At the National Association of Home Builders Spring Board of Directors meeting on May 29, 2009 HUD Secretary Shaun Donovan announced the rules for using the $8,000 tax credit. They are not what was hoped for. The tax credit cannot be used for the initial 3.5 percent down payment required for FHA loans. The tax credit can be applied to a down payment in excess of the required 3.5 percent, points to buy down the interest rate and/or closing costs.

“We believe this is a real win for everyone,” said Donovan. “Today, the Obama Administration is taking another important step toward accelerating the recovery of the nation’s housing market. Families will now be able to apply their anticipated tax credit toward their home purchase right away. At the same tim e we are putting safeguards in place to ensure that consumers will be protected from unscrupulous lenders. What we’re doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing.”

What Does The New HUD Announcement Say?

Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5 % down payment on the purchase of their home. Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 % minimum down payment, but, under the terms of today’s announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate. Buyers financing through state Housing Finance Agencies (HFA) and certain non-profits will be able to use the tax credit for their down payments via secondary financing provided by the HFA or non-profit. In addition to the borrower’s own cash investment, FHA allows parents, employers and other governmental entities to contribute towards the down payment. Today’s action permits the first-time home buyer’s anticipated tax credit under the Recovery Act to be applied toward the family’s home purchase right away. Unlike seller-funded down payment assistance, which was a vehicle for abuse, this program will allow home buyers to shop for the best home price and services using their anticipated tax credit.

• View a full the complete HUD News Release No 09-072
• View HUD Mortgagee Letter 2009-15 “Using First -Time Homebuyer Tax Credits”

The $8,000 tax credit is available to first-time home buyers who purchase and settle on a home prior to December 1, 2009.

With home prices down and interest rates hovering at near record lows, 2009 will go down in history as one of the best home buying opportunities for both first-time home buyers.

Many thanks to Alan Gross of National City Mortgage for passing this information along

A guest post by Alan Gross of National City Mortgage.  Thanks, Alan, for providing the straight dope!

Effective May 1, 2009 all home mortgages being sold to Fannie Mae and Freddie Mac must follow the new Home Valuation Code of Conduct (HVCC). HVCC sets new guidelines on how appraisals must be ordered and who can have contact with the appraisers. This regulation does not apply to FHA or VA loans. Even though it only applies to loans sold to Fannie Mae and Freddie Mac it will affect all conventional home loans.

Why were the HVCC regulations written? The HVCC regulations were written to deal with some felt were shady and unethical practices of pressuring appraisers to “come in at the value needed.” They evolved from a potential lawsuit by the Attorney General of New York (Andrew Coumo) against Fannie Mae and Freddie Mac. On March 3, 2009 the Attorney General, Fannie Mae, Freddie Mac and the OFHEO reached a settlem ent agreement regarding the issues of appraisal coercion and independence in exchange for the Attorney General dropping the investigation.

HVCC forbids parties involved in the origination of mortgage loans including loan originators from communicating directly with home appraisers on loans to be sold to Fannie Mae and Freddie Mac. Instead of selecting the appraiser and contacting them as was done in the past, lenders must now go through an appraisal management company (AMC) to order the appraisal. This means that the lender has no input in selecting the appraiser. One can now only hope that a competent appraiser is selected to complete the appraisal. It’s been reported that some AMC’s have been choosing appraisers based on the fee they will accept over the quality of the service provided. If the loan is being “brokered” to another lender the appraisal is ordered not by your mortgage broker but by the lender approving and funding the loan. This means that you may need to pay for multiple appraisals if the loan is moved from one lender to another.

With another party involved in the transaction expect the cost of an appraisal to rise slightly. The HVCC regulations can also cause some delays in getting appraisals completed. Recently I had a borrower buying a second home in Wintergreen, VA. The appraiser needed a copy of the contract. The appraiser couldn’t call me directly. He had to make the request through the AMC.

It will take time to determine if the new regulation will benefit or hurt the consumers it was designed to protect.

In a few of my recent posts I mentioned a lot of good reasons why there seems to be an uptick in the market —

• $8,000 First-Time Home Buyer Tax Credit
• Low Home Prices
• Seller Flexibility to provide closing help to the home buyer
• Seller’s with equity in their home have greater “wiggle” room to negotiate
• It’s springtime!

Here are some homes in the area that match all those criteria and are looking for happy new owners.

Feel free to give me a call at 240-417-9100 if you want to make an appointment to view any of these homes!

