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August 8th, 2010
Due to continued losses from FHA foreclosures, HUD is increasing borrower fees to generate more revenue and avoid having to ask Congress for a bailout.
 September 7th, 2010 HUD is changing the MIP fees it charges borrowers for FHA mortgages.
The changes are expected o generate an additional $300 million per MONTH for HUD’s FHA insurance program.
That’s an extra $3.6 billion per year.
Here are the changes:
First, HUD is lowering the upfront MIP from its current 2.25% to 1.0%. This is the amount that can be financed on top of the loan amount.
Simultaneously, HUD is raising the monthly MIP amount:
- For loans with less than 5% down – from 0.55% to 0.85%.
- For loans with more than 5% down – from 0.50% to 0.90%
Now technically these changes only affect loans of more than 15 years, but in reality most FHA mortgages are 30 year loans.
How Do These Changes Affect Borrowers?
Let’s compare some different purchase price amounts to see what HUD done to homebuyers:
Note: all the examples below assume a 4.5% mortgage rate on a 30 fixed loan with the minimum 3.5% down.
Notice that at every purchase price amount the monthly cost has gone up!
This means that for any given monthly payment a buyer will now qualify for less of a purchase price due to the higher corresponding payment.
Just be glad HUD didn’t implement a FICO credit score pricing matrix as they have discussed numerous times. Just be forewarned – if FHA foreclosures don’t improve soon, that may still be implemented.
Are there any borrower benefits at all in this change?
There is if you can pay off your FHA loan quicker. Notice in the above chart that the actual financed amount & payment are lower under the new program. This is because of the lower upfront MIP amount.
For example, for a $75,000 purchase price the old plan had a principal & interest payment of $374.97 versus $370.38 under the new plan. That’s a savings of $4.59/month.
The easiest way to pay off an FHA mortgage would be to refinance to a FNMA or FHLMC conforming mortgage. But you’d need at least 10% equity to do so and FNMA/FHLMC have price adjustments for FICO credit scores, so you’d have to be careful and consult with a true expert mortgage professional about this.
More Information
If you’d like more information on this change you can click on the links below:
FHA letter from David H. Stevens
HUD Press Release
Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy
_______________________________________________________________
If you enjoyed my blog post,
I invite you to connect with me on the social networks below & subscribe to my blog!
   
“Referrals are Sending Someone You Care about, to Someone You Trust!”
So, forward this blog post to someone that’ll appreciate it!
_______________________________________________________________
Drew Sygit: CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MAMP Instructor & Speaker
The most Certified Mortgage Expert in the Midwest
Contact him for The Lending Edge
P: 248-356-3739 • F: 866-215-3755 • dsygit@TheLendingEdge.com • www.TheLendingEdge.com
Tags: Birmingham, Bloomfield, Detroit, Expert, Michigan, Mortgage, Rochester, Royal Oak, Troy
Posted in Affordability, Expert, FHA, First Time Buyer, Government, HUD | No Comments »
July 13th, 2010
What are Michigan homeowners and homebuyers waiting for?
Check out this chart, compliments of my friendly neighborhood First American Title rep, Julia Halpin:)
Gadzooks & zounds! These historically low mortgage rates are record setters.
What more could a Michigan homeowner looking to refinance or a Michigan homebuyer looking to buy ask for?
How about appraisals coming in higher & a job to qualify to buy!
These historically low mortgage rates are a sign that our economy is not doing all that well:(
But, if your home can appraise or you do have a job, it’s a fantastic time to get a mortgage!
So, give our team a call.
MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY
_______________________________________________________________
If you enjoyed my blog post,
I invite you to connect with me on the social networks below & subscribe to my blog!
“Referrals are Sending Someone You Care about, to Someone You Trust!”
So, forward this blog post to someone that’ll appreciate it!
_______________________________________________________________
Drew Sygit: CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MAMP Instructor & Speaker
The most Certified Mortgage Expert in the Midwest
Contact him for The Lending Edge
P: 248-356-3739 • F: 866-215-3755 • dsygit@TheLendingEdge.com • www.TheLendingEdge.com
Posted in Affordability, Purchase, Rates, Recovery, Refinance | No Comments »
June 5th, 2010
 Today I got a referral from a past client and had to do some damage control on some of the misinformation the couple’s buyer’s agent had filled their heads with.
