Friday, June 26, 2009

Today's News -Home Buyer Tax Credit Could Expand

Home Buyer Tax Credit Could Expand
A first-time home buyer tax credit of up to $8,000 has helped to move housing inventory during an otherwise sluggish real estate cycle. Now both legislators and the business community are hoping to build on the incentive's success by expanding it.

A number of bills have been introduced in the House and the Senate that lobby for an expansion of the measure. Among the proposed changes:
  • Setting a new cap of $15,000.
  • Extending the tax break into mid-2010.
  • Making the benefit available to all home buyers, not just first-timers.
  • Offering a separate tax credit to $3,000 for borrowers who refinance.

USA Today, Stephanie Armour (06/22/09)

Monday, June 22, 2009

Be Patient, Make a Profit

We've all watched the late night infomercials and the reality shows about flipping property to make a quick buck. Some of us have even attended seminars and read the books on getting rich by flipping houses.
For ages, investment property has been looked at as the ticket to long-term growth and financial independence. But does investing in income property still make sense in today's market?
I would say yep, absolutely. Income property can be looked at like a bond that pays you interest. As long as the property is pulling in enough rents to cover mortgage, taxes, insurance, repairs and other operating expenses, and bringing a decent return on investment, you are good to go no matter how much the property fluctuates. As long as your goal is to hold the property for the long term, you won't get caught up in the risky business of flipping, hoping you'll make a profit, such as those speculators who got burned when the market went from hot to extra frosty in a matter of months.
Ask yourself this question...are you investing in real estate to create long-term wealth or make a short-term profit? You can not and should not treat real estate like a game you play with the stock-market.
The key to successfully making money in real estate is to do a thorough analysis of the property expenses and cash flow to make sure you are purchasing at the right price. You must also consider how much up-front cash (down-payment, closing cost, repairs) you can afford to put in to the property. Location is also paramount, as well as the property type. First-time investors tend to make the mistake of purchasing a single family residence or condo, in the hopes they can rent it out and make a profit, while building long-term equity. The price of residential properties rely heavily on "comps" (the selling price of similar homes in the area) and not on cash flow. Because of this, you will more than likely end up paying much more for a house and if the local market takes a dive, the value of your property will more-than-likely plunge as well.
That's why the fastest and easiest way to make a profit in income property is not to purchase a home, fix and flip it, but to find a multi-unit complex or apartment building who's seller has owned the property for many years and is charging below-market rents. As the new landlord you can come in, raise the rents, find new tenants and increase the value of the property by boosting its income stream. Now there is a risk in this. You must be able to cover any vacancies until you get them occupied. Another option is to leave the current tenants in place, but sign them to shorter lease terms. One year, versus long-term leases of five to ten years. This way you can eventually replace them with tenants willing to pay more, ensuring a higher stream of cash flow.
Apartment buildings, off-campus housing (near community colleges and major universities), and multi-unit complexes, are all opportunities smart investors should be taking advantage of, especially in the depressed California market place, where you are able to find distressed owners willing to give up the property for much less. There are opportunities and possibilities in every market. Do you homework and you'll find your reward!

Friday, June 12, 2009

Update on the $8000 Homebuyers Tax-Credit-How to Use the Loan for Your Downpayment

How to Use the Tax Credit for Downpayments

Potential first-time buyers have yet another reason to consider purchasing a home: the monetization of the tax credit. Here are four ways your clients can get access to those funds for upfront costs.

Short-term bridge loans are now available from a variety of lenders so that buyers can tap the benefits of the $8,000 Federal Housing Tax Credit for First-Time Home Buyers upfront. If your clients are eligible for the tax credit, these bridge loans will enable them to use the money for their down payment and closing costs with the credit as collateral. Consumers will have to pay the money back after they’ve filed their tax return and received a refund.


There are essentially four sources for this type of financing, and their terms can vary considerably.


1. State HFA Bridge Loans

As of early June 2009, 10 state Housing Finance Agencies offered tax-credit bridge loans, and more were planning to do so. The easiest way to learn whether one is offered in your state is to get your HFA’s phone number through aHousing Finance Agency list maintained by the National Council of State Housing Agencies (NCSHA). NCSHA also maintains a list of HFAs that already offer the bridge loans. The HFAs with loan programs already in place are Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, and Tennessee.


If your state HFA offers the loans, you should be able to get more information about them on the agency’s Web site. Look for “tax credit advance loan” or some variant of that, or else look for information on the HFA’s regular mortgage program, which should include info on the tax-credit advance loan somewhere. Although each state HFA loan differs, here are some typical characteristics:



  • You’ll need to make a minimum downpayment from your own funds, probably around $1,000.
  • You’ll have to go through local lenders approved by the HFA to actually originate the loan, since HFAs are not originators.
  • In some cases, the loans are interest-free; check with the state HFA to find out.
  • The HFAs have set aside a limited amount of funds for the loans, so they tend to be made on a first-come, first-served basis.
  • You’ll be expected to use HFA-backed financing for the mortgage on your home purchase. This financing typically comes with a below-market interest rate and usually requires borrowers to meet eligibility criteria. These criteria will vary greatly, but they often require borrowers to be first-timer buyers and meet income-eligibility requirements. For the bridge loans, there’s a good chance the criteria will be similar to what’s required for the tax credit.


Since the bridge loans are made in tandem with your HFA’s financing products, you apply for the loans when you apply with the HFA-approved lender for your mortgage financing. You should be able to find a list of approved lenders on the HFA’s Web site.


