Rates WILL Rise a Good Reason to Buy Now?

This article is related so can be considered as a follow up to the last article “If You Don’t Buy a House Now, You’re Stupid or Broke. The answer to that question is… Well that it really depends on you and your debt to income ratios and ability to repay and previous repayment history of debt.

Lenders are subject to extreme scrutiny at the moment. Above average defaults can have drastic consequences and no lender is immune. This has led to over the top caution and excessive documentation and underwriting requirements.

It is what it is, so we’ll have to deal with it and only deal with mortgage reps on top of their game and don’t make promises they can’t keep!

FYI Rates continue to be at or near historic lows.

Given the eternal optimism that is inside all of us we believe the low rates are here to stay (or go lower yet) but think again.  The writing is on the wall for higher rates next year!  With the Fed buying approx 80% of all mortgage loans now, they will stop doing this by March, and there are few other buyers at current price and interest rates.

As the Federal Housing Administration (FHA) considers  raising the minimum credit score requirement for new borrowers to reduce risks to the single-family insurance fund, Fannie Mae (FNM: 1.04 +13.04%) has increased the minimum borrower credit score from 580 to 620.

Brian Faith, a Fannie Mae spokesperson confirmed the minimum hike, adding that the adjustment reflects a careful analysis of borrowers’ ability to repay their mortgage obligations over the life of the loan.

Faith said “Our experience with recently delivered loans with credit scores below 620 is that they reached a level of serious delinquency at a rate approximately nine times higher than other acquisitions during the same period.”

Fannie also reduced the allowable debt-to-income (DTI) ratio to 45% when executing loss mitigation efforts under the Home Affordable Modification Program (HAMP). Under HAMP, the US Treasury Department provides allocated capped incentives to servicers for the modification of loans on the verge of foreclosure.

Faith said that “high DTI ratio loans also have higher levels of serious delinquency. “In other words if you have a lot of debt and keep stacking it on with new cars, credit card bills and other investments and leveraged to the hilt, maybe you shouldn’t be buying a home until you pay down some of that debt first.

It’s not enough to help borrowers buy a home – we must also ensure that they can stay in the home over the long term. Repeat business through ill-gotten gains is rare, immoral and unethical, at least in my book.

Contact us today for a free consultation to see if home ownership may be in your future.

www.MarivicRealty.com
2056A Lincoln Highway
Edison, NJ 08817-3330
Office: 732-650-9911
Toll Free: 1-866-745-4622

Located Across from The Pines Manor & Crowne Plaza Hotel in the Nixon Plaza Shopping Center where the Labonbonniere Bake Shoppe

Click here for Door to Door Directions

If You Don't Buy a House Now, You're Stupid or Broke

Have you read this article yet? It was featured in Business Week. 

My first thought, wow! That’s blunt and kind of rude, a very harsh statement. But the writer, Mark Roth, uses this  head turning title to get your attention to make excellent points for those who are on the fence.  Namely that interest rates are at an all time low, in fact, the lowest in 40 years. He noted that in the late 70s, rates hit a high of 18%!

Can you ever imagine buying a house at 18%?  I  can't fathom the thought however not all too long ago in the grand scheme of life my parents did it, as probably yours depending on your age, as of this writing I’m 37.

Most of my friends and people buying homes in this generation either bought a home using an FHA loan in the 6%-9% range depending on how good or bad their credit was. Imagine having excellent credit and only being able to fetch a best rate of 17-18%, that’s just nuts, but possible to happen again in the not too distant future. 

In the 80s rates dropped from 12% to 9%, many people were thrilled, while most peoples reaction today today would be more like WHAT!!!! Well if you were previously at 17% or 18% you’d be dancing in the streets at the opportunity to refinance at those low by comparison rates. We’ve had it pretty good for so long now that most people can’t imagine rates so high these days.  

Generation X'ers probably would never dream of purchasing a home above 7% given all we’ve ever known are super low rates between 5% – 6%. Mr. Roth points out the history of previous interest rates as well as their impact on purchasing power. I happen to agree with his prediction that as the economy becomes more stable, interest rates WILL rise to hedge inflation as it wildly spins out of control thanks in part, a big part due to out of control government borrowing and spending. Heck even our country’s credit rating is in danger of losing its triple AAA credit rating.  I’ll make the prediction that by this time next year, rates will have risen at least 1%-2% higher than today.

Now let’s keep in mind if rates go up as expected, refinancing at a lower rate should not be counted on given the history and how long it may take in years for rates to even begin to fall without further government intervention.

These numbers are just examples but lets just say the average sale is $250,000. Assuming a 5% down payment at 5% interest on a 30 year fixed, your monthly principal and interest payment would be $1275.  If rates rise to 7%, your payment increases to $1580/month. 

