There's no question the recent extension to the $8,000 first-time homebuyer tax credit will continue to greatly facilitate a rebound in the housing market. However, exactly how much of an impact the newly implemented $6,500 "move up" homebuyer tax credit will have remains to be seen. Although, the bigger question remains: if current mortgage rates are back to near-historic lows, why have mortgage applications declined? Believe it or not, the answer is quite simple.
For the week ending Friday, November 6, mortgage applications for home purchases plummeted an astounding 11.7% from the week prior. This is during a period of time in which homeowners were still awaiting a response from the federal government on whether or not the $8,000 first-time homebuyer tax credit would be extended, leaving little doubt on the reason for the dip in mortgage applications. As it turned out, it was the same week Congress passed the legislation to extend the $8,000 first-time homebuyer tax credit and also implement the new $6,500 "move up" tax credit. As a result, the following week ending Friday, November 13, mortgage applications for home purchases decreased by a seasonally adjusted 4.7%. Although mortgage applications for purchases were still down, they were down significantly less when compared to the week before. Therefore, it can be safely deduced that the data is already beginning to reflect the influence of the extension of the $8,000 first-time homebuyer tax credit, as well as the implementation of the new $6,500 "move up" tax credit.
Analysts believe this new data will likely reflect an increase, however slight, as we move toward the end of the month. It must also be noted that the Thanksgiving holiday is expected to have an influence on mortgage applications, but once we move into the first week of December, purchase mortgage applications are expected to increase considerably.
With current mortgage rates still near record lows, the extension of the $8,000 first-time homebuyer tax credit and the newly created $6,500 "move up" homebuyer tax credit have generated an extraordinary second chance for borrowers still in the purchase market, but failed to pull the trigger earlier in the year.
It's no secret the housing market continues to endure tumultuous times. Despite the Federal Reserves best efforts to keep current mortgage rates at or near historic lows, it's becoming painfully obvious we have yet to see rock bottom. With an excess of available homes amid the existing recession, foreclosures are ongoing and property values continue to decline. Some analysts predict this trend can take another year or two to correct itself.
The Federal Reserve has recently slowed their pace of purchasing mortgage-backed securities in an effort to prolong low mortgage interest rates. This approach is intended to also buy time for the housing market to help correct itself. The Federal Reserve recently surpassed the $1 trillion mark of the $1.2 trillion they committed to purchasing nearly one year ago. With the slowdown, it is anticipated current mortgage rates will remain relatively low, possibly through the first quarter of 2010 before they begin to rise, with some believing rather sharply.
In addition, Congress recently extended the $8,000 first-time homebuyer tax credit through April 30, 2010, and has also instituted a new $6,500 "move up" homebuyer tax credit for existing homeowners who have lived in their current home for five consecutive years out of the past eight years.
Despite all of these incentives put into place by the federal government, mortgage applications for both purchases (down approximately 4.7%) and refinances (down approximately 1.4%) are growing smaller. We are in the midst of unprecedented times in which the combination of such efforts has never been seen before and will likely never be seen again. Yes, property values are still declining, but they will not continue on that path much longer. And neither will the historically low current mortgage rates and the extraordinary federal tax credits. It is my hope that this brief editorial has gotten you to start thinking about potential opportunities. If that is the case, it's time to at least explore these options before you, before they are gone.
Total Mortgage Services has avoided committing on problematic or difficult mortgage loans that have forced other mortgage lenders into closing their doors. That said, the time to contact a licensed mortgage professional is now, before it's too late. The world of mortgages is difficult enough, so it is vital to have an expert who has the experience and knowledge working for you.
Current Mortgage Rates are HOT!!
In case you haven't been noticing the current mortgage rates are threatening their all time lows. While the current mortgage rates have been at historically low levels for the most part of 2009, they are seriously threatening to break through their lows into uncharted territories.
Although no one can 100% predict how low the current mortgage rates will eventually fall, I can guarantee they will not be at these levels forever. A 30 year fixed rate at 4.75% is not out of the question without paying any points. A 5/1 adjustable rate mortgage may be had without points for 3.625%
As you have probably noticed whether in the news or from someone you know who has applied for a mortgage, the guidelines keep getting tougher and tougher. Earlier this year you would have been able to get approved for a mortgage with a debt to income ratio of 64.99%.
The debt to income ratio or DTI as know within mortgage lingo is the percentage of your monthly debts to your income or your monthly debts divided by your gross monthly income. This past summer both agency's Fannie Mae and Freddie Mac came out with stricter guidance associated with DTI's further restricting the max allowable ratio's to 55% in most cases. In other words if your DTI was greater than 55% you would not be approved for a mortage.
