First Stop 4 Home Loans

Do you know the answer to this?  Have you thought about the responsibility that comes with homeownership?  It is nothing like renting.  You can’t just call the supe to come over and fix the clogged sink or make a call when your neighbors are too loud.  It’s a really big deal this thing called homeownership. 

In a recent survey, the main reason first time buyers bought was an affordable market.  The two reasons that followed were the tax credit and the low interest rates.  Now, today is the last day you can take advantage of the tax credit.   As you have heard over and over, you need a signed and accepted purchase agreement  by today AND must close on your new home by June 30th. 

Honestly, how did you answer the question above “Why are You Buying a Home”?  Was it because you could get an $8000 tax credit?  As much as I hate to say this, if your answer to this was yes, you’re not alone.  I have talked to so many people in the last 12 months that decided to buy because of the money the government was giving away.  My advice to them — great incentive to get out and start looking, but only purchase if you’re ready AND completely understand what you’re getting into.  I just tweeted that it’s better to have “lost” $8000 vs. $80,000 or more due to a bad judgment on buying a home just to get the credit. 

Here’s the thing.  Yes, the money will be gone and that’s a bummer.  I can’t help you there.  BUT, what I can do is offer up the other two reasons people bought this year — affordability and low rates.  Seriously, this couldn’t be a better time to buy.  As we discuss weekly on our radio show, MN Real Estate Show on KTLK 100.3, this market is going to be here a little while — at least another 2-3 years.  Home prices are not going to rebound fast because we have more foreclosures to get through.  With that said, homes under $250,000 are still being gobbled up fast if they’re decent homes.  Regardless of that, you have the lowest prices to purchase at in record years.

And what about low rates?  I don’t have a crystal ball — wait, I DO have a bouncy crystal ball, but it doesn’t help me predict the future.  I wish it did and I wish I had that ability.  What I do know is that there are PLENTY of first time buyer programs out there with down payment assistance and lower-than-market interest rates.  I have access to them all, PLUS, we do a few other things that most lenders don’t.  For instance, in one of my blogs I talk about the 203K loan with FHA.  I noted in the paragraph above that homes are gobbled up if they’re decent.  What about the less-than-perfect homes?  As a first time buyer, it’s tough to afford a home and then on top of it have money to do work.  This is your BEST opportunity to make the house “yours”.

These are all great reasons to buy a home.  And there are more, such as no longer paying another person’s mortgage by renting.  May as well put your money into something that will appreciate — though that will take a little time, it’s still a better investment.  There is something to be said about having your own place.  Downside is you will have more expenses, maintenance, including furnishing and decorating.  These are all things to consider.  But, it’s yours.  Not someone elses.  You can do whatever you want to the house.  You don’t have to answer to anyone.  It’s the pride of ownership and that alone is one of the best reasons to buy in my opinion!

Then there’s the “tax credit” you get.  No, not speaking of the one that expires today.  That would be silly.  I am talking about the tax benefit of owning a home.  Most of you probably don’t get to write off any expenses, like the donations you give of stuff or money.  Wouldn’t it be nice to get a benefit from that?  As a homeowner, each year you can itemize all of the interest you pay on the loan and all the property taxes you paid that year.  Did you know, you can also itemize the state income tax that you pay?  Nice benefit there.  I don’t want to mislead you.  Not everyone will get this tax benefit, or I should say, be able to utilize it.  If the loan size is smaller, along with lower rates, you may not have enough itemized deductions to EXCEED the standard tax deduction listed on page 2 of the 1040′s.  And that’s okay.  Sometimes not paying a lot for a home loan is a really good thing!  There’s more to this and I am happy to explain further your benefits based on your situation.