Some buyers may be on the fence because they fear prices may drop further. Consider this. If there is a 10% decrease in price and the $250,000 falls to $225,000 in one year, but you wait to purchase and the interest rate rises to 7%, your payment will be $1422.  You spend more money per month plus at the higher interest rate, you pay more interest over the life of the loan.  Real estate appreciation is always a cycle and as the economy stabilizes, values will level out. 

Data being analyzing by many of the trend trackers are having the experts already saying this is happening in many markets and that this will occur by 2014 in many states. Making a home purchase is still a decision that should be weighed carefully, being a home owner is not for everyone. Some people with poor credit and personal financial habits or others with other reasons should probably remain renters. One important consideration will depend on how long you plan to stay in the home.  

Mark Roth summed up the article, "What I'm trying to impress upon everyone is that if you are planning on being a homeowner now and/or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home. If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime." Depending on where you live I’d also have to add that you should also take into consideration funds from additional sources such as local government down payment and closing cost grants as well as the federal home buyer tax credit currently being offered while it lasts and not wait until last minute this time. The government will not be extending it again, this time they will actually have a phase out plan giving people plenty of opportunity to take advantage without just yanking the offer away.

Marivic GMAC Real Estate specializes in helping families make good decisions. We do NOT think you are stupid or broke if you don't buy a house right now.  But if you are considering purchasing a home and would like a FREE consultation, we'd love to sit down with you and help you weigh your options and direct you to a qualified, caring mortgage professional that will help you with the numbers.

www.MarivicRealty.com
2056A Lincoln Highway
Edison, NJ 08817-3330
Office: 732-650-9911
Toll Free: 1-866-745-4622

Located Across from The Pines Manor & Crowne Plaza Hotel in the Nixon Plaza Shopping Center where the Labonbonniere Bake Shoppe

Click here for Door to Door Directions

Home Buyer Tax Credit Extended and Expanded

Good news for home buyers, Not just a first time buyer credit anymore. Once again Uncle Sam is firing up the printing press to give home buyers money as incentive to purchase a first home or to move and buy another (not for investors). The federal housing tax credit (H.R. 3548) for buying a home has been extended from the November 31st deadline to June 30, 2010 and now expanded to offer the credit to current home owners looking to move.

TAX CREDIT OVERVIEW

Who Gets What?
First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What are the New Deadlines?
In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

What are the Income Caps?
The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible

Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

What is the Maximum Purchase Price?
Qualifying buyers may purchase a property with a maximum sale price of $800,000.

 
What is a Tax Credit?
A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.

How Much are First-Time Homebuyers (FTHB) Eligible to Receive?
An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.

Who is Eligible fort FTHB Tax Credit?
Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.

This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.

As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How Much are Current Home Owners Eligible to Receive?
The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?
No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with Seller Financing and the Seller Retains Title to the Property?
Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Some examples of this would include a land contract or a contract for deed.

According to the IRS, factors that would demonstrate the ownership of the property would include:

1. Right of possession,
2. Right to obtain legal title upon full payment of the purchase price,
3. Right to construct improvements,
4. Obligation to pay property taxes,
5. Risk of loss,
6. Responsibility to insure the property, and
7. Duty to maintain the property.

Are There Other Restrictions to Taking the FTHB Credit?
Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:

• They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
• They do not use the home as your principal residence.
• They sell their home before the end of the year.
• They are a nonresident alien.
• They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
• Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
• They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?
Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.

If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?
Yes, provided that the child meets the other requirements for the tax credit.

Below is a quick overview of the program and the changes, for details or to get the info from the source see these resources.

www.MarivicRealty.com
Local: 732-650-9911
Toll Free: 1-866-745-GMAC(4622)
Facebook Blog: www.realrep.com

TAX CREDIT ADDITIONAL RESOURCES
Government Site http://www.federalhousingtaxcredit.com/
NJ Home Buyer info site http://www.realstorynj.com/
Tax Credit FAQ’s - PDF document

ADDITIONAL REAL ESTATE NEWS RESOURCES
Marivic Realty Facebook info page http://www.realrep.com
Realty News Videos http://realtytimes.com/
Inman News http://www.inman.com/
WSJ Real Estate http://www.realestatejournal.com
NJ Real Estate Report Blog http://njrereport.com/
Star Ledger NJ.com Real Estate http://realestate.nj.com/
NJ Business & Economic Issues http://www.njbiz.com/

Why NOW is a Good time to Buy?

Below is a neat little video explaining why it’s a good time to buy real estate now courtesy of Lennar Home Builders.

For any real estate questions and for all your real estate needs contact us any time.

Marivic GMAC Real Estate
www.MarivicRealty.com
Local: 732-650-9911
Toll Free: 1-866-745-GMAC(4622)
Facebook Blog: www.realrep.com