If you’ve been following my blog for awhile you may have noticed a slide show or two of some listings that I have had, over time.  These little widgets link to a larger information page that comes complete with maps and all kinds of other information.  These widgets are produced through a wonderful real estate service called Realbird.

Realbird uses an interesting combination of information about a listing, customized Google mapping features and photos.  Now Realbird has come out with a great new tool that will enable you to search listings nationwide.

Below is a peek at this great new feature from an innovative company on the move. I’d be very interested in your feedback. Just leave a comment. I read every one.

OK.  So now you’ve been dreaming about the perfect dream house but you also understand that not every house is perfect and you may have to maybe make a little bit of a compromise.  Maybe you don’t need a garage. A carport or driveway will do.  It doesn’t really need hardwood floors right now. You can always put new floors on later. OK. So METRO is a little bit farther down the road.  No biggie.

However, you now realize that you don’t quite have the $150,000 or $300,000 or $500,000 in the bank or even under the mattress.  Maybe there’s not even that much in your 401(k) or Thrift Savings Plan (for you Federal Government workers).  Where is the money going to come from?  Good question.

How Much Money Do I Need?

In today’s credit challenged environment, getting a mortgage is not the piece of cake it use to be.  No more can you “just sign here” and get a loan.  Nope.  You need a real job and real money for a real down payment for your house.  Not only that, you have to be able to prove it.  In fact, in the State of Maryland (after all this is the MD Suburbs of DC) lenders must be able to prove that you can, in fact, repay the mortgage.  No fudging.

The mortgage isn’t the only thing.  There are “closing costs” associated with buying a house.  These typically include (but are not limited to):

• one half of the transfer and recordation fees that the State and County want (note: first-time home buyers get a break on the State part but not the County part)
• lender fees such as the cost of the appraisal, underwriting, document preparation, courier, and more
• title company fees such as the title search (to make sure you’re getting clear title to the property), title insurance (for both the lender [mandatory] and you [recommended]), the title binder required by the lender, and more
• home owner’s insurance
• courier fees, FedEx fees, etc. and so on.

My rule of thumb is that the closing costs in and of themselves run about 4% to 5% of the sales price of the house.  These go on top of the 3½% down payment you’ll need if you get an FHA loan.

Luckily, in the current environment, the Seller may be willing to pay some or all of your closing costs.  So you may only need to come up with the down payment in cash.

Speaking of  mortgages — what’s out there?

The FHA Mortgage

This is the new meat and potatoes mortgage.  At least, it is in this neck of the woods.  You only need a 3½% down payment (in cash) and there is a lot of flexibility as far as documenting your ability to repay the mortgage or your current qualifications to obtain a mortgage. This is because the government backs you up.  They tell lenders and banks that if you default they’ll pay them back for you. Sweet.  Of course, you’re paying private mortgage insurance which is your money thrown into a little kitty with a bunch of other people’s money to pay back the banks in case you default. Still, it’s a great deal and the loan limits have been raised to $729,750 (in the MD Suburbs) so it really covers just about any home you want to buy.  If you’re looking for a home that costs more than that FHA is not your loan.

The VA Mortgage

The VA Mortgage is also government backed.  It’s really geared toward Vets and dependents of Vets.  In other words, if you’re in the military or have been in the military or your related to someone who is in or has been in the military, this may be the perfect mortgage for you.  Yes, there are some hoops you have to jump through but it’s worth it.  This is one of the only 100% financing vehicles around.  That’s right: Zero Down Payment.  You still need the closing costs but, again, the Seller may pay those for you. The loan limits for VA loans in this area are currently $812,500. You can buy a nice house for that amount of money.

The Conventional Mortgage

This is the one for people who want to buy the high dollar homes or, for any number of other reasons, don’t want or need a government backed loan.  This includes people who have 10% or 20% of the sales price for a down payment (a 20% down payment eliminates the need for private mortgage insurance which saves you money on you monthly mortgage payments).  It encompasses the so-called Jumbo loan (i.e., loans over $417,000) and may or may not have a better rate depending on a number of factors.

The Bottom Line

Here’s the deal: you need money to be able to buy a house.  If you have good credit, verifiable income and a couple of dollars in the bank you can get a loan to buy a house. How much money depends a lot on what you have saved up, what you might have access to in the way of your savings (retirement or otherwise) and the possibility of a gift from the Bank of Mom and Dad.

