There is heavy lobbying in the halls of Congress to extend or even expand the tax credit to all home buyers. But at this time you have to assume that it won’t be available in December 2009.

Although this deadline is 6 weeks away, you are probably out of time, when it comes to making an offer on a home and get a home loan underwritten by a bank or mortgage lender. It typically takes 4 week for Columbus loans to close, however, most lenders will be very busy in November, and then there’s Thanksgiving weekend.

What Can You Do? Here are 3 last minute strategies that will allow you to claim the tax credit – but don’t just take my word. Talk to your accountant and lawyer before you make a financial or home purchase decision.

Strategy 1: Become A Cash Buyers

Cash buyers can get a home purchase completed in 1 or 2 weeks, dependent on the number of inspections you want to perform and how long you need to negotiate the deal with the seller.  Most of the time sellers agree to accept less from a cash buyer, just because they can close quickly.

If you don’t have enough cash in the bank you can try to borrow the money from family members or friends and let them act as the lender. Just like with a conventional loan you become the home owner. You sign a promissory note for your lender and record a mortgage, giving them a first lien on the house. I suggest you pay them a little higher interest rate to make it worth their while.

The money you borrow can even come from a self directed IRA retirement account. You  may be able to find a private lender, a wealthy individual who’s fed up with the volatility of the stock market and would prefer to get a fixed interest rate paid every month.

Strategy 2: Short Term Seller Financing and Refinance

If you have good credit and are approved for a loan, but you don’t have enough time to close before the beginning of December, the seller may agree to finance the sale for a short period of time.

Here is how it works: You go to the title company and close on the house. The title is transfered and recorded with the county. On the closing statement, the seller becomes the “bank” and a mortgage is recorded for the benefit of the seller. Now you agree to pay the seller a monthly payment, maybe interest only, and begin with the refinance of the property. As long as your new home appraises for the purchase price any lender will refinance the seller’s mortgage a few months after closing.

Consult your lender to make sure that they will refinance your purchase in the amount you need to completely pay off the seller.

Strategy 3: Land Contract

This last strategy works for buyers that have lower credit scores and may not be able to get bank financing immediately. These home buyers can purchase the property on a land contract, also called an installment sale. A land contract gives you ownership of the property. It is recorded at the county courthouse and can be refinanced by a bank.

Again, the seller becomes the bank and agrees to accept installment payments for 1 or 2 years, until the buyer can get bank financing. As there is more risk involved for the seller, they will require a higher downpayment as well as a higher interest rate. The downpayment can be in the form of your tax credit. The seller may accept the anticipated tax credit as a down payment, as long as you sign a paper saying the seller gets the money when the IRS pays the refund.

These are my 3 strategies for claiming the tax credit before it expires at the end of November. Please consult an attorney before you proceed with any of these strategies. I am not giving you any legal advice! These are strategies that I saw work and will qualify you for the tax credit.

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At the end of last week we received an email from our favorite loan officer. She told us that FHA changed guidelines for minimum credit scores required to ensure loans. Until now it was still possible to get Columbus loans with credit scores as low as 580. Fifth Third Bank was one of the few Columbus mortgage lenders that approved applications with scores below 620.

Now that has changed. If you have any application in, you can still close with a lower credit score before the end of October, 2009. All new applications fall under the new rule and need to show a 620 FICO score.

What does this mean for you as a prospective home buyer?

If your score falls between 580 and 620, and you planned to buy a house to take advantage of the first time home buyers tax credit as well as the low interest rates, you are out of luck. You won’t have enough time to improve your credit by 20, 30 or 40 points to qualify for a loan before the closing deadline expires. You may have a chance to buy a home with seller financing and still claim the tax credit – I will talk more about this option in another post.

For those of you with solid credit scores, now is the time to make an offer on one of the listed Columbus houses. You should be able to get FHA financing, if you meet the following criteria:

• You buy a personal residence as an owner occupant (up to 4 units)
• Your mortgage amount is below the FHA limit set for your county ($341,250 for Franklin County OH)
• You can come up with the required down payment of 3.5% of the purchase price (if you buy a HUD home you can get away with only $100 downpayment)
• You meet the minimum income requirements and can show 2 years of job history or tax returns, if self employed.
• Your credit score is above 620 and you didn’t have a bankruptcy for 2 years.
• Your new home appraises for or above the purchase price.

There a number of obstacles in the FHA loan approval process. However, an experienced loan officer can get it done in 30 days. Your property has to be in good condition. If it needs repairs you may be able to establish a repair escrow to cover these expenses – this is commonplace with HUD homes.

A good credit score is the key for getting Columbus loans approved by your lender. Take care of your credit score and the harsh lending environment will not effect your ability to get a Columbus home mortgage.

