FHA Downpayment Assistance
The financial industry is in a flux, each day there seems to be changes in guidelines, new rules, and other issues to make finding a home loan more difficult. The latest from one of my lender consultants is this:
FHA Seller Down Payment Assistance ENDS soon. If you have cash-strapped buyers who’ve been “waiting” for the bottom of the real estate market, the time is now! I’d be happy to speak with you or your buyers to educate them about their options, but this program was eliminated by the legislation passed this week. I have seen several marketing pieces from the DPA programs suggesting that new legislation will be passed to restore DPA–do not be mislead by these solicitations, the same legislators that introduced, ran and passed the bill to eliminate the program are the ones who introduced the new bill to restore it!
I agree, if you are home buyer who is “sitting on the fence” waiting to purchase, now is a good time to reconsider your options. The Denver metro market has been seeing strength in values, days on market and a lessening of inventory every month since April 2008. This might mean we “hit bottom” in April. Time will tell, but the longer one waits the more likely they will be buying on the “upswing.”
First time buyers who are counting on receiving Seller Downpayment Assistance…Act now! If you have questions about the Denver real estate market, home financing or real estate in general, please call me.
I welcome your call!
Outsmarting Ourselves
Denver Dwellings would like to welcome a guest columnist, Greg Polashock. Greg is a mortgage lender who enjoys answering the challenging call of the consumer. Please welcome Greg by sharing your thoughts in the comments section below.
Sometimes I wonder if we are just incapable of learning “the lesson.” In the real estate industry five years ago we
pretty much collectively acted in a way that shouted, “I want it now, I want it free, I want it my way, and no matter what history teaches, I expect things to turn out the way I want.” As Dr. Phil would say, “So… how’s that workin’ out for ya?”
Many people got a very hard lesson on the exercises of self-indulgence. And, too many people failed to listen to voices of reason and moderation, instead flocking to squawkers who simply said the things people wanted to hear, in spite of a lack of soundness and reason.
It seems the same thing is happening again, only different. Everybody is now gun-shy of risky mortgages (hurray for finally having gotten THAT message), but it seems like many people still are making financial mistakes when it comes to making real estate decisions.
I see the current phenomenon as a meeting of what I’ll call “analysis paralysis” with an attitude of “I know more than the experts.” I’ll analogize it to people deciding to waste a gallon of gas to find the station that will sell it for ten cents a gallon less. (Think about it for a moment if you’re not getting it immediately.)
I expect Yogi Berra would say something like, “we’ve all gotten so smart, we’re now stupid.”
It doesn’t seem to matter who I talk to – realtors, financial planners, builders, bankers, mortgage professionals… the stories I hear and the personal experiences I have seen indicate that the consumer generally seems to think that they know better than the professionals. A sarcastic aside – I am curious to see how well this mentality goes over once it bleeds over into their relationships with doctors and lawyers!
I am at a bit of a loss as to how to help consumers these days… I really am! And it is taking a toll on me. It bothers me to see people hurt themselves financially. They would have been better off listening to good advice early on. It concerns me to see someone walk away from a great transaction after the realtor has negotiated in an exemplary manner only to have the client dicker about the inclusion of the refrigerator, but not see the $60,000 in equity they’re getting because of the realtor having gotten the contract as such a bargain price. It REALLY burns me at the failure of ethics when a client, through actions, basically shouts, “Thanks for that excellent, free advice that nobody else was smart enough to tell me about… I’m gonna take your great advice and now go over to ‘XYZ Mortgage’ so I can save $13 a month on my housing payment.”
While we seem to have learned a lesson over the past year about risky mortgages (and we probably wouldn’t have learned that one if the marketplace had not been absolutely forced by economic necessity to teach it to us); we still haven’t seemed to learn the lesson about prudence and the need to listen to sound professional advice. As I look around these days, the underlying issue I really see is that the lesson to have been learned from five plus years of shady real estate trickery (where everyone from consumer to title company and everyone in between was complicit) is that we must apply ethics and morals in how we interact with others and in how we represent ourselves. I am concerned that that most important lesson has not yet been learned.
From the desk of:
Greg Polashock
Home Mortgage Consultant
Cherry Creek Mortgage
w) 303-887-0672
Greg@GregisFinancingSolutions.com
Gregis Financing Solutions
Relief Act for Mortgages
Individuals who are relieved of their obligation to pay some portion of a mortgage debt on a principal residence between January 1, 2007 and December 31, 2009 will not be required to pay income tax on any amount that is forgiven.
General Provisions of Public Law 110-142:
- No income limitation: All Borrowers receive the relief, no matter what their income.
