Gary McNinch Realtor Renton WA Real Estate

New information for Renton home and condo sellers and buyers.

Several of the satisfied customers of the Gary McNinch Team have been able to sell a home or even an Ashburn townhome and buy a bigger home. Well times are changing (as always) in this business. When a homeowner sells his home and decides to buy a new one, there are 3 basic options for the residence -- sell it, keep it, or rent it.

Unfortunately, no matter which path they choose, move-up homebuyers in need of a new conforming mortgage will find qualifying for a home loan to be more difficult this season than in the past.

Mortgage guidelines are dramatically tighter for people "carrying two mortgages".

Among the changes this spring's buyers face:

Selling the primary residence
If you plan to close on your new home prior to the closing of your existing home -- even if it's only by a day -- both payments must be listed as monthly debts on your mortgage application. This will disqualify the majority of homebuyers.

Converting your residence to a second home
If your current home has less than 30 percent equity in it, your mortgage application for the new home will not be approved unless you can show 6 months worth of mortgage payments + taxes + insurance in reserves for the current home and new home combined.

Converting your residence to an investment property
If your current home has less than 30 percent equity in it, any rental income derived from a tenant is disallowed on your mortgage application for the new home. You must still count the mortgage payment + taxes + insurance as a monthly debt.

In other words, being a move-up buyer isn't as simple as it used to be. In fact when my kids and grandkids were moving to Orting last fall, this became an issue until their great lender, Evergreen Home Loans came up with a solution. New lending rules make buying a new home an exercise in timing and financial planning. And the rules are expected to get tougher, too.

Therefore, if you expect to be a move-up buyer in the next 12 months, consider moving up your timeframe or -- at least -- planning ahead for it. Understanding the new mortgage landscape and how they can influence your upcoming purchase may be the difference between getting approved for a home loan, and getting turned down. And the very first part of the process of buying a Fairwood or Renton Highlands home is getting the financing solidly in place. Gary McNinch Renton Realtor we manage the process and make sure you are ahead of the changes.

An oft-touted benefit of homeownership is its tax benefits. However, like most IRS-related items, understanding how the benefits work is not always clear.

In general, homeowners are entitled to two home-related tax deductions -- one for annual mortgage interest paid, and one for real estate tax bills paid.

Not everyone is eligible, though. Some of the exclusionary traits include total amount borrowed, and whether or not the home is a primary or secondary residence.

The official IRS publication is filled with notes and explanations but, in general, you can calculate your approximate mortgage interest tax deduction using the following math:

1. Sum your annual mortgage interest and real estate taxes paid
2. Find your tax rate on the IRS tax bracket schedule
3. Multiple your tax rate by the sum from Step 1

This is grossly simplified, but fairly accurate.

As an example, a homeowner paying a combined $20,000 in 2008 mortgage interest and real estate taxes, and who is in the 28% tax bracket, may be due $5,600 in tax credits. This is hugely important for people who are renting a Renton home. Rather than pay an additional $5,600 to the IRS, buy a Renton home and use the $466.67 per month toward your savings or your payment. If this is confusing (which it may be the first time or two you hear it) call me and I will be glad to sit down with you and clarify this. Educating our clients is one of the great services of the Gary McNinch Team and the lenders we work with. Plus we really enjoy helping you use your money rather than give it up in taxes.

The availability of mortgage interest tax deductions is one reason why loan officers make reference to "after-tax mortgage rates". An after-tax mortgage rate is effective interest rate, post-tax code, and can be calculated using the formula below:

(After-Tax Mortgage Rate) = (Mortgage Rate) * (1 - Marginal Tax Rate)

The same homeowner with a 5.000% mortgage rate, therefore, has an after-tax mortgage rate of 3.600%.

Caution: Because not every homeowner is eligible for home-related deductions, and because not every homeowner should claim them, talk with your personal accountant before making any tax-related decisions. The Gary McNinch Team has an excel spreadsheet where we can calculate the after tax savings for you. And we will give you the contact information for Cheryl Clark, CPA extraordinaire in Kent, who helps us save on our taxes every year. Gary McNinch Renton Realtor helping you make great home investments, find wonderful homes to live in, and hoping to save you some taxes too.

New Fannie Mae Loan Fees Target Condo Buyers, Among Others (And they missed the boat this time)

When conforming mortgages started defaulting en masse in late-2007, mortgage guarantor Fannie Mae created a loss-offsetting, fee-generating scheme dubbed "loan-level pricing adjustments".

The concept was basic: For mortgage applicants with high-risk profiles, collect up-front payments to offset potential long-term losses.

Similar to the auto insurance model (I'm not sure what bureaucrat came up with this, by the way) in which younger drivers pay higher premiums, riskier applicants pay higher fees.

At the inception of the program, Fannie Mae defined "risk" as a combination of borrower credit score and home equity percentage. In general, lower FICOs and higher LTVs paid more costs.

Effective April 1, however, Fannie Mae's definition of risk is expanded. By a lot. Fannie Mae's new loan-level fees now impact any conforming mortgage that meets any of the following criteria, with the exception of fixed rate loans of 15 years or less. And in my opinion, this is where they missed the point.

• Up to 0.75% fee: Secured by a condo/co-op with less than 25% equity
• Up to 0.50% fee: Features a junior mortgage (i.e. HELOC, HELOAN)
• Up to 1.00% fee: Features interest only payment options
• Up to 1.00% fee: Secured to a 2-unit property
• Up to 3.00% fee: Is designated as "cash out"

Each 1 percent in fees equals 1 percent of the borrowed amount. Therefore, a condo buyer with a $200,000 first mortgage and a $25,000 line of credit is subject to a mandatory 1.25% charge of $2,500, due at closing.

However, (this is where it gets more money in the bank's pocket) it doesn't stop there. Fannie Mae has also adjusted its original FICO-LTV matrix so that nearly every applicant -- irrespective of credit score -- will face higher closing costs on their home loan.

Mortgage rates may be falling, but the cost of financing a home is rising.

Fannie Mae's latest announcement is its fifth risk-based pricing update in the last 15 months. It's likely it won't be the last, either. Therefore, if you're torn between to buy a Renton home now or buy a Fairwood home later, consider that the cost of waiting may outweigh the benefits of falling prices or falling rates. Call the Gary McNinch Team your Renton real estate business professional. We can discuss your home investment situation and provide you with good advice.