Expectations of higher interest rates were not realized this week, as some rates softened a bit from 2 weeks ago. The rate for a conventional, 30 year fixed rate loan dropped to 4.875% and the jumbo 30 year fixed rate was down to 5.5%. The rest held steady
A financing tip from Sidney:
If you are planning to take advantage of either home buyer tax credit ($8,000 for a first time buyer or $6,500 for a repeat buyer), remember that you must have a signed contract in place no later than April 30, and the transaction must close no later than June 30.
Home loan rates as of Wednesday, April 21 are in the following table. For more details, or a custom quote, contact SidneyStonecypher at People’s Bank, 360-676-4597 or sidney.stonecypher@peoplesbank-wa.com. Remember that many variables come into play in determining the rate a lender will give a borrower. If you are getting a rate quote from a lender who does not have all your information, that rate may not be real. What with the low rates and the tax credits, it is a great time to buy a house!
Down Payment
Interest Rate
APR
Credit Score
Points
Conventional 30 yr fixed
20%
4.875%
5.130%
740
1
Conventional 15 yr fixed
20%
4.250%
4.469%
740
1
Jumbo 30 yr fixed
20%
5.50%
5.747%
740
1
FHA 30 yr fixed
3.50%
4.750%
5.172%
580*
1
VA 30 yr fixed
0%
4.750%
5.148%
*
1
*Score requirement will vary by lender
If you have other questions about financing, don’t hesitate to contact us and we will get you the answer. If you are wondering, other people probably are as well. For general financing and market information, check out our website.
Recent FHA Changes Make Financing Tougher for Bellingham WA Real Estate
Prior to and since the crazy days of real estate financing, FHA loans have been the primary loan of choice for those borrowers with downpayments of less than 20%. The 20% rule gives a lender more cushion against falling prices and the inevitable rising foreclosure rate they bring. With FHA’s typical downpayment requirement of 3.5%, there isn’t much of a cushion.
Before we talk about the changes, let’s make clear how an FHA loan works:
The FHA doesn’t make loans – they guarantee loans written to their standards and made by FHA authorized lenders. Think of the agency as an insurance company who insures the lender so they will make a riskier loan. The borrower buys the insurance policy for the bank in lieu of making a larger downpayment. There is an upfront premium that is financed as part of the loan and monthly premiums that are added to the monthly payment amount. The premiums collected by FHA are supposed to cover losses the agency may incur.
Unfortunately, the financial problems our economy is experiencing have hit the FHA particularly hard. A few numbers tell the tale:
Congress requires FHA reserves of 2% based on their insurance guarantees. Last fall they had reserves of 3%. As of November, they had reserves of .53%
The amount of single-family mortgages insured by FHA in fiscal 2009 were more than 4 times the amount insured in fiscal 2007.
Almost half of first time homebuyers get an FHA loan to purchase.
In the 3rd quarter of 2009, 14.4% of FHA loans were deliniquent, compared to 9.6% of all loans.
As a consequence, FHA is doing what any insurance company must do to control losses: they are tighening the qualifying requirements for coverage. Changes and impacts include the following:
The upfront premium amount is increased from 1.75% to 2.25%, and it is proposed to increase the monthly premium from .5% to .55%. Since the initial premium is financed as part of the loan, the payment increases. As already noted, the monthly premium also increases the monthly payment. Since borrowers are limited to monthly payment amounts based on their income, they will be able to afford less expensive houses.
In the past, the seller of a house to an FHA borrower could pay up to 6% of the purchase price toward the borrower’s cost of getting the loan. The new rules cap this at 3% of the purchase price, which is comparable to the amount of seller contribution for a conventional loan. This means a buyer will need more cash to buy a home, even though the downpayment amount stays at 3.5% (for now).
In addition, the agency will be monitoring lenders who offer FHA loans more closely and is asking Congress to increase the liability of those lenders. This may reduce the number of lenders approved for or willing to make FHA loans.
