California's improved home buyer tax credit a day late

Real Estate News Examiner by: Broderick Perkins

A repeat windfall for home buyers, and once considered as hopeless as a balanced budget in the Golden State, California's popular home buyer tax credit is back -- and it's better than ever.

In fact, it's twice as good as it was before.

The Golden State's home buyer tax credit sequel, AB 183, recently signed by movie star Governor Arnold Schwarzenegger, is back and it's upstaged the original deal by providing $200 million in home buyer tax credits, double the original $100 million for qualified first time home buyers who purchased new homes, and the new version is not just for first-time home buyers.

"I have been up and down the state pushing this important housing bill that will get people off the fence and into homes while creating jobs and stimulating our economy and today I am proud to take action and put it into law," said Governor Schwarzenegger at the legislation's signing ceremony.

At 12.5 percent, California has the fifth highest unemployment rate in the nation.

The new law's $200 million allocations is split 50/50 between eligible first time home buyers who purchase an existing home and anyone purchasing a new home. First-time buyers are defined as those who have not owned a home in the past three years.

"The American dream is on sale. It's the Blue Light Special of home buying in California!" exclaimed Julie Larsen Wyss, a broker associate with Intero Real Estate in San Jose, CA.

Unfortunately, the immediately obvious flaw in California's home buying carrot is that it takes effect May 1, 2010 the day after the existing and also expanded federal home buyer tax credit is scheduled to end, April 30, 2010.

When both the California and federal home buying tax credits were available simultaneously, Californians struck a mother lode of a home buying tax credit up to a maximum total of $18,000.

The first $100 million tax credit, approved in February 2009 was only for first time home buyers who purchased only new homes. Funds ran out after just four months with 10,659 Californians claiming the credit.

Under the new California home buying tax credit there's $100 million for first-timers purchasing resale homes and $100 million for anyone buying a new home. There's no limit on the price of the home and no income limitations on buyers.

The tax credit is equal to the lesser of 5 percent of the purchase price or $10,000. It is not a refundable tax credit like the federal tax credit but must be taken in equal installments over three consecutive years to offset state taxes due.

Home buyers taking the credit will be required to live in the home as their principal residence for at least two years or forfeit the credit by repaying it to the state. Buyers also must be at least 18 years old and be unrelated to the seller.

First come-first served eligible taxpayers must close escrow between May 1, 2010 and Dec. 31, 2010, or after December 31, 2010 and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010

New Home Buyer Tax Credit Video   First-Time Homebuyer Credit Extended to April 30, 2010; Some Current Homeowners Now Also Qualify

IR-2009-108, Nov. 24, 2009 WASHINGTON — A new law that went into effect Nov. 6 extends the first-time homebuyer credit five months and expands the eligibility requirements for purchasers. The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase. The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase. But the new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence. For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns. A new version of Form 5405, First-Time Homebuyer Credit, will be available in the next few weeks. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return. A taxpayer who purchased a home on or before Nov. 6 and chooses to claim the credit on an original or amended 2008 return may continue to use the current version of Form 5405. Income Limits Rise The new law raises the income limits for people who purchase homes after Nov. 6. The full credit will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify. For homes purchased prior to Nov. 7, 2009, existing MAGI limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000, or $150,000 for joint filers. Those with MAGI between $75,000 and $95,000, or $150,000 and $170,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify. New Requirements Several new restrictions on purchases that occur after Nov. 6 go into effect with the new law: Dependents are not eligible to claim the credit. No credit is available if the purchase price of a home is more than $800,000. A purchaser must be at least 18 years of age on the date of purchase. For Members of the Military Members of the Armed Forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and settle on the purchase by June 30, 2011. For more details on the credit, visit the First-Time Homebuyer Credit page on IRS.gov.