The issue – the agent had told them that because mortgage interest is tax deductible, their $1,000 rent payment compared to a $1500 house payment.
MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY
I can only assume the agent was implying that they were in a 33% tax bracket to make that claim. The buyers were never asked that information.
The bigger issue though was that the agent clearly had no understanding about how the mortgage interest tax deduction works. They were just abusing a sales technique they’d picked up somewhere and never really learned about.
What did I have to clear up? Well let’s take a look.
Assume the $1500 PITI breaks down like this:
P&I - $1,125
Property Tax - $300
Home Insurance – $75
This about works out for a 5% interest rate on a $210,000 loan. Let’s ignore down payment & PMI for this example though.
Now intially this sounds like a fantastic deal. Can’t you just hear the buyers, “wow honey, instead of paying $1,000 for this apartment, we can buy a $210,000 house for the same payment using the mortgage interest tax deduction!”
Well unfortunately, that’s not even close to the real story.
Here’s how the numbers actually work out.
The first year’s interest on the mortgage above would be approximately $10,430. The annual property taxes would be $3600.
So the total ELIGIBLE for deducting on Schedule A of the 1040 would be $14,030.
Now the agent in question would probably say that since the buyers were in a 33% tax bracket, they could write off, and thereby save, $14,030 x 33% = $4630.
Not true!
Look at the image of Page 2 of the 1040 tax return below:
Notice that the “Married Filing Jointly” Standard deduction in the left column of the page is $11,400.
Line 40 of the 1040 states, “ (from Schedule A) or your standard deduction Itemized deductions”. So you would enter the higher number on line 40.
What this means is that the buyers get an $11,400 tax deduction whether they own a home or not!
The only time you’d put your Schedule A total on line 40 would be if it exceeded $11,400.
So the couple’s actual benefit from owning the home in this example would only be:
$14,030 – $11,400 = $2,630 x 33% = $867
A drastic difference from what their agent had ignorantly misled them with.
I’ve seen mortgage people make a version of this mistake also by telling clients, “that 5% interest rate is really 3.35% after taking into account your 33% tax bracket.” (that’s 5% x (1-0.33))
Keep in mind that our example was based on a $210,000 mortgage. I’ve heard agents using this same technique on deals under $100,000 – where the buyer wouldn’t realize any additional tax savings whatsoever.
The true professionals in our industry really need to know the facts about tax deductions to avoid making any misleading statements.
The best way to handle this tax issue is for buyers to take the tax deduction savings issue up with their CPA. If you don’t have a CPA, contact me for a referral!
_______________________________________________________________
If you enjoyed my blog post,
I invite you to connect with me on the social networks below & subscribe to my blog!
“Referrals are Sending Someone You Care about, to Someone You Trust!”
So, forward this blog post to someone that’ll appreciate it!
_______________________________________________________________
Drew Sygit: CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MAMP Instructor & Speaker
The most Certified Mortgage Expert in the Midwest
Contact him for The Lending Edge
P: 248-356-3739 • F: 866-215-3755 • dsygit@TheLendingEdge.com • www.TheLendingEdge.com
Tags: Birmingham, Bloomfield, Detroit, Expert, Homebuyer, Michigan, Mortgage, Rochester, Royal Oak, Tax Deduction, Troy
Posted in Affordability, Expert, First Time Buyer, Tax Deduction | No Comments »
March 18th, 2010
Shoring up loan losses seems to be the reason for this latest change, more may be coming this summer.
Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy
The Department of Housing Urban Development (HUD) is moving forward with its plans to stem the losses in its Federal Housing Administration (FHA) program.
With concerns in Congress that HUD may need its own bailout, steps are being taken to generate more revenue to absorb the higher losses on foreclosures.
Starting April 5, 2010 all case numbers pulled for new loans will require an upfront MIP factor of 2.25%. Currently the factor is 1.75%, which was recently increased from 1.5%.
