Using the 8k Tax Credit as a Down Payment – There is a Catch!

FHA announced they will allow first time home buyers to use the $8,000 tax credit as a down payment a couple of weeks ago, we all get our hopes up only to find there is a significant catch!  Last week HUD released their guidelines on how they will allow buyers to apply the tax credit.  First time buyers will still be responsible for the 3.5% minimum down payment, however the tax credit can be applied for closing costs, paying down the interest rate, or making a greater down payment.  The real estate industry collectively desired the tax credit would be eligible for the minimum down payment, however with an increasing amount of defaulting FHA loans this scenario presented too much risk.

Click here to play a video of how the tax credit can be applied

There are some other pressures we need to be aware of moving forward with FHA in this volatile housing market.  Due to the increase in defaulting FHA loans, Moody’s has reported they are analyzing the credit rating for FHA and there is a possibility there will be a downgrade based on their recent performance.  If we see a downgrade in their credit rating we can expect to see interest rates rise in a very short period of time.  We are also seeing FHA lending guidelines tightening where most Investors/Banks are now requiring a minimum credit score of 620 and a debt to income ratio of 41%.  These lending guidelines are very specific to each individuals personal scenario, please do not make any assumptions prior to completing a mortgage consultation.  This is something to be aware of if you are looking to purchase a home in next few months.  It is important to be on top of these possible changes in order to be proactive in your decision making so there are no surprises at the time you find the home of your choice.

On a positive note, Waterstone Mortgage recently received our “full eagle” which is a term in the mortgage industry meaning we can now underwrite all of your loans in house.  This means our turn times for underwriting will be 3 to 5 days, a great advantage in comparison to our competitors.  This will additionally help us offer the most competitive interest rates in the market as well as have the ability to control the entire transaction from start to finish.  We will approve, process, underwrite, close, and fund all of our loans within the same location!  Just another way Waterstone Mortgage is doing our part to make the home buying/refinancing process as smooth as possible in this dynamic market.

If you have any questions about the application of the tax credit or the home buying process, please contact me so we can evaluate your independent situation and put together a plan for you to reach your goals!

First Time Buyers Can Use the $8,000 Tax Credit to Purchase a New Home

Yesterday was a great day!  Shaun Donovan, Secretary of Housing and Urban Development, released a statement detailing that FHA will allow first time home buyers to monetize the tax credit and be able to use these funds as a down payment for a new home.  This is unbelievable news and a great cause for excitement.  Now, first time home buyers will not need to wait until the following year in order to receive the $8,000 tax credit.  Instead, these funds can be used at the time of closing in order to cover the FHA 3.5% minimum down payment.  Since this news was just announced yesterday, I am sure it will take a few weeks to a month for the specific guidelines of this new rule to fall in place.  In the meantime I will continue to update this Blog with any future details as they are released.

If you would like a brief overview of the how FHA will allow buyers to monetize the tax credit, please visit the link below to watch a short video.  We have not received any specifics on how the funds will be monetized, but it is my feeling the government will offer short term tax free bonds on the private market to fund these short term bridge loans.  This way the government can generate investment from private capital and help boost the housing market at the same time, two birds with one stone!

Buyers Can Use the Tax Credit as Down Payment Video

Be patient with this process!  We have come a long way with lending regulations and the development of lending programs to help the nation through this financial crisis, but it will take a little time for all the banks and Investors who fund FHA loans to determine exactly what information they will need to review throughout the underwriting process.  Remember, FHA does not buy, service, or originate mortgage loans.  They simply present the outline of acceptable lending guidelines banks and Investors can use when approving and funding an FHA mortgage.

A quick comment on the 2^nd part of the video linked  to this message; I feel for the broker community, I used to own my own brokerage no more than 2 years ago.  Mortgage brokers are being squeezed right now and there are numerous causes for why this is happening.  I chose to rejoin the banking platform as I saw many of these problems coming well before the storm hit.  Waterstone Mortgage (WSBF) is on the cutting edge of how mortgages will be underwritten, approved, funded and sold in today’s volatile industry.  We truly do have all the benefits of a bank and a brokerage due to our stellar reputation within the financial community.  If you would like to learn more about the banker vs. broker relationship please let me know…

Stay tuned, more information is to follow and this new reform in FHA guidelines will be a great way to make the rest of the year an extreme success!