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Most HUD listings are in contract very quickly.  You really need to move quickly, if you are in the market for a new home. Make sure you evaluated different Columbus loans options and you are ready to submit an offer!

Here are the incentives offered by HUD:

$100 Down Payment Finance Option (Columbus home mortgage with FHA financing only)

The $100 down payment financing is available on most HUD homes through FHA approved lenders. Please note that the $100 down offer applies only if the purchase price is less than or equal to the appraised value of the property. If the purchase price is greater than the appraised value, the buyer must pay for another appraisal to justify the higher value. This may be tough, considering that most banks do not approve Columbus loans easily these days.

Please call us for a list of HUD approved FHA lenders who can work with the $100 down payment program!

$2,500 Sales Incentive (for properties with a purchase price $25,000 or greater)

Since October 1st, 2008 owner occupants have received a contribution of $2,500 from HUD (if the purchase price was $25,000 or more.)

This $2,500 sales incentive can pay for any of these items:
• Closing Costs
• Tax Pro-rations
• Repairs to the home, or to
• Pay down the principal balance of an FHA Columbus home mortgage

If you want to use this incentive for repairs, it will be deposited in a repair escrow account. You will get reimbursed when the repairs are completed and inspected.

$500 Broker bonus

This is an incentive for your realtor to promote HUD Homes over other listings. It’s not related to Columbus loans for financing the purchase.

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Here are 5 interesting facts about credit scores that may surprise you:

1. Income: Your income level has no bearing on your credit score, but it will determine the amount of your home mortgage. A person earning below minimum wage could easily have a great score while a millionaire earning six-figures per year could have a really low credit score. The basis behind the scoring system is to determine how responsible a person is with their money, not how much they make.

2. Old Accounts: When the credit bureaus calculate your score, they look at the types of credit you have and how old your accounts are. Older, active accounts show a lender that you haven’t consolidated or negotiated your debts, but that you maintained them with a level of financial responsibility. If you intend to pay off some debts, pay off the newer ones first and leave the older ones open.

3. Don’t Pay Collection Agencies: Did you know that paying off collection agencies or debts that are older than two years won’t help your credit score? The Credit Bureaus calculate your score based on the most recent activity on the account. If the last activity is more than two years old, any derogatory entry in your credit loses its negative power.

Be aware though, that if you negotiate a payment plan with a collection agency verbally, this is considered an agreement. It may reset the activity date to the day of the conversation and you end up with a recent entry in your report. So don’t reactivate old collections!

4. Debt/Limit Ratio: Credit bureaus reward people who demonstrate that they control their spending habits and don’t max out their credit balance or even overdraw their credit limit. It’s critical you keep your balances way below your actual credit limit. If your card balances are below 30% of your credit limit you will definitely improve your score.

One important thing to remember: banks make their profits by keeping you in debt. It does not hurt to increase your credit limits as long as you act responsibly. Borrow only what you can handle based on your income.

5. Frequency of Credit Applications: Did you know 10% of your credit score is based on the number of times you’ve applied for credit? Every time someone pulls your credit, the enquiry is listed on your credit report. The more enquiries you have, the lower your score will go.

If you applied for many credit cards recently, you should wait a few months, pay down your balances and build a history, before you apply for new ones. Not applying for new credit will increase your score, as older applications fall away.

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A few days after the economic stimulus bill President Obama signed the so called Homeowner Affordability and Stability Plan with the goal to stem the flood of foreclosures and keep home owners in their houses.

Here’s how the plan is supposed to work: It should allow homeowners who are not behind in their mortgage payments refinance their loans. The idea is to help “responsible” homeowners. If you have a loan you can’t refinance because the your home is now worth less than the mortgage amount, you may qualify for this program.

There are many limitations, so this program is certainly not for everyone. It only applies to Fannie Mae and Freddie Mac loans. Many subprime loans will not qualify for this program.

Also, your first mortgage can’t be higher than 105% of the marketvalue of the home. The values of many Columbus Houses went down by 30% and sometimes even 50% from just a year ago, people owning these homes will not be able to take advantage of this program.

Here is the most controversial part of the bill – it will help people modify their loand, even if they are already behind or are struggling with their payments. The idea is to reduce your mortgage payments to 31% of your monthly income and make it more affordable. Banks will receive incentives from the government to make these loan modifications.

Obviously, many people are crying “fowl” about this provision, as it appears that the government will subsidize home owners who can’t make their mortgage payments, while borrowers who pay on time have to pay the tap.

