LoanCentral's Real Estate Lending Blog

First-Time Buyers have 199 days left to CLOSE on their new home to take advantage of the First Time Homebuyer Tax Credit. Qualified buyers include those that have not owned a primary residence in the last 3 years.

These homes need to CLOSE BEFORE DECEMBER 1st.

Remind your friends - this is a tax credit not a tax deduction. It’s time to remind first-time home buyers that in order to qualify for the government’s $8,000 gift in the form of a tax credit, the deal must close by Dec. 1.

Buyers should have a purchase contract signed soon so they have 45 to 60 days to arrange financing and safely close the deal - especially with the new HERA and TILA changes effective July 30th.

The Treasury Department has announced guidelines for a national loan modification program intended to help 3 to 4 million homeowners stay in their homes. $ 75 BILLION of our taxpayer dollars are budgeted for this in the form of a federal subsidy.

It is a voluntary program which contains financial incentives for loan servicers and lenders. Prior to this, lenders had no incentive to spend resources on a borrower's request for a loan modification. In fact - there was a DIS-Incentive because they were not paid to do the modifications - but WERE paid to do loan foreclosures.

Under the new federal program, lenders will receive a $1,000 fee for doing loan modifications - and bonuses of up to $1,000 per hear for 3 years on modifications that actually work.

QUALIFICATIONS -To QUALIFY for a loan modification, the borrower must have a loan on their PRIMARY residence which was taken out PRIOR TO January 1st, 2009. The loan must be no greater than $729,750 AND they must have suffered a hardship which has caused their housing payments to exceed 31% of the household's gross monthly income. TTotal monthly debts should not exceed 55% of the gross household income. The borrower must also demonstrate that they can actually still afford the new modified loan.

Loan modifications may include short-term reductions in interest rates to as low as 2% to drive down housing payments to the 31% - 38% range. Other tools to bring down payments will be longer amortizations and forbearance or forgivenessof a portion of their principal loan amount.

IMPORTANT if you live in WASHINGTON STATE - there are a number of individuals that are claiming to be loan modification specialists in Washington. Loan Modifications are still in their infancy and as with short sales - borrowers are frustrated by difficulties getting through to lender representatives to help them through their struggles.

In Washington State - you must be LICENSED by the DFI (Department of Financial Institutions) or be a licensed attorney to represent a borrower in loan modifications. Others who are advertising these services for a fee may be violating the statute governing distressed properties and/or be actually charged with practicing law without a license. Be sure you have a qualified individual who is licensed if you need help with a loan modification.

It’s Rates…. And Affordability that are important to buyers

Real Estate is the same as any other commodity – it has cycles. It is also subject to the “Laws” of supply and demand.

When supply drops – the demand increases and prices go up.

When the supply increases – the demand can falter and prices drop to stimulate more demand.

Recently interest rates have decreased to 40 year lows (See Interest Rate History Charts).

Rates have a direct impact on a prospective buyers’ ability to afford the home.

When they see rates at 8% on a $250,000 home. with 20% down their payment would be $1,746 per month ($ 1,467 P&I, $229 Taxes & $50 Homeowner insurance)

This borrower would need approx $74,850 per year to qualify for the home.

When rates get to their current levels for 30 year fixed at 5% - purchasing the SAME home, at the Same price, with the Same down payment would reflect a payment of $ 1,352.

($1,073 P&I, $229 Taxes and $50 Homeowners insurance) at a savings of $393 per month!

The same borrower in this scenario would need $ 58,000 per year to qualify – or $16,850 LESS income per year to buy the same home.

But WAIT… To further the example – what if the home they were looking at a while back was $250,000 – but today the price has dropped 20% to $200,000.

The 20% downpayment would be $10,000 less and the payment at 5% now would be $ 859 ($ 608 less than when they originally started looking at the home!) and their income required to qualify would be $ 28,051 LESS per year needing $ 46,810 per year rather than the original $74,851.

That’s a clear improvement in AFFORDABILITY!

Example 1 – Interest Rate Drops

Buyer looking at a house for $250,000 a while ago as rates began to drop

Sale Price	Down payment	Rate	P&I Payment	PITI	Income Required*
$ 250,000	20% = $50,000	8%	$ 1,467	$ 1,746	$ 74,851
$ 250,000	20% = $50,000	5%	$ 1,073	$ 1,352	$ 58,000
Difference				$ 394	$ 16,851

Example 2 – Prices drop and interest rates improved

Buyer started looking at a $250,000 home – which has dropped 20% in value… and rates are down

Taxes based on 1.1% of Sales price

    250K Sale price is $229/mth       200k sale price is $183/mth

    Insurance at $50 per month -     No PMI – 20% down

Lower housing prices and interest rates add up to AFFORDABILITY and affordability motivates buyers to buy. It also opens up a brand new group of buyers who did NOT qualify just a few months ago!

In addition – qualified first time homebuyers gain an additional $ 8,000 incentive from the government in the form of a Tax Credit if they close on their home before December 1^st 2009. (Tax credits are a dollar for dollar reduction in your income tax liability to Uncle Sam. If you owe $ 5,000 of taxes prior to the credit, then you could actually receive a $ 3,000 REFUND)

Bottomline- Great Rates at historical lows, plenty of housing inventory to choose from that is priced at a discount and quite a bit more AFFORDABLE than last year!