Continue to Part 2
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Due to the lowest yields on mortgage securities in nearly six months, all indications point to current mortgage rates remaining low, at least for the interim. According to statistics assembled by Bloomberg, Fannie Mae's 30-year fixed-rate mortgage rate fell yesterday from 4.12% to 4.07%, which represents a low not seen since May 21.
In an effort to keep current mortgage rates low in hopes of stabilizing the slumping housing market, the Federal Reserve has purposely slowed their purchase of the $1.2 trillion in mortgage-backed securities they committed to purchasing at the beginning of the year. Having already surpassed the $1 trillion point, it is anticipated that the Federal Reserve's slowdown will keep current mortgage rates low throughout the first quarter of 2010, at least. The Federal Reserve is currently buying mortgage-backed securities at a rate of $3 billion to $4 billion per day, which is a marked reduction from the approximately $5 billion per day it was purchasing earlier in the year.
Even though refinancing applications are down, the impact the Federal Reserve has on current mortgage rates will dictate how long the mortgage rates will remain at these historically low levels.
By now, first-time homebuyers interested in purchasing a home are aware of the extension of the $8,000 first-time homebuyer tax credit to June 30, 2010. However, existing homeowners may not be aware of the new legislation implementing a new $6,500 tax credit for "move up" homebuyers. What is a "move up" homebuyer? A "move up" homebuyer is a homeowner who has lived in their home for five consecutive years out of the past eight, and is now looking to purchase, and "move up," to a new home.
Below are some common questions that both first-time homebuyers and "move up" homebuyers have concerning the extension and implementation of the tax credits.
Q: Who qualifies for the homebuyer tax credits?
A: To qualify for the first-time homebuyer tax credit of up to $8,000, borrowers may not have owned a home during the three years prior to the closing date. To qualify for the move up homebuyer tax credit of up to $6,500, borrowers must have lived in their home being sold as a primary residence for five consecutive years out of the previous eight years total.
Q: Do I have to repay the tax credit?
A: No, unlike the $7,500 tax credit from 2008 that is similar to an interest-free loan and must be repaid over a 15-year period through federal income tax returns, these credits do not require repayment. However, if the beneficiaries of these tax credits do not stay in the home for at least three years, the tax credit must be repaid.
Q: I closed on my new home on Friday, October 30, 2009, exactly one week prior to the enactment of the new/updated legislation. Can I still benefit from the new, higher income level requirements or am I tied into the income limits at the time of my closing?
A: No, the new income levels of $125,000 (filing individually) and $225,000 (filing jointly) apply only to purchases on or after November 6, 2009. Therefore, the old income levels of $75,000 (filing individually) and $150,000 (filing jointly) would apply in your scenario.
Q: I found a 2-family home I would like to purchase. I will live in one of the units and I will rent out the other. Do I qualify for the tax credit?
A: No, the only properties eligible for the federal tax credits are single-family homes, condos, co-ops and town homes.
Q: Do the income requirements pertain to a borrower's gross income or adjusted gross income?
A: To qualify for either of the homebuyer tax credits, a borrower's income will be determined based on their "modified adjusted gross income," commonly referred to as MAGI. MAGI is the adjustable gross income, modified by various adjustments. The adjustable gross income is the sum of a borrower's income before any deductions are subtracted.
Q: Can I claim my tax credit now or do I have to wait until I file my 2009 tax returns?
A: Yes, you can claim your 2009 homebuyer tax credit immediately by simply amending your 2008 tax returns by using a 1040X form. Otherwise, you can wait to claim the homebuyer credit on your 2009 tax returns.
Q: If I purchase a home with my girlfriend, can we both get up to $8,000 as first-time homebuyers?
A: No, the first-time homebuyer tax credit and the move up homebuyer tax credit are based on the purchase of a single home. Depending on how you and your girlfriend file your tax returns, you may both be eligible for up to $4,000 each. If you file your tax returns individually, the maximum income level for each of you is $125,000. If you file jointly, the maximum income level is $225,000.
Q: What is the new deadline for the tax credits?
A: The deadline to close and still benefit from the federal tax credits is June 30, 2010. However, a signed purchase contract must be agreed upon no later than April 30, 2010.
Hopefully, you were able to get your questions concerning either the $8,000 first-time homebuyer tax credit or the $6,500 "move up" homebuyer tax credit answered here. If not, please call (877) 868-2503 and speak to a licensed mortgage professional who can answer any additional questions you may have. Don't wait too long, as current mortgage rates are still incredibly low. Once the Treasury Department stops purchasing mortgage-backed securities, it is expected that mortgage rates will begin to rise sharply.
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