- Dollar limitation: no more than $2 million of mortgage debt is eligible for the exclusion ($1 million of debt for a married filing separately return).
- Relief applies only to an individual’s principal residence.
- The forgiven mortgage debt must have been secured by that residence.
- No relief is available for cash-outs, whether the cash-out takes the form of a refinanced first mortgage, a second mortgage, home equity line of credit or similar arrangement.
- Eligible debt is what is called "acquisition indebtedness." This is debt used to acquire, construct or rehabilitate a residence.
- Refinanced debt qualifies, so long as the debt does not exceed the original amount of the debt. (Same rule as Mortgage Interest Deduction).
- Home equity debt (or second mortgages) qualifies if the funds were used to improve the home. ((Borrower must have adequate records, as under current law.)
- See cash-outs, above. No amount of a cash out maybe treated as acquisition debt.
Additional Provisions of Public Law 110-142:
Refinanced Mortgages:
The relief does apply to refinanced debt in some circumstances. The rules seek to assure that any debt eligible for the relief is directly related to the acquisition or improvement (such as rehabilitation, expansion, renovation, reconstruction) of the principal residence. Debt used for furnishings (i.e., any movable property) in the home is not eligible for the relief. When the proceeds of any refinanced debt is used for any purpose other than acquisition or improvement, those proceeds are not eligible for the relief.
Principal residence:
A principal residence is defined in the same manner as the rules that apply to the capital gains exclusion on the sale of a principal residence. An individual may not have more than one principal residence at any given time.
Second Homes:
As a general mater, the relief does not apply to any debt forgiveness on any mortgage for any second home of the taxpayer. However, if a taxpayer uses a residence (other than his principal residence) solely as an income-producing rental property, already-existing relief provisions might apply, depending on the taxpayer’s situation. If the second home property was acquired as a speculative investment (such as for resale rather than rental), relief provisions are unlikely to be available.
In all events an individual who is in a short sale, foreclosure, workout or similar situation on a residence (including condos) other than his principal residence should consult a tax adviser to determine what, if any, relief provisions might be available.
Mortgage Insurance Premiums:
The deduction for mortgage insurance premiums is extended through tax year 2010. Income limitations on the deduction will continue to apply.
Surviving Spouses/$500,000 Exclusion:
In some circumstances, a surviving spouse is denied eligibility for the full $500,000 exclusion on the sale of his/her principal residence. This most frequently occurs when the residence is not held in joint ownership at the time the spouse who is not on the title dies. In that case, the deceased spouse had no ownership interest, so there is no basis step-up on that half of the property. The surviving spouse is thus eligible only for an exclusion of $250,000 . (Had the home been sold during the deceased spouse’s lifetime, the full $500,000 exclusion would have applied, so long as they filed a joint return.)
Challenges for the surviving spouse are compounded when this circumstance occurs late int he year. The surviving spouse is often unable to sell the property within the same year that the spouse died. This legislation provides that a surviving spouse may claim the full $500,000 exclusion not only in the year of the deceased spouse’s death, but also during the two years after the spouse’s death.
Second Homes Converted to Principal Residence:
The new law signed by the President does not include a provision limiting the application of the $250,000/$500,000 exclusion when a second home is converted to a principal residence.
Background Information
A fundamental principle of the income tax is that a taxpayer must recognize income and pay tax any time a debt of the taxpayer is forgiven or discharged. Exceptions are provided in several circumstances, including bankruptcy, insolvency (as defined by state law) and for some investment real estate. until this new rule was enacted, however, no exception applied to any amount debt forgiven on a mortgage for a taxpayer’s principal residence. Thus, until now, when some portion of a mortgage debt was forgiven, that amount has been treated as taxable income and borrower has been taxed at ordinary income rates on the forgiven amount, even though there is no cash.
The newly-enacted relief for mortgage debt forgiveness is Congress’s response to the problems generated by the subprime crisis, short sales, rising foreclosure rates and price corrections in some markets. Thus, when a lender forgives some portion of a borrower’s mortgage debt in a short sale, a foreclosure, a workout with the lender or some similar circumstance, the borrower will not be required to recognize income or pay tax on the forgiven amount. This relief applies to debts forgiven between January 1, 2007 and December 31, 2009.
Upside Down Mortgage
Homeowners who need to sell their property right now are finding they owe more than the home is worth. This is a tough problem to face. How can it happen?
There are several reasons why the mortgage on a home exceeds its value:
- Real estate values in the neighborhood have declined, due to an over abundance of homes on the market or a glut of foreclosures.