You should probably investigate this part early on.  My suggestions is to stay away from the online folks who will run your credit a hundred times and try to lure you in with a pretty rate only to load you up with extraneous fees or switch the rate at the last minute.  You need to have a reputable and experienced loan officer who will answer the phone when you call or respond to your e-mail.  A good loan officer will take the time to explain the process to you and walk you through any questions you have about your mortgage.

Believe it or not, I can help. I have worked with several excellent lenders throughout my real estate career and would be happy to refer a couple of them to you to talk to about home financing. Shoot me an e-mail or give me a call at 240-417-9100

We’ve probably all seen the slogans before:

• “We Turn Dreams into Reality”
• “Home Ownership - The American Dream”
• “Helping You Find the Home of Your Dreams”
• “Where Dreams Come Home”
• and on, and on, and on

The idea is that somewhere out there in the vast marketplace of homes is the one you’ve been dreaming about for years.  You know the one I’m talking about, don’t you?  After all, it’s your dream.

It’s Good To Dream

It’s good to dream about what would be you dream house.  It helps to focus the mind and it helps to narrow down the choices for the time you’re ready to go out there and actually try to find a house that might come close.  It’s also important to stay in reality.  Dreams, after all, sometimes border on fantasy and when the time comes to put your feet on the street to look for a home you may find that there really isn’t such a thing as a dream home.

What dreaming about the perfect house will do is create a good image of the things that you really can’t live without, things you would like but could let go and things that are really not that important.

Dreams help with picking out a nice neighborhood. Are there trees?  Parks?  Does it need to be kid-friendly? Or adult oriented?

Dreams help with what the house looks like.  Is it a Colonial? Split Level? Rambler? Do you like brick?  Is siding OK?

Dreams help focus on the functionality of the house, too.  How many bedrooms do you absolutely need? Baths? Basement? Yard?

All this stuff is important and if you could put everything together in one package and put a price on it you could comfortably afford on a month-to-month basis it would be the dream house.

When Dreams Meet The Real World

In real life, as we call it, the dream house rarely exists.  Don’t get me wrong.  I know people who have bought the house they love in a neighborhood they adore.  They live there until they pass it on to their children.  People grow into and with their dream homes.  They make improvements: add a deck, put on an addition, finish the basement. They get involved with their neighborhood and the schools.  It’s a wonderful thing.

More often than not, your home will be a bit less than the dream.  There are a few things that, if you had your way, would be different.  This usually happens when a home buyer comes face-to-face with the cost of the monthly mortgage payment.  Yes, it is a sad fact of life that, unless you happen to be wealthy (and there are a few folks like that in the world), you need to obtain a mortgage to pay for the house.

This is the part where you start to shed the parts of the dream that are really not that important.  Did you really, really need a fireplace? Or deck? Or walking distance to METRO?  Would it be OK if you needed to paint the place or if the house needed new carpet or even a new kitchen?  Can you see potential?

Taking The First Step

The good news is that as long as you keep the dream alive within your heart and your mind you will eventually see and live in your dream home.  I believe that people become disinheartened and disillusioned and lose track of their dream.  That’s not good.

The important thing is to take the first step without the demands that everything has to be perfect on the first go ’round.  Many a person bought a condo or town house or fixer-upper as their first home.  There is no rule or law that says you have to live in one home forever or even for a long time (although in a previous post I suggest a minimum of five years…or wait).

You can get from where you are to where you want to be if you remember three things:

1. Be aware the really important things.
2. Acknowledge the realities of the marketplace.
3. Act accordingly.

Next time — how do you pay for this, anyway?

Have you ever noticed how the mainstream news media just can’t seem to get hold of any good news at all and keep it in the positive?  It seems no matter what comes down the pike the media always has a ” Yeah, but…”

Here’s an example:

According to the National Association of Realtors® (Yeah, I know the Realtor® organization.  They’re the ones that compile the statistics.  What can I say?) existing home sales rose in February by 5.1%.  That’s a pretty good jump.

Here’s another part of that, according to the article:

Lawrence Yun, NAR chief economist, said first-time buyers accounted for half of all home sales last month, with activity concentrated in lower price ranges.
—Existing Home Sales Rise In February

So, to me, this says that first time home buyers are being attracted to the market by the $8,000 tax credit for first-time home buyers enacted as part of the Stimulus plan and the extremely low interest rates for 30-year fixed rate mortgages. That’s good news!

