Monthly Archives: January 2012
Would you buy a home if you could afford the down payment?
This new program called California Homebuyer’s Downpayment Assistance Program (CHDAP) just may be what you are looking for!
The new California Homebuyer’s Downpayment Assistance Program (CHDAP) is designed to help first time homebuyers who have low-to-moderate income purchase a home.
How Does The Program Work?
When you purchase a home through FHA you have to put 3.5% down on whatever the sales price is for your home. For example, if you purchased a $200,000 home, your down payment would be $7,000.
Well with this new program, first time homebuyers only need to bring in 1% of the purchase price. That is 0.5 percent for the down payment and 0.5 percent for the closing costs.
Using our previous example, for a $200,000 home, $2,000 is needed for a down payment from the buyer. The additional $5,000 that would have been needed with FHA, is now being placed as a second mortgage.
Under this program the buyer will have a first mortgage of $198,000 ($200,000 minus $2,000) and then a second mortgage of $5,000 for the “gift” as a down payment.
With CHDAP, the second mortgage does not need to be paid. It is required to only be paid if the buyer decides to sell the home or refinance. Otherwise it is known as a “silent mortgage”. However, we advise homebuyers to pay the second mortgage as well. In this scenario it is approximately $30 more a month to pay both mortgages.
- To be eligible for the CHDAP homebuyer’s assistance, you MUST be a “First Time Homebuyer”. This means that the borrower cannot have owned a home in the past three years.
- The home purchased by the borrower must be the primary resident
- The borrower will need 3 current consecutive years’ tax returns
- The property must be owner occupied for the term of the loan or until the property is sold.
Borrower’s Income Limits
There are income restrictions for the CHDAP program because it is designed to help those with low-to-moderate income.
The income limits vary on what county the home is being purchased in addition to the number of dependents.
Example for Southern California Areas using FHA as first mortgage:
Borrower’s Down Payment Contribution
The borrower is required to pay from their own funds a minimum of 1% of the loan amount or $1,000 (whichever is greater).
Borrower’s Credit Requirements
A typical credit requirement for a FHA mortgage with a LTV of 95% (meaning you are financing 95% of the home) is 640.
Any loan that is financing 95.01-100% of the home with CHDAP will have different credit requirements.
Properties Allowed For Purchase
- Single Family Units
- Agency Approved Condominiums
- Planned Unit Developments (PUDs)
- Five Acres Maximum
- Flips (ONLY 91+ days or more)
If you are a first time homebuyer, don’t miss out on this great opportunity using the California Homebuyer’s Downpayment Assistance Program.
It takes some time, but you will be glad you put in the effort to deduct these 5 categories on your taxes this season.
1. Mortgage Interest Deduction
Mortgage Interest is the biggest tax deduction for homeowners. This category is fully tax-deductible. You pay interest on your mortgage through out the year with each mortgage payment, but keep in mind it adds up and at the end of the year it is tax deductible.
2. Real Estate and Property Tax Deduction
Both real estate and property taxes qualify as a tax deduction for a homeowner. These are deducted against your income. You do not want to miss out on this tax deduction.
3. Private Mortgage Insurance (PMI) Deduction
Homeowner’s will pay PMI if their down payment was less than 20%. With FHA loans being an extremely popular loan, chances are you are paying PMI. In order to qualify for this tax deduction your adjusted gross income (AGI) must be less than $110,000 and your home purchased or refinanced after January 1, 2007 (US Tax Center 2011).
4. Mortgage Points
Mortgage points are charges that are paid to attain a home mortgage. In order to deduct these points on your taxes there are nine conditions that have to be met. We have provided them below directly from the IRS website.
1. Your loan is secured by your main home (i.e., the home you live in most of the time).
2. Paying points is an established business practice in the area where your loan was made.
3. The points paid did not exceed the points generally charged in that area.
4. You use the “cash method” of accounting ― meaning that you report your income in the year it’s received and deduct your expenses in the year they are paid. (This is the most popular method of calculating individual income tax liability.)
5. The points paid were not for items that are usually stated separately on the loan settlement statement (e.g., appraisal fees, attorney fees, inspection fees, title fees, or property taxes).
6. The funds you provided at/before closing cannot be borrowed from your lender or mortgage broker. The funds, plus any points paid by the seller, were also at least as much as the points charged, although you do not have to have applied the funds you paid to the points. The funds can include a down payment, escrow deposit, or funds for any purpose that you paid at/before closing.
7. You use the loan to build or buy your main home.
8. The points were computed as a percentage of the principal amount of the mortgage.
9. The amount paid for points is clearly shown on the settlement statement. The points may be shown as paid from your funds or from the seller’s funds.