The 2.25% is what FHA’s upfront MIP factor was in the 1990’s before the Clinton administration had it reduced as HUD’s MIP insurance pool was flush with cash.
Also of note, the monthly MIP factor was recently increased from a 0.5% to 0.55% base.
What’s this mean for homebuyers?
If you’re getting a $100,000 loan, the upfront MIP changes mean an increase of $500 and the monthly change is an increase of $4.17/month.
It’s important to remember the upfront MIP is usually financed into the loan amount, so the monthly effect of the $500 increase in the above example will depend on the borrower’s interest rate.
Posted in 1-TLE, Affordability, FHA, Government, HUD | No Comments »
March 17th, 2010
FNMA offers money for closing costs and appliances to sell more homes.
Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy
Not enough incentives out there to get you to buy a home?
FNMA has launched its own incentive program to move its Michigan foreclosed homes. To be eligible, the home must be a foreclosure offered for sale by FNMA with the above “HomePath” logo.
You must close by May 1st, 2010, but the program offers some nice incentives:
- FNMA will pay 3.5% of the sales price towards closing costs.
- Or the buyer can chose to purchase Whirlpool appliances.
- Or the buyer can choose a combination of closing costs & appliances.
To be eligible you must purchase to owner-occupy, no investment properties are allowed.
This special offer is on top of the standard FNMA HomePath program, which offers:
- As little as 3% down, which can be gifted
- No mortgage insurance
- No appraisal fee (FNMA has already determined the property value)
- Can be investment property (higher down payment required)
- Credit can be less than perfect
FNMA does some repairs to these homes, but they are sold “as-is” and you are advised to get your own private inspection.
Click here for more information about the program and to find eligible Michigan foreclosed homes.
Tags: Expert, Michigan, Mortgage
Posted in 1-TLE, Affordability, FNMA, First Time Buyer, Michigan, Mortgage, Purchase, specialoffer | No Comments »
January 25th, 2010
FHA is losing money on mortgage defaults and foreclosures, so lending requirements are to tighten in the near future.
MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY
On Wednesday, January 20, an announcement by FHA Commissioner David Stevens made it clear that HUD intends to raise the bar on qualifying for an FHA mortgage. Michigan Homebuyers, and buyers across the country should take notice as these changes will start this spring, just when buyers usually turn out in droves with the warming weather.
Let’s look at these changes and their affect on Michigan Homebuyers:
- Upfront MIP fee will be increased from 1.75% to 2.25%
- MIP is a form of insurance that’s supposed to fund HUD’s reserves to purchase foreclosed properties from lenders (that’s where “HUD Homes” come from). Besides begging for funding from Congress, this is HUD’s only way to raise income for their insurance pool.
- On a $100,000 loan, this increase means an extra $500. The MIP is rolled into the loan, so it raises the amount financed and hence the payment goes up on the $100,000 loan by $2.83/month. Not really a deal breaker for a buyer.
- FICO scores under 580 will require a minimum of 10% down
- Although HUD doesn’t have a minimum credit score requirement, most lenders have set internal minimums of 620, 640 or 660. So, this won’t necessarily affect many buyers.
- Seller Contribution maximums to be reduced from 6% to 3%
- This is the BIG ONE. For many Michigan Homebuyers, coming up with their down payment is the most challenging element of buying a home. On many transactions, a 6% seller contribution will cover the required closing costs, prepaids & prorations, requiring a homebuyer to only bring the 3.5% down payment to closing.
- Increase HUD enforcement actions against lenders
- HUD is being more aggressive in their investigations and going after lenders that have than average defaults.
- If they’d been doing this all along, they wouldn’t be suffering the losses they are now and be forced to make the changes above! Continued government incompetency.
COMMENTARY
Let’s see, President Obama and most politicians keep sending the message that more homes need to be bought to support the economy. On November 6, 2009 they extended the Homebuyer Tax Credit and even widened it to include repeat buyers – to entice more people to buy homes.
Now we’ve got HUD/FHA making it HARDER for people to buy homes.