But wait!  This is what the media glommed onto because, hey, it can’t be all that good:

“Because entry level buyers are shopping for bargains, distressed sales accounted for 40 to 45 percent of transactions in February,” he said. “Our analysis shows that distressed homes typically are selling for 20 percent less than the normal market price, and this naturally is drawing down the overall median price.”
—Existing Home Sales Rise In February

So….. home sales are rising. People, especially first-time home buyers, are buying homes but that’s not good because the homes they’re buying are “distressed” or “less than normal market price” or whatever.  What this means is that people are buying “short sales” and bank-owned properties and fixing them up themselves to live in and raise their families.

When A Sale Is A Sale

Here’s a real news flash! When a home is sold, when real estate is transferred from one person (or entity) to another it is considered a home sale.  It’s not rocket science.  The home sale doesn’t have to be for a certain amount of money.  The home sale doesn’t have to be from person to person.  The home sale still generates revenue for the State and County through the transfer and recordation fees.  In fact, back property taxes are paid at closing so the County gets a few more dollars.

In other words, all home sales are good home sales.  I would even go so far as to say that home sales of “distressed” properties are especially good because it helps flush the dogs from the system.  The home sales help reduce overall inventory and create home price stabilization.  Good for both Sellers and Buyers.

Is This The Start Of A Trend?

Honestly, I don’t think so.  I really like to get three to four months of steady movement in the upward direction before I would call an upturn.  That’s really the interesting part of trying to “time the market”.  You don’t know you’ve hit the bottom of the housing market and turned up again until after it’s happened.

However, the planets are starting to come into alignment:

• the $8,000 first-time home buyer tax credit
• mortgage interest rates at or below 5% for 30-year fixed rate mortgages
• low home prices (even regular, “plain vanilla” homes are priced competitively)
• FHA backed mortgages with flexible credit standards and only a 3.5% down payment requirement.

Whether or not enough people take advantage of all this on a continuing basis is hard to say.  I don’t have a crystal ball.  No one does.  In fact, in my previous post, I mentioned that there are several reasons to stay out of the housing market.

So stay tuned.

In the meantime, this is good news…NO but.

Every since I began my real estate career about ten years ago, I kept hearing, “Now is the time to buy a house!”  It didn’t matter if the market was up, down or sideways.  It was always time to buy.

• Home prices were low — time to buy a house
• Home rices were rising - “don’t get priced out” - time to buy a house
• Mortgage interest rates were coming down - time to buy a house
• Mortgage interest rates were rising - “don’t get caught with a high interest rate” - time to buy a house
• New homes being built - “you’re home value may go up” - time to buy a house
• Real Estate always goes up - time to buy a house
• Your friend, family member or co-worker’s house just zoomed up in value by 25% - time to buy a house.

…and many, many more.  The point is, if you listen to the traditional real estate professionals or the government, it’s always time to buy.

So, here are some reasons it may not be time to buy a house.

Reason #1 — You Can’t Afford It

This is a great reason not to buy a house. Believe it or not, there are lots and lots of people who just, flat out, don’t make enough money or have too much other debt to be able to make a mortgage payment month after month.  The mortgage payment isn’t the only thing.  The utilities (gas, electric, oil, phone, etc.) all are monthly bills that must be paid.  It’s no fun sitting in your house in the dark.  You also need some of life’s accessories like furniture, cookware, your TV and computer. Speaking of your TV and computer that also means a digital connection through cable, satellite or fiber optic and the Internet connection (so you can continue to read this blog).  Don’t forget food and medical care and clothing.

Reason #2 — You Can’t Get A Mortgage

This was almost my Reason #1.  Here’s a true fact: not everyone qualifies for a mortgage at any payment level.  Many people can’t qualify for a mortgage at the level they need to buy a house in the neighborhood they want to live in. Lots of people have more debt (credit cards, student loans, car payments, etc.) than they can handle without a mortgage.  Banks understand this now.  In the olden day (2000-2006) banks didn’t care.  Just sign here.  Now, that is not the case.  You almost have to have the secret password into Fort Knox to be able to qualify for a mortgage.  If you can’t get one or you can’t get one big enough for the kind of house you want in the neighborhood you like, you shouldn’t buy a house.

Reason #3 — You’re Not The Handyman Type

Look, there’s no law that says you have to be a general contractor to own a home.  In fact, I’m not really much of a handyman myself.  But it will soon become evident that unless you can learn to fix some things around the house you’re going to be paying through the nose for contractors to come in and do it for you.  This means little things like minor plumbing issues or electrical issues.  It means you probably have to get a lawn mower and cut the grass. You may have to learn how to paint (note: it’s not as easy as it looks).  There is all kinds of upkeep that a house needs and when you own your own home it means there is no landlord to call to fix things.  You have to do it yourself or pay someone to do it for you. There is also the smallish detail that a lot of homes on the market today are in “short sale” or bank-owned status and that means you’ll be buying the house in “as is” condition.  So there may be a ton of “handyman” type work right out of the gate.