5. No Tax on Capital Gains When Selling Your Home
When you sell your home and make a profit, you are not taxed on the capital gains. You can gain up to $250,000 in tax free profit ($500,000 for married joint filers). The only requirement is that you owned the property for two years, and that you lived in the property for two of the 5 years before the sale. This is an awesome benefit for being a homeowner.
Not knowing how much you can afford to pay for a home before you make an offer.
You can avoid this mistake by going through the process of getting pre-qualified and then pre-approved with a mortgage lender. You will then receive a certificate of eligibility to go house shopping and make offers with your realtor.
Not finding out in advance who the real estate agent represents.
This mistake can be avoided by….Asking your realtor! People think their agent is working for them, but unless the agent is working as your buyer representative, then he or she are representing the seller.
Not realizing that the wrong mortgage can cost thousands of dollars in unnecessary interest and taxes.
This mistake can be avoiding through consulting with a mortgage consultant before making a final decision on which mortgage to choose. You can never ask too many questions in the home buying process.
Not looking for hidden defects before buying a home.
A home inspection should always be conducted by a professional before purchasing.
Not knowing how your debt can affect your ability to buy or refinance a home. Be 100 percent honest about your debts when buying a home. You need a good credit profile in order to purchase a home, so start working on it a year in advance of when you want to buy. Speak with a mortgage professional to help give you guidance and improve your credit.
Also, on a side note, if you are in the process of buying a home, DO NOT add any new debts to your credit! Don’t open credit cards, don’t buy a car, don’t do anything until your transaction has closed and you have the keys in your hand.
Beginning April 1, 2012, the guarantee fees for Fannie Mae and Freddie Mac loans are required to increase at least 10 basis points. The FHFA will also be determining in early 2012, whether or not the g-fees will need to be increased further.
This point increase will ONLY be affecting Agency/Conventional home loans, both conforming and high balance loan amounts for all single-family residential mortgages. The point increase will NOT affect VA, FHA, USDA, and Generic Jumbo Loans.
What was the purpose of increasing the guarantee fees? Well on December 23, 2011, President Obama extended the payroll tax holiday through the end of this year.
In order to pay the debt for the tax cut, the government has increased the guarantee fees for Fannie Mae and Freddie Mac mortgages. This increased fee will be in effect until October 21, 2021.
It is estimated that over the 10 years, the increased fees will collect $35.7 billion to offset the tax cut. However, the 10 basis points increase is not expected to be a dramatic increase for new homeowners.
For example, on average the monthly mortgage payments will be raised by as much as $15 on mortgages of $210,000; however, it will vary.
Flipping a house allows investors to purchase homes at a lower cost, make home improvements and then sell the home for a profit. These investors own the homes for 90 days or less and then resell for a higher price.
Government typically wants a regulation against flipping properties to avoid buyers using FHA loans to purchase homes that have been owned for 90 days or less by the seller. Flipping homes can also cause inflated prices in neighborhoods.
However, just recently, FHA has extended the anti-flipping waiver, which was created February 1, 2010, to be extended through December 31, 2012. The reason for this is in hopes that it will help resell homes more quickly that are currently foreclosed and on the market. It has the potential to reduce the amount of vacant homes as well as stabilize the real estate market.
Neighborhoods that are experiencing high foreclosure vacancies could benefit from flipped properties. With vacancies in neighborhoods it can increase the amount of crime and decrease home values. So with the anti-flipping waiver extended, more homes may be sold to improve the living areas of these neighborhoods.
However, with the extension there are some regulations that are going to be applied. For example, FHA purchases of flipped properties must be arms-length with no connection between the buyer and the seller. Arms-length simply means that the buyer and seller are acting independently of each other and have their own self-interest in mind.
Also, if the home is sold for 20 percent more than what the seller had acquired it, then the waiver will only be implemented if there is enough documentation to support the increase in value. This will help in avoiding inflated prices in neighborhoods.
What does this mean for Southern California residents?
This is a great benefit for the Inland Empire area because the FHA Loan Program is hands down the most popular program used to purchase a home. Under the FHA Loan Program, buyers are only required to put down 3.5 percent as a down payment.
For our company specifically, Stateline Funding Corporation, which resides in the Inland Empire, the FHA Loan Program counted for 75% of our loan production in 2010. In 2009, our FHA Loan Program counted for 69% of our total loan production. As you can see, allowing homes to be flipped and resold using FHA loans will greatly benefit home buyers, specifically in our area, who prefer to buy FHA with 3.5 percent down.