Over the past 20 years (and before), there has been a great deal of pressure to increase homeownership in the United States. There have been strong sociological as well as political reasons for this pressure. The pressure has lowered the standards required to get a home loan at the same time that lenders were getting very creative with buyer qualification. The current economic downturn has destroyed paper equity and caused loss by foreclosure for homeowners at all economic levels, but those who stretched the hardest to buy or who had the least “skin in the game” have been more likely to lose their homes.
There will be criticism of this move on the part of the FHA, but a question that should be asked is, “Which is the more negative impact on a family: living in rented housing or fighting to buy a home and then losing it because they really weren’t strong enough financially to handle it”? There has to be a balance somewhere – hopefully these changes bring it closer.
I would love to have your thoughts and/or clarifications on this topic – limiting the number of people who can buy a home right now is not where most of us want to be.
First-time homebuyers are still pursuing the tax credit – but there are questions -
There are so many different first time homebuyers and so many specific situations that there are a lot of questions out there…
I filed for the first-time homebuyer tax credit of $7500 on my 2008 tax return for a home I purchased early in 2009. That tax credit has to be repaid. Is there any way I can get the $8000 tax credit that doesn’t have to be repaid instead? Yes. File an amended tax return for 2008 removing the $7500 tax credit and claim the $8000 tax credit on your 2009 return.
Can I use the $8000 first-time homebuyer tax credit for my down payment? Basically, No. There is a provision allowing a lender to do a short term loan of the tax credit for down payment or closing costs, but I have yet to hear of any lender who will do so.
Do I have to pay back the $8000 tax credit? No, unless you use it as your primary residence for less than 36 months. In that case, you will owe the full amount of the tax credit in the year you stop living in the house as your primary residence.
My parents are cosigning the loan for my first house. They do not qualify for the first-time homebuyer tax credit. Can I still take it? Yes. You will be the homeowner and as long as you meet all the requirements, you get the credit.
I am getting married later this year. I qualify for the first-time homebuyer tax credit, but my future husband does not. If I buy a house before we are married, can I take the tax credit? Yes, as long as it is your primary residence. Talk to your accountant about how you should file your tax return. One note: if a couple is married when they buy a house, the IRS position is that neither of them can have owned a primary residence within the past 3 years if they are to qualify for the first-time homebuyer tax credit.
I am looking at a fixer house that needs a lot of work. Can I buy it and get the first-time homebuyer tax credit even if I don’t move in until after the renovations are finished? Only if you actually occupy the home as your primary residence prior to June 30, 2010.
Are there any income limits for claiming the first-time homebuyer tax credit? Yes. For a single taxpayer, the modified adjusted gross income limit is $125,000; for married taxpayers, it is $225,000. Incomes of up to $20,000 more can qualify on a proportionate basis, but phase out completely at $145,000 and $245,000. Modified adjusted gross income is the adjusted gross income shown on your tax return, plus some types and amounts of foreign-earned income. Check with the IRS for details.
What is the difference between a tax credit and a tax deduction? A tax credit reduces the amount of tax you owe by the full amount of the credit. A tax deduction reduces the amount of income on which you pay tax.
What if I don’t owe $8000 in taxes? You will receive a check back from the IRS for the difference between the amount of the credit and the amount you owe.
There are two excellent websites with additional information and examples of both the first-time homebuyer tax credit and the repeat buyer tax credit at the National Association of Homebuilders and the IRS website. While these sites address some specifics, you will want to talk with your personal tax advisor, who knows your financial situation and can give you the best advice.
Please share any experiences, information you have gleaned or additional questions – we can all help each other.
Questions about repeat homebuyer tax credits abound.