- The home owner has refinanced taking out a larger mortgage than the value of the home can support and/or incorporated closing fees into the mortgage, thus increasing the mortgage amount.
- Late fees and back payments have been added onto the mortgage and are also accumulating interest charges.
- A negative amortization mortgage was taken out on the home.
- Lack of maintenance
Homeowners who find themselves in a situation where values in the neighborhood are dropping, but they don’t have to sell their home really have nothing to worry about. Since most people plan to live in a home for many years, the market will rebound and values will increase. Sit tight and tune out all the negative press. Make your payments, enjoy life and when it comes time to sell you will be fine and probably save yourself a few gray hairs in the long run.
If you are a homeowner that MUST sell your home and are up-side-down with your mortgage vs. home value, you do have some choices.
- In a declining market you can price your home to sell and make up the difference with cash from your pocket at closing. Many homeowners do not like doing this, but will just to be able to move on to their next home. If the homeowner is lacking the cash, it might be possible to get a cash advance on a credit card or from relatives to complete the transaction.
- Rent the home out until the market improves. Sometimes this means only a couple years of renting until things look better.
- In the case of a home that has not been cared for, fixing the home might bring it up to acceptable standards to sell.
- Request the mortgage company holding the mortgage restructure your mortgage so you can sell. The balance of what is owned can be transferred into another note which you can make payments on until paid off. The mortgage company may or may not be able to do this depending on what type of lending institution they are. Of course the better the borrowers credit score the better the chances are of negotiating this type of deal.
- Short sale ~ ask the mortgage company to accept less than what is owed and write off the balance. This is a lengthy, not guaranteed process that could take up to 6 months. If the bank is willing to cooperate in a short sale, the amount of mortgage that was relieved could be subject to income tax. (please check CPA for details) Short sales have a negative impact on credit ratings.
- Some employers (as in the case of a transferee) might agree to absorb the amount short in order to get the employee settled in the new location.
- Deed in Lieu of Foreclosure ~ if there is absolutely no way to get the home sold and there are no funds, renters or family to help, giving the home back to the bank is an option. The best way to do that is to start a conversation with the mortgage holder to see how they would like to go about it.
There is really no "one size fits all" solution. Usually there is a way to salvage a situation if one tries. Homeowners in trouble have become the focus of many agencies, with the government looking for ways to help.
If you are a homeowner who is up-side-down and you need to get out of your home, don’t hesitate to call and ask for help. Start with your mortgage holder. If I can assist you in the Denver metro area, please feel free to call.
FHA Limit Increased
I received this from one of my lender partners…
The mortgage industry just received a bit of good news with the loan limits for FHA being raised significantly! With this increase, a number of homeowners will benefit in the resale of their existing homes and with the purchase their next residence. For most of the Denver metro counties, the new FHA loan limit for a single unit property will be raised to $406,250. The exceptions are Boulder county @ $460,000, and El Paso county @ $325,000. Currently investors are restructuring their policies to accommodate this change, so more updates will follow.
With FHA financing, there are many advantages beneficial to the borrower:
- FICO scores are more conservative, with a minimum score of 600 for most investors
- $0 down with seller assistance thru non-profit, such as Nehemiah
- More flexibility with the job stability of each borrower
- Metro Denver is not considered a declining market with most investors
- Competitive interest rates, currently 6.00% for a 30 yr Fx rate.
Please let me know of any questions you may have regarding this or any other mortgage concerns. I look forward to assisting your clients with their mortgage financing needs.
Sincerely,
Jim Barnard
Senior Mortgage Banker
Englewood Mortgage Company
Direct 303-414-6850
Cell 720-201-6038
Fax 303-414-1681
Nehemiah Down Payment Assistance
Just got an email notice regarding the popular Down Payment Assistance program called Nehemiah.
Dear Colleague,
I am pleased to announce that Nehemiah was victorious in its litigation against HUD!
Judge Lawrence K. Karlton of the United States District Court for the Eastern District of California upheld Nehemiah’s motion for summary judgment. The Court Clerk’s Office is directed to enter judgment and close the case.
To be clear, the U.S. Department of Housing and Urban Development’s (HUD) rule to ban private down payment assistance as proposed in the “Standards for Mortgagor’s Investment in Mortgaged Property” regulation published October 1, 2007, is permanently set aside.
Mary Steinmeyer, Certified Mortgage Lender
This program enables home buyers to ask the seller for a "grant" for their mortgage down payment. The seller grants the down payment to the buyer via the Nehemiah program. Nehemiah charges the seller a fee for then doing the paperwork and passing the down payment along to the buyer.
