Keller Williams Realty Atlanta – Peachtree Road

Current Mortgage Programs To Assist Home Buyers

There are many loan programs and acronyms floating around out there so here is a quick summary of the main programs you may be hearing about.

Home Affordable Mortgage Programs

 HARP:  Home Affordable Refinance Program:

The purpose is to refinance homes that have lost value.  These are loans that are currently held by FNMA and FHLMC with current loan-to-values up to 125%

·        Must be primary residence

·        1-4 Units

·        Must be currently held by FNMA/FHLMC

·        LTV must be equal to or less than 125%

HAMP:  Home Affordable Modification Program:

The purpose is to modify the existing mortgage to a level that is affordable now and sustainable long-term

·        Must currently be delinquent

·        Must be primary residence

·        Mortgage must have been originated prior to 1/1/09

Steps that may be taken under HAMP

·        Immediate reduction of rate to as low as 2%

·        Possibly extend loan to 40 years

·        Possibly forbear a portion of principal until loan is paid off and waive interest on deferred amount.

HAFA:  Home Affordable Foreclosure Alternative:

The purpose is to provide an alternative for those homebuyers not helped by the HAMP program and to gracefully exit the home.

·        Must prove financial hardship

·        Will receive pre-approved short sale terms

·        Will receive full release from future liabilities

·        Must be primary residence

·        Will receive $1500 in relocation assistance

·        Will have 120 days to find buyer and complete short sale

·        Existing payment reduced to 31% of income during marketing

·        Program scheduled to end 12/31/12

HA2MP:  Home Affordable 2nd Lien Modification Program:

Same as the HAMP but for 2nd liens.

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Keller Williams Realty Atlanta – Peachtree Road

What Is Changing in the FHA World?
 
Effective October 4, 2010, FHA will be making changes to their Mortgage Insurance Premiums.  As you know, borrowers currently pay 1.75% of their loan amount upfront which is called Upfront MIP.  Additionally they pay .50% to .55% of their loan amount annually (actually paid in 12 installments with their monthly payment).
 
The new MIP structure will require an Upfront MIP of only 1% of their loan amount.  The downside is that their annual MIP will increase to .50% to .90% paid on a monthly basis.
 
Give Me An Example of How This Impacts The Wallet
 
Here is an example of how the changes will impact FHA borrowers:
 
Loan Amount:  $250,000
 
Upfront MIP:   Currently                     $4,375
                        As of October 9, 2010 $2,500
                        Upfront cost is $1875 less BUT when the homebuyer sells or pays off the loan, part of this cost is refundable to the borrower
 
Monthly MIP:  Currently                     $115 per month
                        As of October 9, 2010 $188 per month
                        Cost is $876 more per year
                        No portion of this monthly MIP is refundable to the borrower
 
What Is The Real Impact?
 
When an FHA homeowner sells their home, they are entitled to a refund of the unused portion of their Upfront MIP.  The borrower is not entitled to any refund from the Monthly MIP they pay to FHA each month.  So shifting the revenue stream paid to FHA from the Upfront MIP to the Monthly MIP is actually a win for FHA as less of the MIP paid by the borrower will be entitled to a refund.
 
The IRS allows homeowners to write-off the cost of mortgage insurance as long as their income is less than $110,000 per year.  Shifting some of the MIP from Upfront to Monthly will actually give the homeowner a greater write-off on their tax return.
 
Higher monthly MIP will increase the borrower’s Debt-To-Income ratio and, in theory, make it slightly more difficult to qualify for the loan.
 
Net Effect:  I believe the net effect to the borrower is negligible.  Basically, these changes shift revenue within the government.  FHA will enjoy higher revenues to offset their tremendous losses while the IRS will decrease their revenues as homeowners have greater mortgage insurance write-offs.

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Keller Williams Realty Atlanta – Peachtree Road

 

You Think The Homebuyer Tax Credit Has Passed? 

Think Again!

As was mentioned in the KW Atlanta Peachtree Road Office sales meeting this morning, let’s just think of the homebuyer credit from a different perspective.  The average of the 30 year fixed rate mortgage from 7/1/2000 through 7/1/2010 is 6.75%.  Today we are at 4.50%
 
How Much Does That Save a Buyer?
 
On a loan amount of $250,000, the principal & interest at the past 10 year average rate of 6.75% is $1622/month
The principal & interest at 4.50% is $1267/month.  That is a savings of $355/month.  Over the average stay of 5 years in a home, that creates an interest savings for the 5 year period of $21,287.  This certainly makes the expired homebuyer tax credit pale in comparison.
 
How Can I calculate the Savings for a Specific Loan Amount?
 