So, the question still stands — “Why are You Buying a Home?”  I’ve given you plenty of reasons that still make sense even though the tax credit is expiring.  My hope is you have other reasons for owning.  But as I said earlier, it’s NOT something to enter into lightly.  As a matter of fact, the best advice I can give you, short of coming to one of my seminars , is to go to a Homestretch Course.  This will not only teach you most of what you need to know when buying, but also what it takes to maintain your home after it’s yours.  Also, this will meet the pre-requisite to be eligible for most of the first time buyer programs.  Look at that — kill 2 birds with one stone — learn about homeownership AND qualify for down payment assistance.  And who doesn’t want interest-free money and lower rates?  Sign me up

Last weekend on the radio show we co-host with the MN Real Estate Team and WE Teams of Re/Max, I hosted a fun and informative segment.  Our regular hosts, Ryan O’Neill and Scott Wollmering, were in Florida winning awards from Re/Max.  It was my normal week to be on the air, but I got a bonus … running the show.  Kelly and I presented a busy segment.  Luckily, we had you, the public, call in and make our show way more interesting than we ever could have on our own.

Needless to say, we still needed a topic so we weren’t just babbling away for an hour live on air!  I invited a couple of awesome Realtor partners to join in our fun to help educate our audience.  My partner in crime with the first time buyer seminars, Steve Howe, was there to enlighten the audience on first time buyer topics.  We also had Zach Skattum “in the house” talking about the ever-so-popular REO sales — real estate owed, aka foreclosures. 

On Saturday, our topic was ”B’ Bye or Buy Buy”.  It was all about what was going away, or going Ba Bye in the near future making it so you should Buy Buy.  The tax credit is going away the end of April.  As a first time buyer or repeat buyer, you need to have a signed and accepted purchase agreement.  Here’s a cool thing.  If you’re brave and make an offer on a short sale, you only need to have the seller sign off on the offer.  You do not need the bank to sign off in order to meet the April deadline.  The main caveat is that short sales still take awhile, so there is no guarantee that you will get your sale closed by the second part of the credit requirement — closing by the end of June.

Another thing that is going “B’ Bye” — low interest rates.  Back in January of 2009, the Federal Reserve began a plan to purchase $1.25 trillion dollars of mortgage backed securities (MBS) in an effort to keep the housing market afloat.   Trillion?  How much is trillion?  That is such an incomprehendable number to me.  Anyway, MBS’s are bonds backed by mortgages.  Who knew?  If the bonds sell low, then rates go up.  Invertly, if bonds sell high, rates go down.  So, with the Federal Reserve buying bonds, they’re selling high, keeping the rates artificially low.  During the first week in March, the Fed had already purchased $1.2 Trillion.  At the end of March, they are supposed to be tapered down to zero — no more buying of MBS’s.  With that said, rates are anticipated to rise — to what level, we don’t know.  The guess is somewhere between .5%-1%.  And no one really knows when that will happen.  Will it be immediate or lag a little?  A lot of uncertainty. 

So, with these to LARGE ticket items waving B’ Bye, it’s definitely time to ” Buy Buy” a home.  You don’t want to miss out on free money from the government for the tax credit and for sure you’ll want to take advantage of the low interest rates.  Remember, these are at an all-time 40 year low.  It’s just not going to get better than this.  Now, partner these up with some incredible first time buyer programs and low home prices … and you’ve got the recipe to “Buy Buy”.  Don’t miss out!

What is the Take Credit program?  It’s a great opportunity to save money yearly on your taxes.  And what a better time to think about taxes when we are so entrenched in them right now!! 

Take Credit is a Mortgage Credit Certificate program, not a loan – it gives you a credit EACH year in the amount equal to 20% of the mortgage interest you claim yearly to use toward your tax LIABILITY.  Okay, so that’s weird … who wants a tax liability?  Wouldn’t it be better to get money back?  Great questions!  You actually WANT to owe money at the end of the year.  To make this so, you would increase your W4 exemptions for federal withholdings.  This way, you’ll get more money back in your paychecks, pay less in for taxes to the government and then, will have a liability that you can use this credit against.

