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March 2008

 
Tax Benefits of Owning a Home
Before a home owner curses the troubled housing market, he or she should take solace in the U.S. tax code, which makes buying a home a good deal for almost everyone.

Here’s why:

Mortgage interest deductions, including in some cases mortgage insurance premiums, reduce home owners’ tax liability by reducing income. The deduction includes interest paid on both a first and a second home.

Interest on home equity loans is also deductible — whether the borrower uses the money to remodel the kitchen or to take a vacation to Disney World.

Profits from selling a house are potentially a huge windfall. When a home owner sells a primary residence, any profit on the sale of the property is tax free up to $250,000 for single home owners and $500,000 for married home owners filing. Any profit above that is nearly always a long-term capital gain taxed at 15 percent — less if the seller’s tax rate is less than 20 percent.

Home owners can itemize. That opens up opportunities to deduct a host of other items that wouldn’t be deductible if the taxpayer took the standard deduction.
 

January 2008

Many U.S. real estate markets have declined in value since 2005. Homeowners should check to see what their current county or city property tax assessment is (what the county says a home is worth), versus what a home is actually worth, in today's real estate market. In many states such as California, Arizona, Nevada, Florida, and Maryland, homeowners may literally be paying 20% to 40% more in property taxes than they should be paying (based on the current home value). The group strongly encourages all homeowners wishing to reduce their property taxes to learn more about the property tax appeal process

October 2007 ***** (This is still valid advice as of March 2008)

How to buy a home with bad credit

All you need is good income, buyer's agent, financing alternative

By Robert J. Bruss
Inman News

If you want to buy a house or condominium, the current buyer's market means it is a great time to be a buyer. Sellers are eager to sell. Equally important, their real estate agents are anxious because home-sales volume is down in most cities.

Even if you have bad credit, if you have good income you can probably buy a home. Working with a savvy buyer's agent is the best way to (1) find a house or condo you want to own and (2) then finance it, especially if you are "cash challenged."

Purchase Bob Bruss reports online.

MAYBE YOUR CREDIT ISN'T AS BAD AS YOU THINK. Before shopping for a home, it pays to check your credit reports from all three nationwide credit bureaus, Experian, Equifax and Trans Union. You can get one annual free credit report from each company at www.annualcreditreport.com.

However, those free credit reports will not provide your very important FICO (Fair Isaac Corp.) credit scores. Today's mortgage lenders look primarily at your FICO score, rather than your credit reports.

FICO scores are based on (1) the length of your credit history (the longer the better so don't close out your oldest credit cards); (2) the percentage of available total credit currently being used (50 percent or lower is considered good); (3) your on-time payment history; and (4) number of recent credit inquiries (don't apply for credit within six months before buying a home).

Don't be fooled by credit scores other than FICO. Most lenders look only at FICO scores, which range from 350 to 850, to determine eligibility.

If your FICO score is 700 or above, you will get the best mortgage interest rate. Between 620 and 700 you should be able to get a home loan, but at a slightly higher interest rate. Below 620, however, each lender has its own rules.

The best place to obtain both your FICO score and all three credit reports is at www.myfico.com. For about $45 you can instantly receive this vital information for home buyers.

Study your credit reports and follow the directions to correct any errors. For example, a few years ago my FICO score was depressed because one credit bureau said I owed unpaid real estate taxes on a property I had sold. Although it was a hassle to get that error corrected, my FICO immediately shot up after that derogatory item was removed.

Each credit bureau has 30 days to "verify" any incorrect information you challenge. If the creditor doesn't verify a bad report such as a late payment (most don't reply within 30 days), the credit bureau must remove it from your report. Be sure to check all three reports and ask for corrected copies after 30 days.

CONSIDER GETTING PREAPPROVED IN WRITING FOR A MORTGAGE. If you have a FICO score of 620 or higher, the next step is to get preapproved (not just prequalified) in writing by an actual mortgage lender.