We are getting a number of questions regarding the tax credits for real estate purchases…since the one for replacement homes is new, let’s start with it in this post. Here are some of the most common questions:
Do I have to sell my existing home to get the repeat homebuyer tax credit of $6500 if I buy another one? No, you do not. You simply need to meet the requirements for the tax credit. If you need financing to buy the replacement home, however, it behooves you to confirm your ability to get that financing up front. Loan requirements have changed for this type of situation, both in the amount of down payment required (20-25%) and the amount of liquid reserves required (possibly enough to cover payments for both properties for at least 6 months).
I kept my home and rented it 3 years ago when I moved to another city. If I buy a primary residence now, can I get either of the tax credits? Yes, you qualify for the first time homebuyer tax credit of $8000, since you have not owned a primary residence for 3 years. The same would be true if you had kept your original home as a second home for the last 3 years.
My husband and I would like to downsize into a smaller home. Would a less expensive home still qualify us for the repeat tax credit? Absolutely. There is a top end limit of $800,000 on the price of the replacement home, but there is not bottom limit. And the further good news is that if the capital gain on your existing primary residence is $500,000 or less, you will have no federal income tax due on the sale.
I sold my home 2 years ago and have been renting since then. Do I qualify for the repeat homebuyer tax credit? Provided that you lived in the home you sold for 5 consecutive years within the past 8 years, you qualify.
We are building a new home. Will we qualify for the repeat homebuyer tax credit? You will if you are living there by June 30, 2010, as long as you have a binding purchase contract in place by April 30, 2010.
Are there any income limits for claiming the repeat homebuyer tax credit? Yes. For a single taxpayer, the modified adjusted gross income limit is $125,000; for married taxpayers, it is $225,000. Incomes of up to $20,000 more can qualify on a proportionate basis, but phase out completely at $145,000 and $245,000. Modified adjusted gross income is the adjusted gross income shown on your tax return, plus some types and amounts of foreign-earned income. Check with the IRS for details.
How do I get the tax credit? You will claim it as a credit against your taxes due on either your 2009 or 2010 tax return, depending on when you close on the replacement home and when you file your income taxes. You must have closed on the home to claim the credit and must attach a copy of the HUD-1 settlement statement to IRS form 5405.
Are there limitations on the type of home I can buy? There is a price limitation of $800,000. The home cannot be purchased from a family member. Beyond that, if it meets the IRS definition of a principal residence, it should qualify. This means condos, townhomes, mobile homes, and houseboats as well as single family detached homes.
What if I don’t owe $6500 or $8000 in taxes? The government will send you a check for the difference in the amount you owe and the amount of the credit.
For more information, the National Association of Homebuilders and the IRS website both have answers to questions and examples of scenarios that are very helpful. Ultimately, however, your best source of information is your tax advisor, because they are familiar with your specific information.
If you have a thought or an experience to share, please feel free. Pooled knowledge is really helpful. Just post a comment – or a further question – and we can all help each other.
Tax credits are no longer just for first time homebuyers.
The homebuyer tax credit signed into law on November 6th not only extended the deadlines for homebuyers to take advantage of the opportunity, but it also expanded the pool of homebuyers eligible to benefit. It now applies to not just first time homebuyers, but also to some of those who already own a home and want to sell it and buy another.
The table below shows the basics of the program. Later posts will deal with specific questions relative to its implementation.
Tax Credit Detail
1st Time Homebuyer
Repeat Homebuyer
Maximum Credit
$8,000
$6,500
Qualifying Definition
No interest in a principal residence for the past 3 years
Has used the home being sold as their primary residence consecutively for 5 of the past 8 years
Effective Date
November 6, 2009
November 6, 2009
Contract Deadline
April 30, 2010
April 30, 2010
Closing Deadline
June 30, 2010
June 30, 2010
Required OccupancyPeriod
3 years as primary residence
3 years as primary residence
Maximum Home Cost
None
$800,000
Income Limits
$125,000 – single $225,000 – married Phase out up to $145,000 or $245,000
$125,000 – single $225,000 – married Phase out up to $145,000 or $245,000
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