This is good news for buyers who lack a mortgage down payment. With down payment assistance they may be able to purchase a home.
I say "may" because typically the seller inflated the price of the home to account for this bonus to the buyer. The appraisal becomes the issue if the value of the house cannot be met. In some markets this may be difficult.
Just the same, buyers say a little thank you to Judge Lawrence K. Karlton. If you ever see him on the street, perhaps buy him a beer! 
Carpet Baggers are here
After the civil war unsavory characters descended on the South with less than good intentions. The people of the war ravaged countryside were in need of assistance. The unsavory men who came with all their worldly goods packed into a single carpetbag took advantage of every possible chance. They lied, stole and cheated the citizens of the south who made the simple mistake of trusting them.
The Carpetbaggers are back. Not in the civil war sense, but in a modern day global sense. They are popping up all over the U.S. offering services to the economic war now being lost by the masses of folks who over-estimated the appreciation of their homes and their ability to repay loans.
Short sales, bankruptcy, deed in lieu, reo, foreclosure, sheriff’s sales, delinquent mortgage payments have become the evil terms of today. Homeowners in fear of being tossed upon the street are grasping at every straw they can in hopes to avoid disaster.
Fear coupled with a lack of understanding of one’s rights and remedies often leads the innocent consumer to the nasty old carpetbagger.
Today’s carpetbaggers aren’t all that easy to spot. Most of the time they look like an ordinary citizen. They dress nice, they can emphasize with the best of us. They appear to want to help.
But they don’t tell you the whole story.
Before a distressed homeowner pays a third party company to cure their credit problems, they should take the time to understand their predicament.
Ads in the newspaper and online that promise to free of your mortgage with no negative credit reporting to those who "qualify". Are not totally accurate. They are speaking to a very small (if any) group that might "qualify" assuming mistakes had been made to the credit reporting agencies. Most people will not fit this criteria.
Having a foreclosure on one’s record is a black mark on your credit that will NEVER go away. Yes, after 2 years and if the default was due to extenuating circumstances (death of a primary wage earner, divorce (rarely) or debilitating health issues) the borrower may be able to get another mortgage. Normal time for qualifying for a mortgage is 4 years.
Once a homeowner has experienced a foreclosure, forever afterwards the box on any loan application that asks "have you ever lost a home to foreclosure" will need to be checked, yes.
Is there help? Read on…
The National Association of Realtors is pushing for Homeownership Protection for Older Americans. Foreclosure rescue scams (Carpetbaggers) are causing many older Americans and other vulnerable borrowers to fall into their trap.
In Colorado, the State Legislature passed a law, changing the foreclosure time line. The new law went into effect January 1, 2008, giving homeowners a longer time to work out their delinquency issues with the banks.
Consumers in trouble should not wait for the knock on the door. Your power comes from taking the initiative now. Call your lender, YOU REACH OUT and ask for help.
If you can’t get a response go to the next level. Be persistent. Take notes. Record date, time, contact person of every conversation. Be consistent.
There are remedies. Social Service organizations have been formed to help answer questions and perhaps help get consumers on the right track.
Here are some resources to assist in helping consumers learn about loans and foreclosures.
Mortgage Bankers Association: Home Loan Learning Center
Department of Housing and Urban Development (HUD) 1-800-569-4287
Homeownership Preservation Foundation 1-888-995-HOPE
Colorado Foreclosure Hotline 1-877-HOPE
Things to know and financial tips for homeowners
In the end, if foreclosure is your only option remember, there is life after foreclosure.
(Carpetbagger: cartoon by Nast> "Online Photograph. Encyclopaedia Britannica Online. 14 Feb. 2008 http://www.britannica.com/eb/art-4724 )
First home purchase
Home ownership is the American Dream come true. No where on earth is becoming a
home owner easier than it is in the U.S! Owning a home is part of our heritage and the desire to put down roots is strong.
The home ownership path is not always as easy as one would like. First timers find with house prices so high, they often have to settle for less than they would like. Of course settling for what you can afford vs. what you want is a rule of life for most people. Weeding out the "wants" from the "needs" is a process I help buyers with all the time. It doesn’t matter if they are in the entry level market or purchasing a million dollar home. There is always a gap between want/need.
First Time Buyers Challenges
After the decision is make to purchase a home, the first time buyer will face a few challenges which are generally overcome with a simple strategy.
- Credit; good, bad or lack there of! If a 1st timer has been living within their means, chances are they have good credit or perhaps no credit at all. Establishing a good credit record is the first step in obtaining a loan. If there is no credit a mortgage broker will advise obtaining a credit card and charging a few items on it each month. Paying off the credit card in a timely manner will establish a good track record for the first time buyer.
