How can I get a loan against the First-Time Homebuyer Tax Credit to use toward my Down Payment and Closing Costs?

Thanks to the American Recovery and Reinvestment Act signed into law on February 17, 2009, all first time homebuyers are entitled to a tax credit of 10% of the purchase price of their new home up to $8,000. (See: FIRST-TIME HOMEBUYER TAX CREDIT)

This tax credit makes purchasing a first home more affordable to many people. However, there are still many more people that could qualify for a mortgage except for the fact that they lack the down payment. With the elimination of Down Payment Assistance Programs (See: Save Down Payment Assistance Programs!) there are a large number of would-be buyers who are still unable to buy.

On May 29, 2009, the Department of Housing and Urban Development (HUD) has provided guidance to FHA-Approved Lenders and FHA-Approved Non-Profit Organizations (as well as state, county and local governmental agencies) as to ways they can assist these home buyers who are eligible for the tax credit obtain funds for the down payment and/or closing costs and prepaid items.

Secondary Financing

FHA allows eligible governmental agencies and instrumentalities of government (Typically state housing agencies) to advance the tax credit to the home buyer in exchange for a second lien (2nd Mortgage) on the house being purchased based upon the following guidelines:

• The amount of the tax credit that is advanced cannot result in the home buyer getting cash back.


• The second lien may not exceed the amount of the down payment, closing costs and any prepaid expenses directly incurred by the home buyer.


• The second lien must be a soft second or require monthly payments. If monthly payments are required, they must be included in the home buyers housing expense ratio.


• In order for the payment on the second lien not to be added into the home buyers housing expense ratio, they must be deferred for at least 36 months.


• There may not be a balloon payment due before at least 10 years.


• If the second lien is for a short period of time and the home buyer defaults and does not satisfy the lien by the required due date, principal and interest payments will automatically begin or the lien will convert to a silent second.

Purchase of Tax Credit

FHA-approved lenders and non-profit organizations may purchase the tax credit anticipated by the home buyer. The home buyer may then use the proceeds of the sale of the anticipated tax credit for down payment, closing costs and pre-paid expenses only after the initial 3.5% down payment is met by the home buyers own funds. The purchase of the tax credit is subject to the following conditions:

• The proceeds of the sale of the tax credit may not exceed the amount of the anticipated tax credit. Home buyers can calculate the amount of their tax credit by completing IRS Form 5405.


• The borrowers must certify that the amount of the tax credit will not be offset by due to other indebtedness such as unpaid federally-insured student loans or back taxes owed to the IRS. The lender must perform their due diligence to ensure that there is no indebtedness that will affect the tax credit.


• FHA-approved Lenders and Non-Profits can charge a maximum of 2.5% of the anticipated tax credit to cover the costs and expenses of the purchase of the tax credits.


• The proceeds from the sale of the tax credits cannot be used to satisfy the minimum required down payment for an FHA loan. It can, however, be used toward the down payment in excess of the first 3.5%.

It is not yet clear how many FHA-Approved Lenders will participate with the purchase of the tax credits. There are already several state housing agencies that are providing the secondary financing to help the borrowers with the down payment.

---

133rd Edition - Carnival of Real Estate

There were a lot of entries this week, and many about the Stimulus package, which was pretty well-covered in the previous two carnivals. But we also got some great entries that show a silver lining in our current times. Since good news is something we could use more of, we opted to title this week's Carnival of Real Estate: On a Positive Note

Herewith we feature some positive and hopeful advice on how to save money, find money, and feel better despite the chaos all around us.

We begin with "Are You Water-Wise?" from Ro Troia at Blog the Rockies.

Ro says "Generally, I receive tons of junk mail and end up tossing or shredding most of it. This month with my water bill was an informative pamphlet about being water-wise. I thought this would be good information to share." Let's face it, every dollar we save is one less dollar we have to earn. Which is a good way to think these days since those dollars are harder and harder to come by.

Next we have "How Can I Improve the Value of My Already New Home?" from Matthew Bossert over at House Seller's Guide. Matt gives some great tips on how to make your home worth more money, even if it's brand spanking new.