In an article from CNNMoney, it discussed the possibility of the Federal officials proposing to sell foreclosed homes in bulk to investors who would then turn those homes into rental properties. This program was cited by Federal Reserve Chairman Ben Bernanke last week. He addressed the current housing crisis and the new idea of turning foreclosed homes into rental properties.
Is this a good idea, or not?
Well, the Federal Reserve has the belief that by turning these foreclosed homes into rental properties will then stabilize the neighborhoods, and hopefully the values. Currently, Fannie Mae and Freddie Mac own approximately 250,000 foreclosed homes.
Whether these homes are purchased by consumers or investors, they are still being sold for far less than what homes could be worth. So the issue is to either wait for the homes to be purchased by individual homebuyers, or clean up the inventory by selling to investors who in turn will create rental properties and eliminate the properties from the government’s books.
Another reason why the Federal officials think rental properties would be a great idea is due to the increased demand in rental properties. Since rentals are in high demand, the government is thinking of providing more rentals to help meet that demand.
Keep in mind, no specific details have been released about the rental program. Only talks about the program has been surfacing and causing people to start discussing the possibilities ahead. In the meantime, the rental program is still being developed and possibly released in the upcoming year of 2012.
What is keeping the government from selling the foreclosed homes to investors?
Well, investors are demanding a much bigger discount than a typical consumer would for a foreclosed home. Therefore, they would actually be losing more money in that sense, because a foreclosed home will sell for more to an individual (although still far less than market value) when compared to an investor – but it is a longer process. However, if they were to take a bigger price cut, the homes could be sold in bulk to help stabilize the housing market by putting the homes back into use.
We will have to wait and see how this program develops and plays out in 2012.
In our previous blog post, Payroll Tax Holiday Affecting Homebuyers, we discussed the new premium mortgage insurance fees that got passed into law in December 2011.
Those fees are in place to finance the government’s tax break that will end up costing $33 billion. The tax break will be financed by increased the mortgage insurance on home purchases starting this year.
As stated in our previous article, “This means on average the monthly mortgage payments will be raised by as much as $15 on mortgages of $210,000; however, it will vary.”
Earlier we stressed the importance of purchasing a home sooner than later so that these increased fees will not be added to your mortgage. The government has not yet given a specific date that these fees will be implement. So as always, the moment we find out anything we will provide the information on our blog.
The only way you will be exempt from the increased mortgage insurance is if your loan is locked and in process before the Payroll Tax Extensions is implemented. Obviously, if you currently already own a home, these fees are not directed towards you. It is specifically only for new homebuyers.
If you are concerned about being affected by these new loan fees, then your best bet is to get a rate quote now and get started on your home purchase as soon as possible.
If you are looking to sell your home, keep in mind that you may need to invest in some home improvements in order to sell your home and become competitive in the market. If you are looking to stay in your home for a while to build equity, home improvements can benefit you as well by gaining more value in your home.
When considering home improvements there are three things to keep in mind:
- How your project impacts your home’s appraised value?
- How long you plan to be in the home?
- How strong the resale market is in your area?
If you are looking to sell your home, then you really want to focus on what the appraised value will be after completing improvements. Banks and real estate transactions all use appraisals.
Now, what exactly is a real estate appraisal? A real estate appraisal is basically when a professional gives his or her opinion of your homes market value. The appraiser will look at things such as the condition of the home, the neighborhood, number of bedrooms, location etc. However, there are more things the appraiser will look for to determine the value of your home.
When you are getting your home appraised, you are basically “selling” it to the appraiser. You need to make sure your home is clean, painted, trimmed etc. Do whatever will make your home more appealing to ensure you receive the highest appraised value.
What home improvements can you make to increase your appraised value?
Increase livable area
The home improvements that are more likely to increase your appraised value are things that increase the livable area. These things would include the number of bedrooms and bathrooms within your home. However, don’t go crazy adding a bunch of bedrooms because you want to stay comparable to the homes in your neighborhood.
Boost your curb appeal
Your curb appeal is how your home looks from the outside. Things that will increase the exterior look of your home would be a new front don’t, garage door and siding. The reason upgrading your curb appeal is important is because that’s how you will first attract a new buyer. They basically judge your home by its cover.
According to the Remodeling magazine 2010-2011 Cost vs. Value Report, these are the projects with the highest returns:
- Front door – 102.1 percent
- Garage door – 83.9 percent
- Fiber-cement siding – 80 percent
- Wood deck – 72.8 percent
- Minor kitchen remodel – 72.8 percent
- Wood windows – 72.4 percent
- Remodel attic into a bedroom – 72.2 percent
- Finishing the basement – 70 percent
- Completely new kitchen – 68.7 percent
- Two-story addition- 65 percent