Is 100% Financing Still Available?

Many prospective homeowners are currently looking to take advantage of the three “I’s” in our real estate market.  There is a great deal of Inventory on the market right now, including homes with greatly reduced prices.  We are experiencing historically low Interest Rates where buyers can lock in a 30 Year Fixed mortgage between 4.875% and 5.125%.  Finally, there is a great Incentive for first time buyers with the government $8,000 first time homeowner tax credit.  What is a future homeowner to do if they want to buy right now, but unfortunately do not have the necessary down payment saved up to qualify for a conventional or FHA mortgage?  Are there any 100% financing options available in today’s market?

Yes, 100% financing options do still exist!  I will propose three options for any potential buyer to research in order to see if these loan programs fit the needs currently being desired!

VA Loans (Veteran Affairs) – VA will allow 100% financing for any buyer who is eligible to use their VA benefits.  Another great advantage of a VA loan is they do not require mortgage insurance.  This can help a buyer qualify for a lower monthly payment and still take full advantage of this government program sponsored by FHA.  VA loan scenarios are very buyer specific, so if you would like to discuss these options please contact me so we can design the best loan structure that will work for you.

USDA Loans (United States Department of Agriculture) – USDA offers 100% financing options for homes located within USDA lending boundaries.  This loan program is designed for homes located within agricultural or rural areas.  You would be surprised how many homes are eligible for this loan program.  If you are interested in purchasing around the outskirts of the Denver Metro Area this might be the loan program for you!  USDA does have income restrictions; however they are quite reasonable when compared to other similar federal or state financing programs.  Through the USDA website you can learn more about the specifics of this program and there is even a page where you can input the address of the home you are interested in purchasing to immediately find out if it is USDA eligible.

USDA Loan Program Overview
USDA Property Eligibility Search

$100 Down Payment Program (HUD Sponsored Program) – All right, it’s not quite 100% financing but a $100 down payment is tough to beat.  HUD sponsors a loan program where qualified buyers can purchase a home with as little as one hundred dollars down!  This program is for HUD homes only, and you can even finance some minor fix up or repair costs into the loan if approved through HUD.

Waterstone Mortgage is approved to offer all three of these options to our clients.  We have experienced great success with each of these programs as it is just another avenue we use to help all of our clients obtain their dream of being homeowners.  If you have any questions or want to see if you qualify for these loan programs please feel free to contact me for a free mortgage consultation.

Don’t miss out on today’s extraordinary buyer friendly housing market, take advantage of the three “I’s” and put yourself in a position to purchase a home while these unbelievable opportunities still exist!

FHA Max Loan Limits Increase

Recently FHA decided to increase their maximum loan limits throughout the country in an effort to allow homeowners with high loan balances additional opportunities to refinance their mortgage.  Before this latest increase the max FHA loan limit in the Denver Metro area was $368,000.

The new FHA loan limit throughout the Front Range is now $406,250.  The one exception to this amount is an additional increase in the loan limit in Boulder County, which is now $460,000.  Remember, FHA loan limits are county specific and vary throughout the state.  Below is a link where you can look up specific county loan limits through FHA:

FHA Colorado County Loan Limits

This is another example of how FHA is continuously adapting to the challenges of our market.  Below are a few additional details regarding the new loan limit increase:

·         New loan limits are for FHA loans that receive approval in calendar year 2009

·         Changes apply to the 203b (basic loan), 203h (disaster victims), and 203k (rehab loan)

·         FHA ceiling for high value areas is $729,750

·         National reverse mortgage limit increases from $417,000 to $625,500

Please keep in mind the following distinct advantages of the FHA loan program when evaluating your lending options:

·         Non-traditional credit is acceptable

·         No minimum credit score

·         Low 3.5% minimum down payment

·         Non-occupant, co-borrower is permitted

·         Expanded qualifying rations

·         No pre-payment penalty

·         Loans are fully assumable

These are just a few benefits of an FHA mortgage.  If you would like a complete overview of FHA lending I am teaching a 2 hour C.E. credited course that reviews FHA lending, the state of our current economy, and how all the recent government action will affect the real estate industry.  For information on when and where the class will be held please visit the “classes/webinars” link at the top of the page.

As always, questions and comments are welcome!