Jacqulyn Richey from Prudential Americana Group offers an informative piece on the new "First Time Homebuyer Tax Credit," which is something we all need to be well versed in for potential new customers. Now is a great time for a lot of people to buy that new home, and this knowledge is invaluable.

Barry Wolfert offers this piece about some Georgia legislation that offers tax credits beyond simply first time homebuyers here at his blog, North Atlanta Real Estate Voice. Good news for Georgians!

Ben Roberts offers a very thoughtftul piece called "Precision Without Accuracy: Why Housing Statistics can be Just Plain Wrong" at Exit Real Estate 540. Ben discusses how foreclosure numbers affect overall statistics and suggests how that can impact perception of a local market, ergo things aren't always as bad as they might look.

Finally, an interesting article from The Happy Rock called "A Simple Way to Delay Bank Foreclosure" based on a segment that appeared on Good Morning America. Basically, ask for the original note if you face foreclosure and you might buy yourself the time you need to get back on your feet, or at least ready to move forward. Not sure if this works, but it might be a single ray of sunshine for someone who needs it in these troubled times.

Get your posts in by Sunday, March 22nd for next week's issue of the "Carnival of Real Estate!"

---

FIRST-TIME HOMEBUYER TAX CREDIT

FIRST-TIME HOMEBUYER TAX CREDIT
What you need to know!

On Tuesday, February 17 President Obama signed into law “The American Recovery and Reinvestment Act” which, among other things, gives first-time homebuyers a tax-credit for up to $8,000 if they purchase a home between January 1, 2009 and November 30, 2009. Here are several things to know about the tax credit:

1. The tax credit included in the economic stimulus package applies only to first-time homebuyers and only to their principal residences. The amount of the tax credit will be 10% of the purchase price of the home up to a maximum credit of $8,000. Unlike the 2008 first-time homebuyer tax credit, this one will not have to be repaid.

2. First-time homebuyers for the purpose of this legislation refer to someone who has not owned a principal residence for the past 3 years. This restriction does not apply to second-homes or investment property

3. This new tax credit is only available for homes purchased between January 1, 2009 and November 30, 2009 – homes purchased last year are not eligible.

4. The tax credit is subject to income limitations. Single buyers who make up to $75,000 Adjusted Gross Income (AGI) and married buyers who make up to $150,000 AGI will receive the full tax refund. For incomes above that, the tax credit will be phased out.

5. This tax credit is a refundable tax credit. That means that even those with little or no tax liability will receive the entire amount of the tax credit.

6. The tax credit includes a recapture feature. This means that the buyer has to own the property for at least 36 months in order to capitalize the tax credit. If the home is sold in less than 36 months the buyers would have to repay part or all of the tax credit. There may be exceptions in some cases included death and divorce.

$75 billion to aid distressed homeowners

The White House announced today that it will use $75 billion that has already been authorized by Congress to help 'subsidize' mortgage payments for millions of people who find themselves unable to make mortgage payments.

Most of this money will go to reward banks for restructuring the loans of individuals having trouble, but some of the money will also go to homeowners who are staying current on their mortgage bills. Fannie Mae and Freddie mac will also get additional funding to acquire more loans.

“This is not a silver bullet, although I don’t think one exists,” says Mark Zandi, chief economist at Moody’s Economy.com. “This should be helpful to stem but not stop the continuing rise in foreclosures.”

Zandi estimates that $500 billion in mortgages are 'underwater' That means that the amount owed on the property is higher than the property is actually worth. Properties like that are easier to walk away from, because the homeowner realizes they are already way behind.

“Say someone bought a house for $400,000, and it’s now worth $200,000. They are just walking away from the mortgage,” says Jack McCabe of McCabe Research & Consulting in Deerfield Beach, Fla. “There is no incentive to keep making payments on houses that are continuing to decline.”

The new Homeowner Affordability and Stability Plan from the White House is designed to help responsible homeowners who are making payments on time, but cannot get refinancing because of lost home value.

In one part of the new plan, the White House wants banks to take the first step, reducing homeowners' payments to no more than 38% of their income. The government would then subsidize the monthly payment down to 31%. A fact sheet released today indicated that a family with a $200,000 income on a 30 year fixed mortgage at 6.5 percent would save about $191 a month.