Business is slow now so lenders will welcome your inquiry. Most lenders won't charge any upfront fee because they know you are likely to come back when you find the house or condo you want to buy with your preapproved mortgage.

Mortgage brokers, mortgage bankers and direct lenders such as banks and credit unions can arrange your preapproval letter or certificate. Despite what you read in the newspapers and hear on TV and radio, mortgage lenders are still eager to make loans.

Just because a lender preapproves you does not obligate you to borrow from that money source. But the lender's preapproval will show your maximum available mortgage, thus focusing your home search on affordable residences.

Your lender can also help compare mortgage choices, such as VA, FHA, PMI (private mortgage insurance), conventional mortgages and special programs, such as loans for first-time home buyers.

However, don't be surprised if the preapproval includes reasonable conditions such as (1) a satisfactory appraisal of the home and (2) reverification of your income and credit, just to be sure you didn't quit your job and buy a new Rolls Royce.

ALTERNATIVES TO OBTAINING A NEW MORTGAGE. If your FICO credit score is low or you don't have enough cash for a substantial down payment, that's no reason not to buy a home as long as you have sufficient income. But you will probably have to consider alternative home-finance methods.

Whenever possible, buy from a motivated home seller. Signals of high motivation to sell include job transfer to another city, divorce, unemployment, death or birth in the family, retirement and pending foreclosure. Depending on the situation, here are easy purchase methods to consider if you have bad credit:

1. BUY THE HOME "SUBJECT TO" OR ASSUME THE EXISTING MORTGAGE. Even if the home seller is behind on a few mortgage payments, buying a home by taking over payments on the existing mortgage and paying the missing payments is one of the easiest purchase methods.

For example, suppose you are considering purchasing a $250,000 house that has an existing first mortgage of $200,000 with a monthly payment you can afford. If you have $50,000 for a down payment, that's great. But if you don't, offer what you have, such as $15,000, and ask the seller to carry back a $35,000 second mortgage.

Some "subject to" buyers worry the existing mortgage lender might enforce the due-on-sale clause. That is highly unlikely in the current market. If it should happen, however, you can either refinance with another lender or pay a modest assumption fee, typically 1 percent of the mortgage balance, to assume the existing mortgage.

2. LOOK FOR FREE-AND-CLEAR HOMES FOR SALE. At least 40 percent of U.S. homes are free and clear with no mortgage. When these homes come on the market for sale, their elderly sellers often don't need lots of cash. Instead, they are looking for steady retirement income secured by a mortgage on the home they are selling.

Your buyer's agent can check listings in the local MLS (multiple listing service) that show zero or low mortgage balances. These homes are ideal candidates for your purchase offer with a 10 to 20 percent down payment and a seller-financed mortgage for the balance. Most sellers won't bother to check your credit reports and FICO score. But if they do, be sure to emphasize the positives such as your good income.

3. LEASE-OPTION (RENT TO OWN) THE HOME. If the house or condo seller doesn't need lots of cash but does need a renter to cover the mortgage, property tax, insurance and maintenance costs, a lease-option for one or two years is ideal for both buyer and seller. If you have bad credit, the rental period will give you time to clean up your credit.

A major lease-option advantage for buyers is the rent credit toward the purchase price. As an owner, I usually give a 33 percent rent credit. For example, if a house rents for $1,500 per month, a $500-per-month rent credit is fair to both parties. It's like a "forced savings account" for the tenant-buyer.

To find lease-options, look in the "houses for rent" and "houses for sale" newspaper classified ads. When you inspect a house for rent that you would like to buy, ask the owner, "If I lease this house (or condo), will you give me an option to buy it?"

Because many landlords will gladly sell, you can create your lease-option on terms you like. More details are in my new special report, "How to Profit from Lease-Options (Rent to Own) If You are a Property Buyer, Seller or Realty Agent," available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com.