New Homebuyer Credit Form Released; Taxpayers Reminded to Attach Settlement Statement and Other Key Documents

IR-2010-6, Jan. 15, 2010

WASHINGTON — The Internal Revenue Service today released the new form that eligible homebuyers need to claim the first-time homebuyer credit this tax season and announced processing of those tax returns will begin in mid-February. The IRS also announced new documentation requirements to deter fraud related to the first-time homebuyer credit.

The new form and instructions follow major changes in November to the homebuyer credit by the Worker, Homeownership, and Business Assistance Act of 2009. The new law extended the credit to a broader range of home purchasers and added new documentation requirements to deter fraud and ensure taxpayers properly claim the credit.

With the release of Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and the related instructions, eligible homebuyers can now start to file their 2009 tax returns. Taxpayers claiming the homebuyer credit must file a paper tax return because of the added documentation requirements.

The IRS expects to start processing 2009 tax returns claiming the homebuyer credit in mid-February after it completes the updating and testing of systems to meet the law’s new requirements. The updates allow the IRS to put in place critical systemic checks to deter fraud related to the homebuyer credit.

Some of these early taxpayers claiming the homebuyer credit may see tax refunds take an additional two to three weeks.

In addition to filling out a Form 5405, all eligible homebuyers must include with their 2009 tax returns one of the following documents in order to receive the credit:

• A copy of the settlement statement showing all parties' names and signatures, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.
• For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.
• For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.

In addition, the new law allows a long-time resident of the same main home to claim the homebuyer credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. The IRS has stepped up compliance checks involving the homebuyer credit, and it encouraged homebuyers claiming this part of the credit to avoid refund delays by attaching documentation covering the five-consecutive-year period:

• Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
• Property tax records or
• Homeowner’s insurance records.

The IRS also reminded homebuyers that the new documentation requirements mean that taxpayers claiming the credit cannot file electronically and must file paper returns. Taxpayers can still use IRS Free File to prepare their returns, but the returns must be printed out and sent to the IRS, along with all required documentation.

Normally, it takes about four to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached. For those homebuyers filing early, the IRS expects the first refunds based on the homebuyer credit will be issued toward the end of March.

The IRS encourages taxpayers to use direct deposit to speed their refund. In addition, taxpayers can use Where's My Refund? on IRS.gov to track the status of their refund.

More details on claiming the credit can be found in the instructions to Form 5405, as well as on the First-Time Homebuyer Credit page on IRS.gov.

Find out how new legislation impacts the First-Time Home Buyer Credit and how you can benefit from this valuable credit.

Please always advise your clients to consult their CPA or tax advisor for any tax specific questions. I am always here should you have any additional questions or concerns.

Mortgage help: 170,000 get permanent aid

By Tami Luhby


NEW YORK (CNNMoney.com) -- More than 170,000 troubled homeowners are breathing a lasting sigh of relief now that they've received permanent modifications under the Obama administration's foreclosure prevention program.

Some 15.5% of those who entered the program have gotten long-term adjustments through February, up from 11.5% a month earlier, according to a report from Treasury officials issued Friday.


An additional 91,800 permanent modifications have been approved by servicers and are pending borrower acceptance. And more than 88,600 people have been denied lasting help because they did not meet the program's criteria, while another 1,499 homeowners have had their permanent modification terminated.

More than 835,000 people are currently in trial modifications, a review period during which banks check whether borrowers can make the reduced payments and gather the necessary paperwork to verify income and hardship. The administration's foreclosure prevention program reduces eligible borrowers' monthly payments to 31% of pre-tax income. Participants typically have their loans reduced by $519, or 36%.

The number of people receiving permanent help has been steadily rising as the administration increases the pressure on mortgage servicers to make decisions on those in the trial phase.


However, some experts say that more needs to be done to help troubled borrowers, particularly those without jobs or who owe more than their homes are worth.

Even those who make it into a trial modification are not assured of getting permanent assistance. A growing number of people are getting rejection notices as they hit the end of their trial period.

