Tag Archive: money

Mar 24

FHA Mortgage Changes

Collections

FHA recently announced they are making some changes next month that will impact homebuyers. Beginning April 1st the credit matrix is going to tighten up once again.  An FHA DE Underwriter told me Monday that she is losing some authority to make a judgment calls on open collection accounts including medical collections.

Currently all DE Underwriters can approve a mortgage application even when the credit report contains collections.  Medical collections were the most commonly overlooked blemish, especially if they were more than a year old and without recent updated activity.  After next week If the credit report shows more than a grand total of $1,000 in collections then any and all must be paid off in full before the loan can be funded. In the future this will kill many deals.

Five out of the last ten credit reports I reviewed contained collections that totaled more than the new thousand dollar limit.    Four of those individuals were approvable without paying off their open accounts.  Three of those four would not have been able to pay them off and still have enough money to close.  That is a big change!

FHA Mortgage Insurance Premiums

On April 9th the FHA up-front mortgage insurance premium nearly doubles.   The 9th is falls on a Monday so the preceding Friday, April 6th is the last day to grab a case number using the old premium.  There is a copy of the entire Mortgagee Letter in my Dropbox if you want to read about the other changes.

Even loan officers have a hard time understanding how this facet of the mortgage industry works.  FHA doesn’t actually lend money, they insure mortgages that are originated by lenders like banks and mortgage companies. If the borrower defaults on the mortgage then the FHA insurance kicks in an covers the lender’s loss.  FHA charges the borrower an insurance premium similar to how an insurance company does for a home owner’s policy.  Instead of covering fire damage to the actual house it covers a default by the borrower/homeowner.

The FHA mortgage insurance premiums are paid annually just like a home owner’s policy with one small twist.  The initial premium can either be paid in cash or financed into the loan amount. The current up-front premium is equal to 1% of the loan amount. On April 9th that factor jumps to 1.75%.

People in my area are screaming about the recent jump in the price of gasoline.  While that is bad, it didn’t jump 75% in one day!

Is it really a big deal?  Absolutely! On a mortgage of $200,000 that is a bump of $1,500 added to the loan amount.  Pay interest on that extra $1,500 on a thirty year mortgage and it is a very big deal.

My first concern was for the poor first-time homebuyer that is already struggling to qualify.  Some buyers will not be able to get the home they want because this  change will push their income to debt ratios out of whack.

Buying a property in Kentucky and want to be pre-approved for a mortgage and or tax credit? Visit my online application site or printand use this simple form to get started. If you prefer we can do it over the phone, call my direct line during normal office hours, (502) 753-4127.

Mar 06

KHC Home Buyer Tax Credit

Kentucky Housing Corporation (KHC) is making available a tax credit to home buyers throughout the Commonwealth.  The tax credit reduces the amount of federal tax a home buyer must pay to the federal government.  KHC provides the home buyer a Mortgage Credit Certificate (MCC) which reduces the amount of Federal income tax by a substantial amount.  The result is more available income to qualify for a mortgage loan.

The tax credits are not mortgages, or any kind of debt for that matter. In fact, the net effect provides the tax payer/home buyer additional cash flow that could be used to pay off the mortgage quicker.  One way this can be accomplished is to have your employer reduce the amount of tax dollars withheld from your regular pay check.  This move will increase your take home pay even though the gross income remains the same.

Under the current federal tax code the government allows a homeowner to deduct the interest portion of their house payment from their income when filing their tax return.  A deduction is different than a tax credit.  A deduction is a reduction of the amount of income that is taxed.  A tax credit is reduction of the amount of tax you owe, big difference.

The MCC is a tax credit equal to 25% of the interest you pay up to a maximum of $2,000.  If the amount of mortgage interest you pay during the year is $8,000 then the tax credit would equal $2,000.  You could still deduct the remaining $6,000 on your tax return. Let’s say that you still own $2,500 in taxes after taking the deduction, here is where the tax credit kicks in, the amount of tax owed drops to $500.

The MCC stays in effect for the life of the loan as long as you continue to live in the house.

In order to be eligible to apply for the program you must be a first-time home buyer or have not owned a home in the last three years.  The sale price of the home must not exceed $243,000.  There are also income limits, 1-2 person household income up to $83,400 and a 3-4 person household is up to $97,300.

Of course the home must be located in Kentucky.  Take advantage of this exciting program offered by KHC.   Low down payments, low interest rates and a tax credit, now that is a trifecta you can count on!

Buying a property in Kentucky and want to be pre-approved for a mortgage and or tax credit? Visit my online application site or printand use this simple form to get started. If you prefer we can do it over the phone, call my direct line during normal office hours, (502) 753-4127.

May 11

Real Estate Snapshot for Louisville Kentucky

The Louisville real estate market has been doing much better than many parts of the country but there are still negative figures showing up in the reports.  Most notably is the number of sales, 2,892 as of 5/10/2011 verses 3,435 for the same period last year or 543 fewer homes sold so far this year. 

Most of the price bands below $400,000 show a decline in the number of units sold while the bands above that level showed a dramatic increase.  The percentage increase is skewed because the numbers are so small.  If there was one sale in a band last year and two this year that is a 100% increase but still not hot.  I suspect the increase in sales for the expensive homes is not necessarily a good sign, it could very well be an indication they sold for less overall.  

There is twice the number of monthly inventory today than the same time last year, also a sign of softening.  New listings so far this year are 8,455 with reported sales of only 2,892. 

The interest rates have declined even further this year hitting all time lows, a very big signal it is time to buy.  I have been watching interest rates all my adult life and there is not much left on the downside.  Anyone that is waiting for them to go lower is betting on the wrong side.  There are many more rates available above the current level than there are below it.  There are also some expenses built in to the rates system that no one seems to be pointing out. By that I mean there is an absolute bottom to how low they can go but there is no ceiling for how high they can go.  

Servicing, investor yield, and cost of delivery are just a few examples of expenses imbedded in the interest rate.  The yields to investors are where most if not all of the reduction has been taking place.  At some point (are we there yet?) investors are going to stop buying 30 year bonds at such ridiculously low yields.  Would you buy a 30 year cd at 4% if cashing it in cost 25% of the principal?  I wouldn’t.  

I propose that artificial pressures are holding down mortgage rates.  That is the only answer that makes sense to me.  I filled up my car yesterday, gas prices are not being held down.  My banana index tells me we are in a world of hurt, the value of the dollar slipped again this week against the price of bananas, 11.54%!!!   

5 13 116 300x125 Real Estate Snapshot for Louisville Kentucky

Okay, here is the scoop, when this thing we are living through changes directions it will blast like a rocket.  When the demand for money exceeds the ability to push rates down we can see dramatic jumps in the cost of borrowing money.  Tiny moves in interest rates become a very big pile of money when stretched over 30 years.  A large jump would pay for an entire boat load of bananas! 

It’s time to move!

Apr 28

Mortgage Applications Fall

This is interesting; the number of loan applications fell last week by 5.6% according to the Mortgage Bankers Association. The number of applications declined at the same time interest rates improved!!! HAHAHAHA 

Can you hear The Oink Factor? 

I talk about this phenomenon in my book Selling the Invisible House in the chapter about mistakes to avoid.  Loan applications initially slow down as interest rates decrease. Then they speed up as rates start to rise.  How crazy is that? 

You economist types will state this is a matter of supply and demand.  That could explain it except for the fact that interest rates do not react that quickly to demand.  Demand on the other hand turns on and off like a faucet when ever there is a change in the direction of rates.

 Watch, when the rates start to increase there will be a spike in the number of loan applications.