First time buyers can take advantage of this program in the city boundaries of Minneapolis and St. Paul.  You must be a first time buyer, which means you could not have owned a primary residence in the last three years.  We prove this fact by getting the last three years of your tax returns.  Here are some numbers to know for limits:

$83,900 – maximum household income for 1-2 people

$92,290 – maximum household income for 3+

$276,870 maximum sale price limit

There is no “special” rate for this program because again, it’s not a loan.  You will use this with an investor that allows for the MCC.  So I suppose you want a visual?    I can do that, but first, one thing to know if you don’t … 100% of  your interest on your mortgage as a homeowner is tax deductible.  With this program, that is reduced by the 20% credit, so now you can only write off 80% of that interest.  For example (finally, huh?):

$175,000 Loan Amount

5.5% Example Rate on a 30-Year Fixed

$994  Monthly Principal and Interest Payment

$9566 Total Interest Paid in Year One

$1913 — 20% of the Total Interest Paid, Mortgage Credit

That’s a pretty big number to be able to have as a liability.  Think about it.  If you were normally getting $2000 BACK, then you have $3900 to work on getting throughout the year by changing your W4s.  How do you even start determining what that W4 change should be?  You can certainly see your HR person or accountant.  Or, you can visit a great IRS website to run some scenarios.  Doesn’t it seem like you’re taking money from the government??  Let’s not go that far, but hey, I am sure they owe you something!!

A few things to note.  The MCC program cannot be used with a Mortgage Revenue Bond program, i.e. first time buyer program that uses interest-free bonds to give you a lower-than-market rate.  This program DOES have a recapture tax, which I will address in Tips & Tidbits post soon.  You can do a FHA, VA or Conventional financing and the loan must be a fixed rate.  With rates as low as they are on 30-year mortgages, it would be silly to do an Adjustable Rate Mortgage anyway.  Something you may be wondering … is it a “use it or lose it” kind of program?  Sort of.  You can carry over any unused portion for up to three years.  So let’s say in the example above you owe $1000 to the government.  Due to your credit, you owe NOTHING, but you still have $913 to use for next year’s taxes, which means you need to get on adjusting your withholdings up ASAP.  Let’s say your liability is actually $2000.  Then, you still owe the IRS money, but in that example, it’s only a mere $87.  Pretty sweet deal, huh?

One of the best parts??  If getting money toward your liability wasn’t enough, right?  If you do FHA financing, which so many people are doing these days, we can use that 20% as assistance to help you QUALIFY for more!  Yes, you heard me right.  So, using that same example of your $1913 credit.  If you divide that by 12 months, your credit PER MONTH for qualifying purposes is $159.  In real dollars, that means if you kept the same house payment, you could INCREASE your purchase power by about $20,000, depending on property taxes and homeowner’s insurance.

So why don’t people do this program or why haven’t you heard of it?  First, most lenders don’t do the MCC program and why, I don’t know.  There is a cost to you of $575.  You can see though, that one-time fee is WAY worth the financial benefits you will see yearly.  So, if you need help qualifying for more house in the cities of St. Paul and Minneapolis … I can help and would love to!

Okay, so this isn’t new news.  This is the third go-round with the first time buyer tax credit.  The subsequent tax credits have been ”bigger and better” with new additions, making the most recent credit the “best”.  Remember last year — the tax credit that would expire at the end of November?  Wow were people hustling to get their home loans closed by that date. There was a call to action, an actual deadline.  Buy your first home now or lose money!  Let’s get real — you can’t lose money you don’t have, so that wasn’t a great way to get people off the fence and buy.  It was funny how first time buyers were coming out of the woodwork last fall to “cash-in”.  Many of those buyers are still waiting for their “check in the mail”.   It will come and that’s the good news.

But here’s the better news.  The government is willing, yet again, to pay you to buy your first home.  Oh, and if you’re not a first time buyer, no problem.  You get to reap the benefits too if you meet a few qualifications – you must have lived in your home for at least 5 consecutive years out of the last 8 years.  For the non-first time home buyer, you can get up to a $6500 tax credit!  For the first time buyer, you could pocket up to 10% of the sale price with a maximum amount of $8000.  Seriously, I wish I was in the market to buy a home.  There are income restrictions, which most people will fall under, so it’s a mute point.  There has been some talk out there that you can use this tax credit as down payment for your home.  Hmmmm, wouldn’t that be nice … getting money for buying a home prior to actually buying it.  Essentially, this was ixnayed by most, if not all, non-profits because it was too risky to be fronting that kind of money.  Makes sense to me.

