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Payroll Tax Holiday Affecting Homebuyers

Today, December 22, 2011, the House and Senate leaders have agreed to extend the two month package that includes a payroll tax cut as well as unemployment benefits. The FICA tax relief was originally a one year stimulus for 2011 in order to help stimulate the U.S. economy.

How is the U.S. payroll tax extension going to affect consumers?

The government had reduced the FICA payroll tax from 6.2 percent to 4.2 percent for 2011 only. However, the package has been extended an additional two months through February 29, 2012. This is good news for consumers, so that taxes will not be increasing in the upcoming year. However, two months is not a long time, so it is expected that negotiators will create a yearlong stimulus to help with these critical areas.

How does the payroll tax cut affect American workers?

The payroll tax holiday is going to benefit 160 million workers.  According to NBC Politics, “For a worker making $60,000 a year, a two-month payroll tax cut would mean $200 in additional take-home pay, or about $25 per week.”

What does this mean for homebuyers?

Well, in order to extend this stimulus package for the additional two months, its total cost will be $33 billion. The way it is going to be paid back is through increasing mortgage fees for home purchases and refinances starting January 1, 2012. These fees are expected to raise $35.7 billion over a 10 year period.

What are the requirements for the government housing agencies?

Fannie Mae and Freddie Mac: Increase loan guarantee fees by 10 basis points or more versus current levels, and do not decrease other costs to compensate

FHA: Increase mortgage insurance premiums by 10 basis points

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.

How will this affect FHA insured homeowners?

Any FHA Streamline Refinance must meet a minimum of 5 percent savings as required by the FHA Streamline Refinance guidelines.  With the increase in the mortgage insurance premiums by 0.10 percent it will make it much more difficult to be eligible.

If you are a FHA insured homeowner and wanting to refinance via the FHA Streamline Refinance, then it is highly encouraged to get your loan application in and processed now before the end of the year.

If you are currently in the process with purchasing a mortgage, then you should not be subject to these increased fees. Anyone purchasing or refinancing after January 1, 2012, will be experiencing the increased fees.

FHA Loan Limits Restored

Last Friday, November 18, 2011, President Obama signed a bill that restored the loan limits for FHA (Federal Housing Administration) mortgages. For homeowners in the Inland Empire area (Riverside and San Bernardino counties) the loan limits went from $355,350 back up to $500,000.

However, this bill only increased FHA loans, and did not include Fannie Mae or Freddie Mac. Currently, Fannie Mae and Freddie Mac loan limits are at $417,000. Keep in mind, President Obama did pass a new refinance program for Fannie Mae and Freddie Mac that will benefit underwater mortgages.

With the loan limits being restored to $500,000 until December 31, 2013, we can expect more home sales within the next two years. Overall the FHA loan limit increase will benefit future homeowners.

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