Reason #4 — You Know You’ll Be Moving Within 5 Years Or Less

Buying a house for a short period of time is a big mistake.  Ask anyone who bought a home in 2002 or later.

I was talking to a potential client recently about selling their home in order to move up to a larger home in order to accommodate a family member who needed to move in.  This person was current on their mortgage and was in no danger of default. They had good income and low debt and great credit scores.  The only problem was that the value of their home had not gone up enough to be able to cover the cost of selling the house and paying off their existing mortgage. They were stuck.  Chances are good that in a few more years as they continue to pay down their mortgage and prices stabilize they’ll be able to sell their home and move to a larger one without any problem.  It’s just that they can’t do it right now.  It’s too soon.

So, if you think there is a chance that you may need to move because of a job relocation (for example, if you’re in the military) or your family is growing or whatever, it may be better to hold off.  Buying a home is a long term deal.

Reason #5 — You’re Not Certain

This is kind of tied into Reason #4. If you’re not sure you want to buy a house, don’t buy a house!

• If you’re not sure if prices will continue to go down or if mortgage interest rates will contiue to go down or you’re waiting to see if that nice Colonial over in Silver Spring you’ve been keeping you eye on goes on the market than don’t buy a  house. In fact, I would go so far as to say that if you have a chance to renew your lease for another year to keep your rent payments low, do it.  If you’re living with family and they’re willing to put up with you for another year, do it.  This is not a market that you “stick your toe in the water” to see if it’s OK to get wet. Things change and if the past year (can you believe it’s only been a year) has taught us anything is that things change and they could change rapidly.

• If you like mortgage rates for 30 year fixed-rate mortgages under 5% this is the time to jump in.  If you think they’ll go down to 4% and you want wait….wait.  If you think a MdMansion that used to sell for $500,000 and is now selling for $300,000 is a good deal (with a 30-year ficed rate mortgage under 5%) than this is the time to jump in.  If you think housing prices will decline further and you want to wait….wait.

Owning A Home Is Not For Everybody

My point is that owning a home is not for everybody.  There are lots of reasons to continue to rent or hang out with the family.  Heck, I hear stories all the time about people who have never owned real estate in their entire lives and lived very productive, happy lives.  Owning a home is a big responsibility and is a lot of work and expense over the years.

Sure there are also lots of good reasons to own a home.  However, “now is the time to buy a house” is not one of them.  It is never the “time to buy a house” unless you’re ready and you know what you’re getting into.

In this current environment, it’s difficult to find a home that is competitively and affordably priced and in good, move-in condition .  Many homes are in short sale or foreclosed status requiring the banks to give their blessing on any sale.  This usually adds many months to the process of buying a home.  It also means the home may be in a state of serious disrepair and is being sold in “as is” condition — no repairs, what you see is what you get.

So, it is refreshing when a home comes on the market that:

1. Is in good, move-in condition,
2. Has lots of great upgrades — remodeled kitchen, renovated bathrooms,
3. Is reasonably priced,
4. Is owned by a Seller that can make the decision to sell — no “third party approval” needed.

This home, located in College Park, MD and has lots to recommend it:

• within minutes of METRO
• a short hop to the University of MD
• quiet, tree-lined street
• a real, working  sauna
• fully finished “walk-out” basement
• tons of storage areas

This home is eligible for all types of home financing such as VA, FHA and Conventional mortgages.  If you are a first-time home buyer, you will also qualify for The $8,000 First Time Home Buyer Tax Credit.

There has been some confusion about how the new $8,000 tax credit works, how it can be applied and who qualifies for it.  In fact, even though it’s called a First Time Home Buyer Tax Credit it actually applies to people who have not owned a home in the past three years.  So, you could have owned a home before.  Several homes.  You just can’t have owned them in the most recent three years.  Interesting, huh?

A good lender friend of mine, Rob Mercer of First Home Mortgage, has provided a comprehensive document about this $8,000 tax credit.  You can download The $8,000 First Time Home Buyer Frequently Asked Questions or give Rob a call at (301) 562-9540 x101 or shoot him an e-mail for more information.