August 17, 2007

Bruce R. Penn
Home Mortgage Consultant
Wells Fargo Home Mortgage
 

What a week we've all had! In case you have been on vacation, or somewhere without TV and newspaper, the basic story that affects you is this:

 
Over the past few years, many lenders eased up their qualifying guidelines for loans, allowing more buyers to get homes.
Some of the loans were short-term adjustable rate loans, and the rates have increased substantially since they got the original loans.
Some lenders made stated-income loans that did not require verifying income or assets, and surprise- some of the borrowers may have exaggerated their income, and can't afford the payments.
Some of the Buyers could not make the larger payments, and the loans went into default.
The global institutional investors that buy the loans experienced a higher than expected default rate, and decided this month to stop buying loans made under those relaxed guidelines. That either eliminated or forced the rates up on many of these "higher risk" loans.
The mortgage companies that made those loans could not transfer or sell them, so they used up their credit lines, and could not fund any more loans. This is what happened with some of the companies that just shut their doors, and said "too bad, we're broke, and can't provide the money we promised", and many Buyers were left with no loan at the last minute.
If a lender has no more money to lend, they go out of business, and there are more than a few big companies that have done just that in the past 2 weeks.
 
The good news?
Per Cara Heiden, Division President of Wells Fargo Home Mortgage, Wells Fargo Mortgage is part of a much larger group of diversified financial service businesses- 84 companies, in fact. We are well-capitalized, and well-funded, and will continue to be a reliable, responsible lender. We believe our business is positioned to succeed because of the strength of our parent organization and the strong performance of out various products.
The Sub-Prime segment of our business is a small percentage of all the financing Wells Fargo does, and that segment is where most of the problems are. Borrowers for Prime-type loans will see almost no change in the guidelines or programs they can use to finance a home. The conforming fixed rates are actually lower today than Thursday, and the reduction today in the Federal Reserve Rate from 6.25% to 5.75% should also help stabilize the markets and rates. We continue to see, and welcome, a steady influx of buyers looking for a sound mortgage lender.
 
In the event your Borrowers get caught without a loan, because the lender closes shop, please contact me immediately! We are always able to close loans within days if need be, and I love being the good cowboy in the white hat. Call me !
 
Just so you know...
100 % Financing? Still here, and I still have many options for cash-less Buyers.
Stated Income Loans- Still here, with some guideline changes.
Interest-Only Loans? Still here, and as useful as ever, for Buyers that need them.

 

August 2007

Borrower's guide to mortgage shopping

Tips for getting best deal on your home loan

By Ilyce R. Glink
Inman News

When it comes to shopping for a mortgage, the most important thing to remember is that the best loan for you may not be the cheapest loan you're offered, or the loan with the cheapest monthly payments.

The loan you choose needs to work for your personal finance situation not only on the day you close, or for the first year, but for the entire time you plan to live in the property and keep that loan.

In the past few years, hundreds of thousands of buyers have flocked to subprime loans like moths to flame. Even those with perfect credit found themselves signing on the dotted lines for loans they thought offered an interest rate of only 1.99 to 3.99 percent, as opposed to the 6 to 7 percent those loans were actually carrying.

Choosing the best loan means you have to take the time to understand both what your needs are, and what kind of loan will meet those needs. Do you want the stability of a fixed-rate loan? A loan that is part fixed, part adjustable? Or are you a risk-taker who might benefit from an adjustable-rate mortgage (ARM)?

Once you decide which loan you want, here are some tips for negotiating for the best deal:

1. Know what you want before you call the lender. The mortgage market is extremely competitive for conventional loans, that is, for loans that are $417,000 or less. To find lenders, you can look at BankRate.com, but you should also ask your real estate agent to recommend several lenders her clients have worked with successfully. Ask your friends who they worked with, and don't forget to check out the biggest national lenders, including Bank of America, Countrywide Financial, Wachovia and Chase, as well as local banks.