2. Local Government or Nonprofit Loans

If your state HFA doesn’t offer the loans, you can ask an HFA staff person to direct you to local nonprofits or state or local government agencies that do. If that person can’t help you, a good place to start a search is with a national nonprofit group called NeighborWorks, which maintains a list of more than 200 local affiliates that provide housing assistance. The loan programs for each of these affiliates differ, so you or your client will need to check with them on their underwriting standards and loan terms—and even on whether they make bridge loans repayable with the tax credit.


3. Local HFAs

Another source, if your state HFA can’t help you, might be the National Association of Local Housing Finance Agencies. Local HFAs are much like state HFAs but with jurisdictions limited to their locality. To learn whether there’s a local HFA in your area, call NALHFA at 202/367-1197.


4. FHA-approved Lenders

If you’re unable to identify a state or local HFA or other governmental agency or nonprofit to assist you, you can tap bridge-loan assistance if you work with a lender approved by the U.S. Department of Housing and Urban Development to originate FHA-backed loans. HUD maintains a database of FHA lenders on its Web site that’s searchable by a number of criteria including city, state, county, and service area.


In a difference with the assistance provided by state and local agencies or nonprofits, the bridge loans provided by private, for-profit FHA-approved lenders must be structured in the form of a personal loan or line of credit collateralized by the tax credit. The bridge loan can’t be structured as a second mortgage.


Also, although FHA allows you to use the bridge loan to cover your closing costs or to buy down your interest rate, you can use it for the down payment only after you’ve covered the 3.5 percent minimum that’s required on any FHA loan. Thus, you’ll have to come up with the 3.5 percent minimum down payment yourself or else tap another source of assistance for it. That can include gifts from family. Seller-funded down-payment programs are not permitted. HUD provides complete details in a May 29 Mortgagee Letter on “Using First-Time Homebuyer Tax Credits” (2009-15) that went to its approved lenders.


Since it’s the HUD-approved lender and not FHA itself that’s making the bridge loan, actual loan terms will vary. At a minimum, though, the bridge loan must meet certain restrictions, most of them imposed to weed out fraud or ensure borrowers aren’t getting in over their heads. These include:



  • Loans can’t result in cash back to the borrower.
  • The amount can’t exceed what’s needed for the downpayment, closing costs, and prepaid expenses.
  • If there’s a monthly repayment, it must be included within the qualifying ratios and, when combined with the first mortgage, can’t exceed the borrower’s reasonable ability to pay.
  • Payments must be deferred for at least 36 months to not be included in the qualifying ratios.
  • There can be no balloon payment required before 10 years.


Start with the Deepest Assistance First

Since state HFA bridge loans are typically allowed for as much of the downpayment as possible (up to the credit limit of $8,000), your client’s best bet is to start with the state HFA. If it doesn’t have a program in place, learn what you can from it about other state or local programs, including nonprofits. If these sources don’t pan out, your buyer can work with an FHA-approved lender. However, since HUD requires borrowers to put down a minimum of 3.5 percent, they can access bridge-loan assistance only for other upfront expenses such as closing costs, an interest-rate buy-down, or a portion of the downpayment above 3.5 percent.

Source REALTOR® magazine June 2009  

Wednesday, June 3, 2009

What Info Is Needed When Filling Out a Loan Application

What information will be needed when Buyer's are applying for a loan

Here is a list of the information mortgage lenders will use to consider your loan application.

For all loans

Social Security Number, for borrower and co-borrower if any

Employment History

For the last two years, employment dates, addresses, salary.

Current pay stubs or W-2 forms.


Check and Savings Accounts and Certificates of Deposit

Location of bank accounts, account numbers and balances;

Address of bank if out of town

Last 3 months' statements


Stocks, Bonds, and Investment Accounts

Broker's name and address, description of stocks, bonds, etc.

Last 3 months' statements or copies of stock certificates


Life Insurance Policies

Insurance company, policy number, face amount, cash value, if any


Retirement Plan

Approximate vested interest value

Copy of latest statement



Make and model of automobiles, their resale value


Other Assets

Market value of personal and household property


Liabilities and Other Non-Mortgage Debt

Creditors names, addresses, account numbers

Monthly payments and balances


Other income information you may need


If you're self-employed

Two years tax returns, profit and loss statements, both company and personal if separate.

Current balance sheet and profit and loss statement if more than two months into the new fiscal year, signed by CPA.


If you have income from:





Rental Property


Notes Receivable


You'll need two years' personal federal tax returns


If employed in family business

Personal federal income tax returns and all schedules for the past two years


If divorced or separated

Complete executed divorce decree and settlement agreement

Payment history of alimony/child support over the past 12 months, if it is a financial obligation.

If you choose to have this be considered as part of your income (you don't have to), be prepared to provide 12 months canceled checks or bank statements reflecting income deposits.


If you own real estate

Name and address of all mortgage lenders for the past 24 months, account numbers, monthly payments and balances

If you've sold your home but not closed:

A copy of the sales contract

If you've sold your home, closed, and you will use the proceeds for your new down payment:

A copy of the HUD-1 Uniform Settlement Statement


If you rent 

Name, address and phone number of landlords for the past 24 months


If you're buying a home 

Purchase sales contract or offer to purchase and all addenda

Furnish contract with original signatures of buyer and seller


If a source of your down payment is a gift:

Name, address and relationship of donor.

Gift funds will be verified in both the donor and recipient's accounts.

Note: Not all loan programs allow gifts to be part of your down payment.


For FHA Financing

Evidence of Social Security Number and photo identification


For VA Financing

DD214 and Certificate of Eligibility


For Construction/Perm Loan

Signed construction with cost breakdown, builder plan and specifications

Happy House Hunting!