- Bad credit; It seems first time buyers are tempted early on in college to take out credit cards. Next thing they know they are in over their heads, unable to make timely payments. Late payments, written off charge card accounts, etc. can be taken care of. The remedy will vary from case to case, but a good mortgage banker can advise the best strategy. I’ve been told even the worse credit (including bankruptcy) can be turned around with proper attention.
- Down-payment; Buying a home has almost always required some sort of down-payment from the buyer. In recent years mortgage companies became very liberal in lending practices and made loans with no down-payment necessary. That practice was found be to faulty, so now we are back to requiring the buyer to have some "skin in the game!" The amount of skin required depends on the type of financing obtained.
- Low-income; Mortgage loans are typically made on a ratio of take-home earnings to house payment. An affordable house payment is generally defined as 30% of income. What happens to many potential buyers is their income is not sufficient to warrant purchasing a home in the area they live. In some instances there is a way around this by using First Time Home Buyer Programs.
First Time Home Buyers Programs
In Colorado, every county has some sort of program to assist buyers in purchasing a home. The Colorado Housing Finance Authority (aka CHFA) is a state run organization that makes loans to low income buyers. Typically these loans are made at a better interest rate then offered on the general market.
CHFA programs as do most First Time Home Buyer Programs have very specific requirements the borrower must meet.
- loans are made on an income based scale. Borrower’s income cannot exceed specific amounts.
- Borrower(s) must attend a Home Buying Class put on by the organization that is lending the money. If there are two borrowers on the mortgage, both must attend prior to closing on a home.
- Credit score is important
- Must be "under-contract" with a home before borrower can apply for loan.
I am purposely being a little vague here, because each program has rules that differ from the other. Income limits can be as low as $40,150 for one person to as high as $71,400 for a household of 1 or 2.
For buyers who are lacking a down-payment, there is also Down-Payment Assistance in the form of Denver Bond money. This program GRANTS up to 4% for a down-payment that NEVER has to be paid back. Grants can also be used to bring the cost of the mortgage down by 4% if the buyer is able to have the seller pay for closing costs.
Ok, are you confused yet? These facts actually make my head swirl!
"Putting together a loan package that uses CHFA, Denver Bond Money and other options has become an art form!" said Cindy Howeth CHFA’s top mortgage loan broker at 1st Priority Home Loans.
The important thing to know is there are people who specialize in funding first time home buyers. Whether the buyer qualifies for special financing or not, the process of buying a home for a first timer takes more care and concern. The buying process itself is not much different, but the education process that should accompany is critical in making the experience one of pleasure or one of pain.
In a Nutshell First Time Buyers Need To:
- Consult a Professional who can inform them of their options…all the options.
- Make the time to attend a Home Buyers Class, before purchasing
- Develop a strategy to become a homeowner
- Maintain or become fiscally responsible
- Go find a home you can afford
The journey may look like a maze of confusion, but with a little help first time home buyers can successfully navigate and enjoy the trip.
Other Articles of interest
First time buyers are finding opportunity with CHFA
No Brainer
There is an ad on the radio that makes my skin crawl. The company shall remain nameless, to protect the annoying. You will recognize the ad by what he says, "We don’t need your money!" Yes, you’ve heard it, they are selling refinances and new home loans direct to us from Gullible Island.
We don’t need your money? Yeah sure, those radio ads pay for themselves.
Primal Scream Catch 22 a Denver relocation nightmare
Denver Relocation Tips
Moving to a new area brings horrors of it’s own. The biggest horror of all is having a Catch 22 problem you cannot solve.
The most common problem I see is when the transferee packs up all his belongings. As the moving van pulls away from the curb the Denver lender calls, asking for documentation for the new loan.
No problem the transferee says, I’ll fax it to you, then he remembers…
OH NO! It’s packed away in the truck!
What happens now? The moving van does not arrive until next week sometime, just after closing.
But closing can’t occur until there is a loan. The loan won’t occur until there the documents are delivered.
What a predicament.
The solution? Get your loan in place before you pack. Separate all your important back up data from the items to be moved. Keep them with you, this might even mean HIDING them from the moving guys, who have been known to be extra efficient in packing!
This Denver Relocation Tip works in every part of the country whether you are buying
Denver Real Estate or not!
(Photo of Norway’s most famous painter, Edvard Munch’s emotional Primal Scream. Painted in th 17th Century were obviously the artist experienced a distraught moment in relocation!)
This site brought to you by Kristal Kraft, a licensed Colorado Real Estate Broker