2. Consider using a mortgage broker. Brokers often have access to more than a dozen end lenders, and their job is to do the shopping around for you. Just don't be fooled into thinking that the mortgage broker is on your side. Mortgage brokers are paid by the end lender (the practice is called a "service fee premium"), and they receive a higher fee if they sell you a more expensive loan. So, choose a reputable mortgage broker and ask him to disclose in writing what his fee will be from the end lender.

3. Stay on top of interest rates. Interest rates change frequently during the day. If you decide to float your loan, watch the bond market activity closely. If rates seem to be dropping, you'll be able to react quickly and call in your lock. (Be sure to get confirmation in writing that your loan has been locked and at what interest rate.) Many lenders will offer you the opportunity to reduce the interest rate on your loan at least once between the time you apply and the closing date. You may want to look for a loan that offers this feature.

4. Watch the points and fees. The number of points and fees can change as frequently as interest rates, as lenders struggle to stay competitive with each other. You may see zero-point, zero-fee loans being offered, but lenders will often give you a lower interest rate in exchange for paying points and fees upfront. This may sound good, but you're effectively financing those points and fees over the life of the loan. As we went to press, Bank of America was offering loans at competitive interest rates without any points and fees. Other lenders may offer similar programs. It pays to shop around, particularly if you can save $3,000 to $8,000 or more on the purchase of your home.

5. Don't be afraid to ask for what you want. In a buyer's market, lenders are hungry for business. If you ask them to reduce the fees (without raising the interest rate), they may well do it. Ask each lender you're working with to provide you with a detailed listing of the fees and charges for your loan. Then, you can compare lenders on an apples-to-apples basis. Then, go back to each lender and ask for the elimination of specific fees. Basically, you're asking the lender to bid on your business. It's takes moxie, but is perfectly doable.

6. Consult with your real estate attorney before you apply for the mortgage. Although attorneys aren't used in every state to help buyers and sellers close on their homes, I believe they provide a useful service. (Full disclosure: I'm married to a real estate attorney.) If you live in a state where real estate attorneys are used, you'd be smart to consult with yours before you apply for your mortgage. Real estate attorneys who do a lot of house closings will be a tremendous source of information about good home inspectors, title companies, and mortgage lenders. They can give you resources, point you in the right direction, and help guide you to a successful house closing.

March 2007

By Laura Smitherman

sun reporter

Originally published March 23, 2007

Gov. Martin O'Malley signed into law yesterday a ban on new ground rents in Maryland, while the General Assembly worked to pass a package of bills that would phase out existing ground rents and ensure that the system could no longer be used to seize the houses of unwitting homeowners.

In his first bill-signing since taking office in January, O'Malley sat in the governor's reception room, flanked by Senate President Thomas V. Mike Miller and House Speaker Michael E. Busch.

Vernon Onheiser, who almost lost his Canton home over what began as $24 in unpaid ground rent, also attended the event, along with state legislators and Attorney General Douglas F. Gansler.

"It felt good working together for the working people of our state so they won't have to lose their homes because of some unscrupulous efforts to twist around a ground rent and eject the family," O'Malley said, holding up the hands of Miller and Busch.

O'Malley and the legislature sought to reform the ground rent system after an investigative series in The Sun revealed that some ground rent holders had levied large fees and seized hundreds of homes of residents who had fallen behind on payments, in some instances over minimal debts.

The bill - the first in a package of ground rent bills that is expected to reach O'Malley's desk - prohibits new leases that require homeowners to pay rent on the land under their houses to a person, charity or business. Under a system that dates to Colonial times, Maryland has about 115,000 ground rents, most of them in Baltimore and some in a few counties.

The emergency legislation takes effect immediately.

"This has been a big problem in the city, and I think this brings the kind of relief we need," said Sen. Catherine E. Pugh, a Baltimore Democrat.

More controls sought

One floor below the governor's office, the legislature continued to push for more controls on ground rents.