We’ll see how this works out. On March 4, 2009, the administration will announce eligibility criteria for these programs. Personally, I don’t see that this program can make a significant impact, because the real problem are the subprime loans which are not covered by this bill, and second, most people struggling with their loan payments are severely overleveraged and their mortgage is much higher than 110% of the current market value. Just take a look at the Columbus HUD Homes Blog to see for how little HUD Homes are selling these days.

Leave a comment and give us your thoughts on the bill!

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Do You Qualify?

In order to qualify for Obama’s loan modification program, the home must be your primary residence, and you must have purchased your home before January 1, 2009.  The Obama plan does not apply to jumbo loans, which in most cases means your loan amount can’t exceed $729,750; however, the allowable limit may be higher in high-cost housing areas.

Your first mortgage, including principal, interest, taxes, and insurance, must exceed 31% of your gross monthly income, and the program applies only to a first mortgage, not to any second mortgages or home equity lines of credit.  Finally, you must be experiencing some type of financial hardship that makes it difficult for your to pay your mortgage.  Common causes of financial hardship are job loss, a reduction in hours, illness, and divorce or separation.

Loan Modification Process

The first step in the process is to contact your lender.  Under the Obama plan, a lender is not required to modify your loan, but participating lenders are more likely to work with you because of the financial incentives the plan offers.

Next, you’ll need to gather relevant documents.  This includes evidence of your pre-tax monthly household income, your most recently filed tax return, information on savings and assets if applicable, and mortgage and loan statements for your first and second mortgages or home equity line of credit.  You’ll also need to create a detailed budget that lists your monthly expenses, including credit card payments and installments loans, like student and car loans.

Once you’ve gathered this information, you will go through the final process with your lender of negotiating the terms and completing the necessary paperwork.

Modification vs. Refinancing

So why bother to modify your loan instead of pursuing a refinance?  The two main reasons are cost, and the ability to qualify.  In most cases, you’ll need excellent credit in order to qualify for a refinance in the current credit climate.  If you’re in danger of falling behind on your mortgage, chances are you have less than spotless credit.  There are also no fees associated with a mortgage modification under the Obama plan, and if you are in arrears, late fees and penalties can be waived.  With a refinance, you will be responsible for closing costs and other fees.

Modification is the best option if you are falling behind on your payments, or if you could not afford to stay in your home with a new loan at conventional rates.  On the other hand, refinancing is a better option if you have equity in your home and are looking for a better interest rate, even if you don’t qualify for a loan modification plan.  Refinancing is also the only way to cash out if you want to tap into your home’s equity.

Doing your own loan modification is a simple process, and there is no need to pay the typical fees of $800 to $2,000 to hire a lawyer or service provider to negotiate the modification on your behalf.  The Obama plan provides enough incentive to lenders that you can negotiate your own loan modification, provided you are well prepared and can make a good case that you’ll be able to pay your modified monthly payment. 

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Here is how it works. If you buy a home between January 1 and November 30, 2009, and you did not own a home for 3 years, you can claim this tax credit. Essentially, the IRS will reduce your tax bill by $8,000 (or 10% of the purchase price, whichever is less). If you owe less than $8,000 they will refund the difference.

Here are 3 great features of this tax credit that will certainly stimulate the economy and make it very attractive for you to buy one of the many Colulmbus houses for sale:

1. This tax credit can be claimed on your 2008 (or 2009) tax return. If you did not file your taxes, yet, and you buy a home before April 15, 2009 (or later if you request and extension till Oct 15, 2009) you simply add it to your 2008 tax return and you get the refund within a couple of weeks. So, you could use this tax credit as a downpayment for your purchase. You still may have to borrow the downpayment for your mortgage for a few weeks until the tax refund actually arrives in your checking account.
2. The new tax credit does not have to be repaid. You may have heard about the old $7,500 tax credit that was enacted in April 2008, which had to be repaid over 15 years. Not so with the new one.  This is a real gift to home buyers. If you purchased your home in 2008, you still can go with the $7,500 tax credit and claim that cash – but you will have to repay it without interest over the next 15 years.
3. The tax credit is good for the purchase of a primary residence at an arm length transaction. This just means that you can’t buy or sell a house within your family just to claim the money from the IRS. You have to move in and live in the house for 3 years.

The bill does not say how you purchase or finance the home. Obviously, you could buy it all cash or Columbus loans or mortgages. But you could also buy it with seller financing or an installment sale (land contract), as long as it is a formal purchase and documented as such. This may actually encourage Columbus realtors to promote seller financing, because the tax credit could be used to pay their commissions as well as the downpayment to the seller.

If you ever thought about purchasing a home this year, now is the time to do it. Even if you don’t qualify for a Columbus mortgage immediately.

You will receive a triple reward, if you consider that home values are very low and you may even be able to buy a Columbus HUD home or bank owned property significantly below market value, interest rates are at historic lows, and the new tax credit gives you a 10% discount on the purchase price.
This is a strong combination of incentives – I truly believe that it will get the Columbus housing market going again.