Does anyone in Washington D.C. talk to each other and coordinate strategies? Or, is it such a cesspool of lies, deceit and “every politician for themselves”, that they just don’t care about the American taxpayers and think we’re all idiots?
Send me your comments…
Posted in 1-TLE, Affordability, FHA, FICO Scores, First Time Buyer, Government, HUD, Housing, Michigan, Mortgage, Purchase, Tax Credit | 2 Comments »
November 6th, 2009
President Obama signs bill into law that extends the $8,000 first-time buyer tax credit – and expands it.
MORTGAGE EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY
Well, it’s official. The home buyer tax credit legislation made it through the political process in Washington D.C. in seemingly record time. After just passing the Senate Wednesday, the House passed the bill today and Obama signed it soon after.
The bill also extended unemployment benefits for 14 weeks for most states, but for another 20 weeks for hard hit states like Michigan. This extension will also keep many from losing their homes to foreclosure, so shouldn’t be overlooked.
Now let’s take a look at the “new & improved” homebuyer tax credit.
Who Gets What?
First-Time Homebuyers (FTHBs): First-time homebuyers (defined as not owning a home in the last 3 years) are eligible for up to 10% of the purchase price or a maximum of $8,000.
Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.
Current Owners: The new tax credit program now gives those who already own a residence incentive to move to a new home. If they’ve owned a primary residence for 5 consecutive years out of the last 8, their eligible for up to a $6,500 tax credit.
Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.
What are the New Deadlines?
In order to qualify for the credit, all sales contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.
What are the Income Caps?
The amount of income someone can earn and qualify for the full amount of the credit has been increased.
Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible
Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.
What is the Maximum Purchase Price?
Qualifying buyers may purchase a property with a maximum sale price of $800,000.
What is a Tax Credit?
A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.
How Much are First-Time Homebuyers (FTHB) Eligible to Receive?
An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.
Who is Eligible fort FTHB Tax Credit?
Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.
This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.
How Much are Current Home Owners Eligible to Receive?
The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.
Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?
No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.
Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with Seller Financing and the Seller Retains Title to the Property?
Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Some examples of this would include a land contract or a contract for deed.
According to the IRS, factors that would demonstrate the ownership of the property would include:
1. Right of possession,
2. Right to obtain legal title upon full payment of the purchase price,
3. Right to construct improvements,
4. Obligation to pay property taxes,
5. Risk of loss,
6. Responsibility to insure the property, and
7. Duty to maintain the property.
Are There Other Restrictions to Taking the FTHB Credit?
Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:
- They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
- They do not use the home as your principal residence.
- They sell their home before the end of the year.
- They are a nonresident alien.
- They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
- Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
- They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.
Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?
Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.
If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?
Yes, provided that the child meets the other requirements for the tax credit.
Also, be sure not to try and buy a property in the name of a child as the IRS is also pursuing prosecution of an estimated 500 tax filers reported to have done this.
Posted in 1-TLE, Affordability, First Time Buyer, Housing Tax Credit, Real Estate Sales, Recovery | No Comments »
November 1st, 2009
Contrary to what many have reported, it’s not a done deal yet.
MORTGAGE EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY
The most talked about real estate news of the past week seemed to be all about the First Time Homebuyer Tax Credit getting extended.
I’ve had numerous people contact me asking for the details and have had to tell all of them that nothing has passed yet.
Given the confusion and misinformation I thought I’d give an actual update on where the extension is.
The big news is that an unofficial voice vote passed the Senate last week, and Senate Majority Leader Harry Reid announced that he’s planning an official November 2nd vote on the extension in the Senate. Discussions with his counterparts in the House lead him to believe that the House will also pass the bill in the coming week.
This could put the bill on President Obama’s desk by the end of the week.
What could go wrong? Well, the vote was held up last week by demands for votes on several other amendments, one calling for an end to the Treasury’s TARP program by year end. An extension of unemployment benefits is also rumored to be causing issues. Popular bills like this one often have other amendments added to them that might not pass otherwise, so a lot of compromising goes on.