The state Senate passed legislation that mirrored bills approved by the House of Delegates this week, among them measures to create a state ground rent registry; allow ground rent owners to put a lien on a home over back rent instead of seeking ejectment, a process by which residents can lose their houses; and to prevent holders of ground rents from selling the leases without giving homeowners a chance to purchase them.

The House and Senate bills were drafted to contain the same language, a move designed to get them to the governor faster. O'Malley has pledged to sign the other bills.

Gary R. Alexander, a lobbyist for the Ground Rent Owners Coalition, said the group didn't oppose several of the bills, including the prohibition on new ground rents. He said the group had hoped that the legislature would devise a mechanism by which residents pay off ground rents when they refinance a mortgage, or sell their homes. He said 80 percent of ground rents would be extinguished in a decade using that approach.

"All our people ever wanted was to get paid for their ground rents," he said.

Some ground rent owners contend that some of the legislation amounts to an unconstitutional taking of property rights. Alexander said they are reviewing the bills and might consider a lawsuit.

"We're waiting to see the exact finished product," he said.

The ground rent system enabled developers in the early 1900s to make rowhouses more affordable for working people. In the past six years, ground rent owners have filed nearly 4,000 lawsuits, and in more than 500 such cases, city Circuit Court judges awarded possession of houses to ground rent holders.

Many homeowners and legislators allege that some ground lease holders aimed to abuse the system and take homes that had risen in value through gentrification.

99-year leases

Gansler said that in addition to the prohibition on new ground rents, other legislation would provide several ways to diminish the number of leases, which run for 99 years and are renewable forever unless bought out by the homeowner.     

For instance, if a ground rent holder doesn't register the lease with the state in three years, it is no longer valid.

"Obviously, this is an important step so that we don't create a bigger problem," Gansler said, referring to the ban on new ground rents. "This stops the bleeding."

The Senate also approved legislation yesterday that would convert 19th-century ground rents to allow homeowners to buy them out and limit the amount of back rent an owner can collect for a property owned by the city of Baltimore. Another measure would require that ground rent holders issue regular bills to homeowners.

The Senate is considering legislation that would extend low-interest loans to people who want to buy out the ground rents on their principal residences. That bill, which the House has passed, got a hearing in a Senate committee yesterday.

Del. Brian K. McHale, a Baltimore Democrat whose district includes Onheiser's neighborhood, said ground rents are concentrated in low-income areas where residents are likely to need financial help to buy out the leases. The cost of buying out a ground could range from $1,700 to $3,300, legislative analysts say.

"These are people who are the least able to redeem ground rent under their homes and who were taken advantage of," McHale said.

Ground rent reform

The House of Delegates and state Senate have each passed most bills in a package to reform Maryland's ground rent system. They include:

• A prohibition on new ground rents. Passed by the General Assembly and signed yesterday by Gov. Martin O'Malley.

• A ban on the use of ejectment, a process by which ground rent owners can take ownership of houses in cases where homeowners owe back ground rent. Passed by the General Assembly.

• Conversion of 19th-century ground rents to allow homeowners to buy them out. Passed by the General Assembly.

• A requirement that ground rent holders issue regular bills to homeowners. Passed by the General Assembly.

• The creation of a state ground rent registry. Passed by the General Assembly.

• Financial help for homeowners seeking to buy out ground rents. Passed by the House, under consideration by a Senate committee.

• A requirement that home purchasers be notified of the existence of a ground rent at the time of sale. Passed by the House; no companion bill in the Senate.

• Limits on the amount of back rent an owner can collect for a property owned by the city of Baltimore. Passed by the General Assembly.

February 2007

WASHINGTON, February 01, 2007 - 

Pending home sales are higher, affirming the stabilization that is occurring in home sales, according to the National Association of Realtors®.

The Pending Home Sales Index,* based on contracts signed in December, rose 4.9  percent to an index of 112.4 from an upwardly revised level of 107.2 in November, but is 4.4 percent lower than December 2005.