Regardless of the loan amount, the difference in interest rate will save you interest payments of 8.51% of your loan amount over a 5 year period OR it will save you interest payments of 1.7% of your loan amount per year.  As an example you can apply at any price point, a loan amount of $150,000 will save you $12,765 in interest payments over a 5 year period ($150,000 x 8.51%) or $2550 per year ($150,000 x 1.7%).
 
How Can FHA Loans Help Me 5 Years From Now?
 
Another talking point for potential buyers is regarding FHA loans.  FHA loans are ASSUMABLE and that can be a real win situation for homebuyers today.  A buyer who obtains an FHA loan today with a minimum down payment of 3.5%, who decides 5 years from now to sell may end up with a tremendous market advantage when they sell.  Let’s assume a home purchased today at $175,000 increases in value 2% per year for the next 5 years.  Value in 5 years is approximately $193,200  Assuming the borrower made the minimum down payment of 3.5% when they purchased and including the principal reduction they made over the 5 years, they probably have a payoff of approximately $153,400.  The loan balance of $153,400 would be assumable at the initial rate of 4.5% to the new buyer which would require the new buyer to make a down payment of 20%.  If current interest rates in 5 years are just average at 6.75%, that would make the home extremely attractive to have 4.5% financing available in a 6.75% market – especially if you are the listing agent!!

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Keller Williams Realty Atlanta - Peachtree Road Office

Mortgage Update:  Important Tax Credit Links

First-Time Homebuyer Credit 

Updated Nov. 6, 2009, to reflect new legislation — more to be added soon

New Legislation 

New legislation, the Worker, Homeownership and Business Assistance Act of 2009, which was signed into law on Nov. 6, 2009, extends and expands the first-time homebuyer credit allowed by previous Acts. The new law:

• Extends deadlines for purchasing and closing on a home.
• Authorizes the credit for long-time homeowners buying a replacement principal residence.
• Raises the income limitations for homeowners claiming the credit.  

Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.  

For the first time, long-time homeowners who buy a replacement principal residence may also claim a homebuyer credit of up to $6,500 (up to $3,250 for a married individual filing separately). They must have lived  in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased.

People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after Nov. 6, 2009. The credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers. The existing MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchases on or before Nov. 6, 2009.

General Information

Homebuyers who purchased a home in 2008 or 2009 may be able to take advantage of the first-time homebuyer credit. The credit:

• Applies only to homes used as a taxpayer’s principal residence.
• Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
• Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

The credit is claimed using Form 5405, which you file with your original or amended tax return.

For 2008 Home Purchases

The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyers that can be worth up to $7,500. For homes purchased in 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.

For 2009 Home Purchases

The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases made in 2009 before Dec. 1.

For home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer’s main residence within a three-year period following the purchase.

First-time homebuyers who purchase a home in 2009 can claim the credit on either a 2008 tax return, due April 15, 2009, or a 2009 tax return, due April 15, 2010. The credit may not be claimed before the closing date. But, if the closing occurs after April 15, 2009, a taxpayer can still claim it on a 2008 tax return by requesting an extension of time to file or by filing an amended return. News release 2009-27 has more information on these options.

Questions and Answers

More information is available in the question and answer section.

Related Items

• IR-2009-83, First-Time Homebuyer Credit Provides Tax Benefits to 1.4 Million Families to Date
• The American Recovery and Reinvestment Act of 2009: Information Center

Please Contact Us For Assistance:

Kim Nehiley; (C) 404-667-3920;  Kim.Nehiley@BankofAmerica.com   

  
Scott Meldrum; (C) 404-992-8422; Scott.Meldrum@BankofAmerica.com

Keller Williams Realty Voted ‘”Highest Satisfaction For Home Buyers Among National Full Service Real Estate Firms, Two Years in a Row!” By J.D. Power & Associates

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Keller Williams Realty Atlanta Mortgage Update From Bank of America

• 37 days till the $8000 Tax Credit Runs out, buyers better get in within the next 10 days!
• FHA Loan programs with only 3.5% down payment, and record low rates. 
• Conventional financing still available with no PMI for those 2^nd and 3^rd time home buyers with 20% or more to put down. 
• Jumbo rates are also still low.
• FHA Loan programs allow for that 3.5% down to be a gift, from friend or family. 

Kim Nehiley; (C) 404-667-3920;  Kim.Nehiley@BankofAmerica.com     
Scott Meldrum; (C) 404-992-8422; Scott.Meldrum@BankofAmerica.com

Keller Williams Realty Voted ‘”Highest Satisfaction For Home Buyers Among National Full Service Real Estate Firms, Two Years in a Row!” By J.D. Power & Associates

**SEARCH FOR ATLANTA HOMES NOW**