We'll have to wait and see if -- and how quickly -- these new programs actually help alleviate the increasing mortgage crisis for the average homeowner. Stay tuned!

---

Looking for a deal? Make an offer.

A recent article on Forbes.com included commentary from some of the top minds in investing and real estate, including the kind of real estate, Donald Trump.

Certainly we don't need to read an article to know the sobering truth about the current market - it's abysmal. But the offer some great advice for people looking to buy right now - MAKE AN OFFER.

Investors have long known that the best way to make money is to buy when things are on sale. The same goes for real estate. Some of my clients are looking to invest in foreclosures and short sales right now, making their investment dollar go a whole lot further than it did just a couple of years ago.

Real estate, like all things, is cyclical. When property values do rise again, and they will eventually, these savvy investors may find themselves more profitable on the properties they are buying now than on any other property.

Sellers are becoming more realistic, and some of them are simply upside-down on their property and will shed the responsibility for little to no profit - and sometimes at a loss. Which makes the advice of MAKE AN OFFER that much more important. You have no idea what someone will accept until you ask. As Donald Trump points out in the article, don't worry about hurting anyone's feelings. He advises, "Far too many people fear rejection, and they don't want to be insulting, but you would not believe what you can get by not being afraid to hear no. If you get a no you establish a low base to continue negotiations from, and it took you two seconds of time to ask, we all have that to spare."

---

HAPPY NEW YEAR!

Wishing you and all of your loved ones a happy, healthy and prosperous New Year! If you'd like info on refinancing your current loan, or want a new mortgage to buy a new property, please give me a call at (708) 473-7688 or email me at BarkerLoans@gmail.com. I'm happy to help and, as always, I appreciate your business!

- John

---

Are mortgage rates going to go down to 4.5%?

According to reports, the Treasury is considering a plan to reduce mortgage interest rates to 4.5%. No reports have come from the treasury directly so there are a few different scenarios that have been reported.

One of these says that the Treasury will purchase mortgage-backed securities (MBS) directly from Fannie Mae and Freddie Mac as well as mortgage backed by the FHA. By purchasing these MBS the Treasury will add liquidity to the mortgage market which will lower interest rates. The Federal Reserve (The Fed) announced a similar program last week which almost immediately lowered mortgage rates from over 6% to about 5.5%. The hope would be that this plan would increase liquidity in the market and increase demand across the economy for MBS, this lower the raising the price and lower the yield (Rate) on these MBS. The other scenario says that the Treasury will purchase mortgages directly from lenders as long as they have a rate of 4.5% on them.

Since there is no official statement from the Treasury there are no guarantees as to what, if anything, will be done. But, the markets have reacted positively to the fact that the Treasury, along with the Fed, are trying to improve environment for the mortgage and housing sectors.

I hear it would cost billions of dollars. And, I have heard that the government will make a profit. Which is true?

Since there is no actual policy these are all just guesses. If the Treasury offered mortgages at 4.5%, many people feel they will realize a profit since the Treasury can borrow funds at about 2.7%. This would give them a profit of 1.8% on this historically low rate. Other see this as a huge cost to the government to entice the lenders to offer mortgages at 4.5% when the market is currently 1% higher. Nobody can know for sure until there is an actual policy.

When can we expect these rates?

Many people feel that these rumors or “leaks” from the Treasury are an attempt to get a feel of how well or poorly a program like this would be received by the markets, Congress, the public, and the incoming Obama administration. While a lot of people think a program is in the works, the final look of that program is anyone’s guess right now.

I was going to refinance at 5.5%. Should I wait for these lower rates?

You know what they say about "a bird in the hand" . . . If a refinance at 5.5% make sense to you – do it. This program may never materialize. And, while you wait, you are not only spending more money with every payment you make, but rates would also rise to a point where refinancing is no longer a good option. There have been at least three opportunities in 2008 to refinance at rates below 6% and I have many customers that waited too long to make the decision. They have spent thousands more this year than they would have if they had refinanced. Many of them have already applied and locked their rate and are taking the sure bet. But, I still have a few customers that intend to wait for the 4.5% rate to materialize. All I can say to these customers is, “Good luck!”

---