The monthly gain was the biggest increase since March 2004 when the index rose 6.9 percent.  A steady narrowing from year-ago readings has been observed since last July when the level of unsold housing inventory peaked at an all-time high.

David Lereah, NAR’s chief economist, said a moderate rise in existing-home contracts is a welcome relief for the real estate markets.  “Some of the monthly gain may be weather related, but it appears buyers are becoming more comfortable, sensing the timing is good and that their local market has bottomed out,” he said.  “I expect modest sales gains throughout the year, with what I believe are sustainable levels of activity.  2007 promises to be the fourth best year on record.”

The index is a leading indicator for the housing sector, based on pending sales of existing homes.  A sale is listed as pending when the contract has been signed and the transaction has not closed, but the sale usually is finalized within one or two months of signing.

An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined and the first of five consecutive record years for existing-home sales.  There is a closer relationship between annual changes in the index and actual market performance than with month-to-month comparisons. 

The upturn was broad based, with all regions showing an increase.  The PHSI in the Northeast jumped 8.1 percent in December to 89.9 but was 4.8 percent below a year ago.  The index in the West rose 5.3 percent to 112.2 but was 4.9 percent below December 2005.  The index in the South increased 4.3 percent to 129.8 but was 4.2 percent lower than a year earlier.  In the Midwest, the index was up 3.2 percent in December to 103.2 but was 4.3 percent below December 2005.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.

 

January 2007

"DISAPPOINTMENT PROVES...THAT EXPECTATIONS WERE MISTAKEN." Mason Cooley And sure enough, the disappointing performance of Bond prices and home loan rates last week was largely the result of some unexpected news and data, which left home loan rates about .125% higher across the board.

Remember that "good" economic news tends to be "bad" for Bond prices and home loan rates for two reasons. First, because Stocks and Bonds compete for the same investor dollar - and good economic news would cause many investors to pull money out of Bonds and place it into Stocks, which generally benefit from a healthy economy. Second, good news for the US economy can also mean inflation, which is the arch-enemy of Bond prices and home loan rates, since inflation erodes the true value of a fixed return such as a Bond provides.

So back to the news - unexpectedly positive news for the housing sector arrived in the form of the Mortgage Applications Index, showing the largest percentage increases in home loan applications for purchasing and refinancing since the middle of 2005. Why was this bad news for Bonds and home loan rates? Because Bonds react poorly to potentially inflationary news, and the increase in home loan applications point to a healthier housing sector and economy - which could lead to inflation. But the real good news is that this also indicates that home loan rates are favorable, and most markets are stabilizing in terms of home values. In fact, many experts feel that August of 2006 was the bottom for the housing market. So if you have been thinking about investigating a purchase. or refinance, now may be the time - give me a call or email and let me know how I can help.

More hot economic news - Retail Sales in general were on fire, and when factoring out vehicle purchases, it was the best number in over a year. Again, more good economic news, but not good for Bond prices or home loan rates.

As if that weren't enough, another unexpected event arrived when the Bank of England (like our Federal Reserve Bank) surprised international financial markets by raising its benchmark interest rate (like our Fed Funds Rate) by .25%, sparking a sharp drop in their markets as investors became rattled. The sharp sell-off in Great Britain quickly spilled over to the US, as their rates are on par with ours, and will now become more competitive investments as compared to our own US Bonds.

HERE'S SOME MORE GOOD NEWS - IT'S TAX TIME! OH...YOU MEAN YOU DON'T ENJOY GATHERING ALL YOUR FINANCIAL AND TAX DOCUMENTS? OK, MOST PEOPLE DON'T - BUT THE TIPS FOUND IN THIS WEEK'S MORTGAGE MARKET VIEW WILL HELP YOU GET THROUGH THE PROCESS QUICKLY AND EFFICIENTLY, AND GET TO THE REAL GOOD NEWS - A COMPLETED 2006 TAX RETURN.

By Rick Trott, Corridor Mortgage Group