The current tax credit is the last tax credit, so they say.  When it’s done, it’s done.  No more Mr. Nice Government.  So what do you have to do to qualify?  Buy a house.  Yep, for the most part, it’s that simple.  Get an offer accepted on your first home, or subsequent home, by April 30th, 2010 and close by June 30th.  My guess is you would have already filed your taxes by the time you close.  Well, I hope so since taxes are due April 15th.  No worries.  You can complete a few forms, the 1040x amendment to your personal taxes and the 5405 which is the specific form for the home buyer tax credit.  This way, you won’t have to wait to file your 2011 tax returns.  Oh, the stuff you can buy to fix up your first home!  Not that you have to use it this way, but the government’s philosophy behind all this is that you will go out and “stimulate” the economy by buying goods and services.  It would sure help me if you did, but there is nothing wrong with using that money to pay off some debt or set aside savings — all are good uses of FREE money!!

But wait; there’s more — can you hear the infomercial music?  If you are a first time buyer, you can use a down payment assistance program and STILL get this credit.  There is plenty of money out there just waiting for you to use.  Best part about this money … it’s totally forgiven if you live in your home for three years as your primary residence.   That’s another blog on it’s own.

So, assuming the government keeps their word and doesn’t extend this tax credit, you do need to act NOW.  I mean, come on, houses at all time lows, rates at all time historic lows and money to help you fund your down payment.  Wowsers, can you say “incentive”?  I think I have beaten this topic a bit too much.  My advice is to ONLY buy if the time is right for you.  Sure, the call to action couldn’t be stronger.  But, if you’re not financial willing or able or have commitment issues, then wait.  There is no reason buying your first home or buying another home if your conscience is saying “don’t”.  I would hate that the pressure to “act now” pressures you to buy.

Feel free to give me a call or email if you want more information on this.  And please, only “act” on this if you won’t regret it later.

Did you know the government extended the first time buyer tax credit?  How about the fact that not all lenders offer down payment assistance programs or first time buyer programs?  It’s pretty amazing to know you’re essentially getting paid to buy a home.  Crazy, isn’t it?  There are many people out there, maybe you included, that have a desire to own a home, but sit on the sidelines due to uncertainty, lack of knowledge of the process or being gun-shy due to stories about another person’s bad home buying experience.  It doesn’t have to be this way!  Buying your first home should be educational, pain-free and believe it or not, FUN!  It’s sad how many people go through this experience without knowing the facts, being given options on first time buyer programs or being led through the process, not slammed into the system of homeownership. 

How would you like to get a grip on your first home-buying experience?  We’d love to help you navigate through this process — educate you, with NO obligation, on the steps you will take to become a homeowner — from the first step of pre-approval to the last step of closing on your home and getting the keys!  Oh, and did I mention it’s FREE*?

We have TWO seminars coming up in February.  These are the same seminars, so feel free to pick the one that fits with your work or home location. 

The South metro seminar is on Thursday the 18th from 6:30-8pm at the Cornerstone Mortgage office located at 436 Gateway Blvd. in Burnsville.  I will be presenting these steps with Realtor, Steve Howe, of the Minnesota Real Estate Team.  The two of us will help you take that first step to home ownership. 

If the North metro is a better fit, then join us Thursday the 25th from 6:30-8pm at the Shoreview Community Center — 4580 Victoria St N #203.  Again, Steve and I will be presenting.  This time we’ll be joined by Realtor, Tony D’Agostino, also with the Minnesota Real Estate Team.  Trust me — you will go away knowing so much more about the process AND will feel more comfortable now that you’re armed with information – info that many lenders just don’t share!!  Both will be a fun and educational evening. 

Please register by calling 952-808-0042 as space is limited.  Hope to see you there!

*ALL of our team’s seminars are FREE of charge. Cornerstone Mortgage is proud to be a drop-off site for the CAP agency, which is a non-profit organization that collects food items and gently used clothing for Scott, Carver and Dakota Counties. If you can, please donate a canned food item, baby food or clean clothing so we can continue to support the families in need!