Backed Securities (MBS) on the secondary market -- a 1.2T purchase commitment spread evenly over the last year. Speculation that the Fed would continue to purchase MBS was squashed last week when the Fed gave a definitive "no", and instead said their current commitment would continue through first quarter 2010 through a "weaning" off of the program.

The Fed is "weaning" the market off its purchases of MBS to gradually transition the market back to normal conditions, rather than a quick bump in rates. Regardless, its a given that the Fed's end to purchasing MBS will cause rates to increase, most likely above the 6% range.

Existing and New Home Sales

In other housing news, Existing Home Sales and New Homes Sales came in lower than expected, and inventory of existing and new homes dropped to its lowest levels since April 2007 and January 2007, respectively. This decline may be attributed to builders constructing less homes, but either way is a great sign as a drop in inventory is what is needed to begin stabilizing the housing market.

Lastly, remember the $8,000 first-time home buyer tax credit expires November 30th! If you're wanting to take advantage of this credit, you need to have a home under contract by October 15th. Get in contact with me quickly if you're interested so we can move quickly!

Forecast for the Week

This week has a full calendar of economic news due out, with Unemployment the most crucial of figures due out Friday. Currently, our national unemployment rate is sitting at 9.7%. Remember, as a general rule, weaker than expected economic data is good for mortgage rates, and visa versa.

Want real-time mortgage and real estate news throughout the week? Follow me on Twitter!

Last week was a very volatile week, but despite the increase in supply of treasuries mortgage rates ended slightly better than where they began. Mortgage bonds and home loan rates were pushed against a high level of technical resistance which in layman's terms means rates ended the week looking pretty good, and any additional improvement will be tougher to realize (for purely technical reasons) unless we get some pretty big market news.

There was a list of major economic reports that came out last week. Here is a recap of what was released:

1. Core Personal Consumption Expenditure (PCE) rose .2% in July. This is a good measure of inflation, and so far is showing its not a concern for the near future.

2. Personal Income rose .1% in July.

3. Disposable Personal Income fell .1% in July.

4. Personal spending rose .2% in July. This may not be an accurate depiction of personal spending as the government's Cash for Clunkers program signifantly affected this reading.

**Its interesting to note that Americans are making less money, but spending more. Hmmm...**

5. Case Shiller Home Price Index shows home prices rose 1.4% in June, the second month in a row showing an increase. However, this rise isn't enough to offset our recent declines, as year over year home prices show a decline of 15.4%

6. New Home Sales rose 9.6% in July. This reading may also be artificially higher due to buyers purchasing homes earlier than expected to take advantage of the $8,000 first-time homebuyer tax credit.

7. Second quarter GDP fell 1%. This makes four consecutive quarters of contraction since the Great Depression.

Forecast for the Week

Its a shortened holiday week, but there still are some reports that may/may not help mortgage rates push through the upper layer of technical resistance which could further improve rates, or not.

Wednesday minutes from the last FOMC meeting with be released; its important to see if inflation concerns are addressed as this could cause a rise in mortgage rates. However, all signs show inflation isn't a concern for the near future, but that doesn't mean it won't be at some point.

Thursday brings our Initial Jobless Claims report. The recent trend of higher than expected Claims is disappointing after what appeared to be a steady decline in claims earlier this summer. On Thursday the Treasury will also announce the amount of its borrowing for next week, which will definitely bring some movement in the market then.

And lastly, Friday the Labor Department will announce the Jobs Report for August. July's report showed glimmers of hope for an improving job market: 247,000 jobs lost in July versus economists' expectations of 328,000 jobs lost, the smallest loss since August 2008. Even better, the Unemployment Rate dropped to 9.4%, from the prior month's reading of 9.5%, which broke a streak of 9 straight monthly increases. It will be important to see if these trends continue.

Want realtime mortgage and real estate news throughout the week? Follow me on Twitter!

It was a pretty volatile week for mortgage rates, but overall they ended about .25% better than where they began. This was mainly due to a friendly read on inflation via the Consumer Price Index report (CPI). This figure was unchanged for July, but the year-over-year CPI fell 2.1% for July, the largest 12-month decline since 1950. This continues to bode well for mortgage rates, but may not always be the case as CPI figures will likely rise as our economy pulls itself out of this recession.

Some more good news last week was Freddie Mac's announcement of a $768 million profit for 2nd quarter 2009. Now this is mainly due to a one-time accounting adjustment and mark-to-market gains that we'll likely not see again, BUT at least Freddie doesn't have to ask for any federal handouts this quarter. This is pretty good news after Moody's ominous prediction that Fannie and Freddie will likely be "wound down" by the federal government within the next 18 months and replaced with similar entities.

Forecast for the Week

Some potential market movers this week are Tuesday's Producer Price Index report (PPI) which gives us a reading on wholesale price changes; as well as Tuesday's Housing Starts report and Friday's Existing Home Sales report. Thursday also brings the Philadelphia Fed Report and the Initial Jobless Claims report. The Jobless Claims report will be interesting as we've seen a recent reduction in initial claims for the last three weeks.

I'll update you next Monday with how this week goes overall, but for up to the minute alerts on this week's reports and mortgage rates, follow me on Twitter!

The $8,000 first time homebuyer tax credit has been a big help to homebuyers this year. Although I don't recommend buying a home because of the tax credit, I think its a good idea to put the gas on your purchase if you've seriously been contemplating a home purchase independent of the tax credit. The last day you can buy a home (i.e., keys in your hand, not just putting a contract on a home) is November 30th . Assuming it takes 30-45 days to close on the mortgage financing, you need to have a property under contract by mid-October, which means you need to begin your search like, NOW!

You can actually amend your 2008 tax returns after you purchase your home to receive the $8,000 tax credit quickly after closing, assuming you meet all the criteria to qualify. However, if accessing the tax credit after closing puts you in a Catch 22 because you need the funds to purchase the home, here's a solution for you: a 90-Day Down Payment Assitance Loan.

This program is intended to allow the consumer take advantage of recent legislation by receiving a short term loan prior to filing for and receiving the federal first time homebuyer tax credit.

I've included additional details on the program to the right.

If you have any additional questions on the 90-Day Down Payment Assistance Program, don't hesitate to call me. I can answer your questions, as well as prequalify you for the program and a mortgage.