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VA and FHA loans are especially effective in when you want to buy a HUD Home.  As HUD is essentially the same agency that insures FHA loans, they have a great interest in quickly selling homes they had to repo from oveleveraged home owners.  Therfore, they offer special financing terms to buyers of HUD homes, including a $100 down payment program.

Columbus VA Loans are your best option, if you qualify as a veteran. With these loans you do not need any downpayment and VA will also cover your closing costs. This loan works equally well for HUD homes or any regular house purchase. I need to note that all of this applies to owner occupant buyers and not investors.

A few weeks ago one of our clients purchased a home with a VA loan. He did not have to pay for closing costs nor did he make any down payment, but he walked out of the closing with a check for $1,500. This payout was fully approved by the lender and by VA.

Columbus FHA Loans are a great financing option if your credit score is low (at this time banks accept credit scores as low as 580 for FHA loans) and your property meets FHA guidelines. In general, they require a downpayment of 3.5% of the purchase price, but they also allow the seller to pay up to 3% of the buyer’s closing costs.

If you plan to buy a HUD Home FHA financing is your best choice, because HUD will lower your down payment to $100 and still cover your closing costs. On top of it HUD grants major discounts on its inventory homes, so you probably will be the house significantly below market value.

A real estate agent or FHA approved lender will be able to answer specific questions about Columbus Mortgage programs for HUD Homes. To find out more, you may want to visit HUD’s website, call 1-800-CALLFHA or see the Columbus HUD Homes Blog.

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Chad was stationed in Iraq until the end of December 2008. He started his home search on the Internet, like 85% of today’s buyers, and contacted Susanne, his realtor, from a Craigslist posting. He and his wife wanted a home outside of the city, possibly with some land. While he was still in Iraq, Chad’s wife and her parents looked at a number of homes. But it was not until he came back, at the end of December, that they made a final decision.

Chad found a bank owned, double wide mobile home on Indian Lake, about an hour drive from Columbus. This was not just a trailer, but a very nice and spacious 1700 sqft ranch style home on a large lot overlooking the lake. Best of all, since it was bank owned, it was offered below market value.
After consulting with Susanne, they submitted a winning offer. Within 5 weeks the VA loan was approved. Susanne recommended a property inspection, including well and septic. A smart decision, as  VA wanted to see the inspection reports to approve the loan.

When it came to closing, Chad’s VA loan covered the purchase and the VA funding fee. The closing costs were paid by the seller, as negotiated in the purchase contract. He just had to bring a few hundred bucks to cover some extra expenses like flood insurance and the inspections.

After serving our country in Iraq, Chad and his wife moved to their own home on the lake. Thanks to VA, this purchase did not eat up their cash reserves either, so they had money to furnish the home and buy brand-new appliances. Here is what they say about their new home:

“We absolutely love it.  It is perfect for us.  Thank you for working so hard to find the perfect place for us.  You have been amazing throughout this entire process.  We will definitely refer all of our friends to you.”

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Yesterday was a great day on Wall Street. The Dow gained almost 500 points.

Earlier in the day the government announced its plan to deal with so called toxic assets. These are basically home loans on homes in default, which banks can’t sell on the secondary market, i.e. to other banks or investors. We all know that banks have plenty of these Columbus loans, and that they are the main reason why banks don’t lend.

To help banks get rid of these toxic assets the administration unveiled a private-public partnership as a way to buy these loans.

Let’s use a simple example to demonstrate how this program is supposed to work.

Let’s say a private investor puts up $1. The government matches this investment with another $1. Now we have $2 of equity. In addition, the government agrees to leverage these $2 by a loan of up to $12. All together that’s a $14 investment fund we can use to purchase bad loans from banks. The private investors control the investment, the government secures most of the money invested.

Obviously, the partnership funds will try to buy the toxic loans as cheap as possible. The Fed assumes that banks will sell these loans for 40 to 60 cents on the dollar.

The private investor is at risk for $1, but will fully participate in the upside. An upside happens when the toxic loans acquired by this partnership produces more than $14 in return. If the deal goes belly up, i.e. our new fund loses money, then most of the loss will be carried by the taxpayer, which obviously owns or secures $13 of the $14 fund.

You may wonder how this program will effect an individual home owner who may have one of these Columbus loans ? Initially, it won’t, as long as mortgage payments are current. If the loan is in default, these new funds will be more flexible than banks. I assume they will negotiate short sales rapidly to sell the loans at a loss or even push foreclosures. But they will also be more creative when it comes to restructuring loans and convert these loans from toxic into performing assets.

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