"While the pace of conversion to a permanent modification has stepped up since the program started, it is slow compared to the large number of loans that are still in trial modification," according to Celia Chen, who studies the housing market. "A large number of these homes are expected eventually to be put up for sale, adding to the supply glut and causing prices to decline once again.

When the modification was first announced in February 2009, the administration said it would help up to 4 million people avoid foreclosure. More recently, however, it has changed that goal, now saying that up to 4 million people could qualify for trial modifications.

The shift doesn't sit well with some housing advocates.

"Our measurement of success cannot be based on how many people gain assistance for only a few months, but it must be based on how many people gain permanent and sustainable modifications," said New York State Banking Superintendent Richard Neiman, who serves on the State Foreclosure Prevention Working Group.

The administration is rolling out new programs to try to keep the housing market on a fairly even keel. Last month, President Obama announced a $1.5 billion initiative to help the unemployed and underwater who owe more than their home's value in five hard-hit states.

And officials will soon implement a foreclosure alternative designed for people who don't qualify for modifications. The administration will pay borrowers, servicers and investors incentives to complete short-sales, in which the bank agrees to sell the home for less than the mortgage amount.

Friday's figures comes a day after an industry report showed the national foreclosure rate fell 2% in February from a month earlier. Yet, RealtyTrac warned that the true number of distressed borrowers may be hidden by the foreclosure prevention efforts.

Many experts are expecting a surge in foreclosures during 2010 as borrowers' attempts to modify their loans fail.

Real Estate in 2010

PodOmatic Player: "In this episode, special guest host and Luxury RealtorAnita Rich of ARichGroup.com and Michelle Bennett, Mortgage Consultant talking Real Estate in 2010 on LA TALK RADIO, listen here..."

Changes to the GFE

 

Changes to the GFE (Good Faith Estimate)  2010

Recent guidelines from Washington have forced a change to the way that loan originators will disclose closing costs for all home buyers. The purpose of the new Good Faith Estimate is to level the playing field for borrowers comparing loans to be able to make apples to apples comparisons for loan scenarios.

In essence, HUD is working to bring all lenders up to the same standard of excellence in reporting closing costs that I have always adhered to, estimating realistic fees that a buyer should expect to pay at closing with no last minute surprises.

What are the important facts you should be aware of in having conversations with home buyers? Below are some important points to know:

   1. All fees paid to the lender/broker are to be consolidated in one line, including processing fees, origination fees, etc. These charges cannot change from the original estimate without a material change to the loan requested.

   2. In the event fees are being charged to obtain a lower rate, these are to be broken out and itemized for the borrower's ease of comparison to other loan programs.

   3. Estimates for fees from government recording charges and third party settlement providers we suggest are to be itemized and the lender is held to a tolerance of 10% for their accuracy. In the event the estimated charges exceed the amount listed by the allowable tolerance, the lender will be responsible for making up the difference.

   4. Estimates for services that the buyer can shop for and do choose can change at settlement without the lender being held accountable. This can include title charges, homeowner's insurance, and initial deposits for an escrow account.

As always, I will strive to provide my clients with an accurate estimate of closing costs and funds to close. My goal is not only to create the best experience but also to ensure additional referrals and build a lasting relationship.

-Michelle Bennett

Understanding Points, Rates and Fees on your Mortgage Loan

Understanding Points, Rates and Fees
Not only do you have to understand what type of mortgage you should choose, you have to understand the costs associated with your mortgage. All of these costs will be paid upon closing your mortgage.
Purchase Points
Purchase points, also known as a "buy-down" or "discount points," are an up-front fee paid to the lender at closing to buy-down or lower your interest rate over the life of the loan. Each point is equal to one percent of your total loan amount. If you have a $100,000 loan, one point would equal $1,000. The more points you buy, the lower your interest rate, but the more money you'll need at closing.
How do you decide whether you should buy points and if so, how many? Well, the decision should be based on how long you plan on living in your home and what you can afford to pay each month toward your mortgage. If you plan on living in your home for more than five years, it's probably a good idea to purchase points. The longer you live in your home, the more you can save on interest over the life of the loan.
Interest Rate
When you get a mortgage, you are charged an interest rate. This is the rate which the lender charges you for using their money to buy a home. It determines how much your monthly payments will be. Generally speaking, the higher the interest rate, the higher your monthly payment.
Mortgage interest rates change constantly. Daily, even hourly. If you speak to a lender and are quoted a specific interest rate, that's not to say you'll necessarily get that rate when you close on your loan. Not unless you formally lock-in that rate with the lender. Locking in an interest rate will guarantee you get your loan with a particular in-terest rate. Lenders will allow you to lock in for 30, 45,60 and sometimes even 90 days. But the longer you lock in, the more expensive it will be, since it's more of a risk to lenders.
Fees
There are always fees associated with getting a mortgage, these fees cover the cost of processing and underwriting the loan. These fees can include charges for ensuring the title to the home is free and clear; paying for a land sur-vey; or paying for a home appraisal which gives you the estimated value of the property (lenders require an ap-praisal to close on your mortgage).
Deciding which mortgage to get may depend on what each lender does because different lenders may charge dif-ferent amounts. Some may charge lesser closing fees to lure you in, but may charge you a higher interest rate, which means you may pay more in the long run. But everyone has different needs. You may or may not be able to afford to pay more at closing and are willing to pay more over the long term.
Before it comes time to close, do your homework, make sure there are no hidden fees, and ask your lender any questions so that you understand all the costs involved with your mortgage.

*Please always consult your tax advisor.

Spring 2010 FHA Changes

Spring 2010 FHA Changes : Higher Fees, Bigger Down payments, And More Mortgage Insurance

Life as an FHA borrower is getting tougher.
In an effort to shore up its flailing balance sheet and dwindling capital reserves, the Federal Housing Authority is rolling out sweeping financial changes. FHA borrowers have to look better on paper and be better credit risks.
Mortgage insurance premiums are rising, too.

Changes Effective April 5, 2010

In its official announcement, the FHA said its trying to better position itself to "manage its risk while continuing to support the nation’s housing market".
The changes are effective with case numbers assigned starting April 5, 2010.
One widely speculated change wasn't made -- the increase of the FHA minimum down payment.  Home buyers in Cincinnati, Chicago and elsewhere can still buy with just 3.5 percent down.  However, the group did roll out a number of other changes, including:

• An increase in Upfront MIP from 1.75 percent to 2.25 percent
• A reduction in maximum seller contributions from 6 percent to 3 percent
• A Congressional request to increase monthly mortgage insurance premiums

Furthermore, the FHA's new guidelines institute a minimum FICO requirement of 580 to make the minimum 3.5% down payment, requiring 10 percent for any applicant whose credit score falls below that level.

Here is a more thorough explanation of the changes taking affect on April 5th.

Announced FHA Policy Changes:

1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending
   • The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.
   • If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.
   • This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing
   • The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.
     
2. Update the combination of FICO scores and down payments for new borrowers.
   • New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA's 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
   • This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
   • This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.
     
3. Reduce allowable seller concessions from 6% to 3%
   • The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
   • This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.
     
4. Increase enforcement on FHA lenders
   • Publicly report lender performance rankings to complement currently available Neighborhood Watch data - Will be available on the HUD website on February 1.
     • This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.
   • Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
     • Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
     • This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.
   • Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process
     • Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.
   • HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:
     • Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite
     • Legislative authority permitting HUD maximum flexibility to establish separate "areas" for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches

In addition to the changes proposed today, the FHA is continuing to review its overall response to housing market conditions, and continuing to evaluate its mortgage insurance underwriting standards and its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward. 

If you have more questions please feel free to contact me @ MichelleBennett914@gmail.com