Some New Wrinkles
In its current form, the bill would extend the tax credit to the end of April 2010. There are several proposed differences from the current tax credit:
- To qualify, a sales contract would have to be signed by April 30th and the transaction closed by June 30.
- Income limits would be increased from $75k for single people & $150k for couples, to $125k and $225k respectively.
- Buyers who have lived in their current home for the last 5 years would be eligible for up to a $6500 tax credit (or 10% of the purchase price).
- The maximum allowed home purchase price would be capped at $800,000.
- Military personnel, deployed overseas for a minimum of 90 days in 2008 or 2009, would have until April 30, 2011 to claim the tax credit.
- To combat fraud, a HUD-1 Settlement Statement will have to be attached to the tax return to secure the credit.
Stabilizing the Housing Market
The Homebuyers Tax Credit is probably the best program passed by the government since the financial meltdown started. Other measures to stabilize the economy are increasingly under fire for racking up trillions in tax payer debt, while mostly benefiting the elite on Wall Street.
More than 1.25 million taxpayers have taken advantage of the tax credit to pursue the American dream of home ownership. This has used up approximately $8.5 billion of the $13.6 billion originally set aside for the program.
Reports show home sales have increased and inventory is down. Many buyers are finding it difficult to locate a home, being outbid and outhustled.
Concerns
Even this program has its problems and detractors though. Recently, the Treasury’s Inspector General for Tax Administration, J. Russell George, told Congress that at least 19,000 filing for the credit hadn’t bought a house when they filed. Another 74,000 appear to have owned a home in the last 3 years, making them ineligible for the program. 500 plus filers for the tax credit are under 18 years old!
The IRS is pursuing criminal cases against at least a 100 offenders and is reportedly trying to audit every return where the credit is claimed this year. They’ll also be auditing themselves as Mr. George is also on record stating that they are investigating at least 53 cases of IRS employees filing illegal or inappropriate claims for the tax credit.
Many detractors are claiming that the tax credit is subsidizing housing values and just pulling forward sales that would have happened anyways.
One potential problem that the media hasn’t focused on yet, is that the tax credit may be encouraging banks to sit on foreclosed homes. Many real estate experts have pointed out that the number of foreclosures has been outpacing the number of units entering the market for some time now. Instead of putting these homes on the market to be sold, banks could be sitting on them to drive down inventory and push up prices – using bailout funds to support this endeavor. Not a lot that can be done at the “street level” about this, but surely something for our representatives to look into
Don’t Procrastinate
Hopefully, the extension of the tax credit won’t turn more buyers into procrastinators who wait until the last minute to buy. Buyers should keep in mind that finding a home isn’t like shopping for Christmas items or even a car – where their are multiple copies of the desired item.
Homes are much more unique, rarely are even two homes remotely alike. Start your search now, as it could take awhile to find what you want. When you do find it, jump on it or someone else usually will.
Posted in 1-TLE, Affordability, First Time Buyer, Government, Housing Tax Credit, Purchase, Recovery, Tax Credit | 2 Comments »
May 3rd, 2009
A step-by-step, logical outline for a homeowner on the options to save their home.
DETROIT, MI – Homeowners everywhere are struggling to save their piece of the American Dream, their castle, their home.
Every week of news seems to promise a ray of hope, that’s quickly followed by more bad news for the economy, which means more bad news for them. More layoffs, pay cuts, benefit cuts, business bankruptcies, bailouts, rising expenses, the list goes on and on.
When they go looking for options to help them keep their homes, they run into a confusing array of claims, programs, advice, rumors and gossip.
There’s no shortage of bold headlines regarding the subject, but the media really offers very little in the way of a step-by-step analysis that makes sense of what’s real, what’s fraud and what’s realistic.
Caution is the key for homeowners when considering their options.
Take loan modification services, for example. A Google search for “Loan Modification” returns 320,000 matches for just the last month. How can anyone possibly make sense of that much information?
Making matters worse, a similar Google search for “Loan Modification Fraud” returns 33,000 matches. The problem has gotten so big that the FBI formed a special unit to investigate foreclosure rescue scams in December of 2008, supervised by Travis Yarbrough. He was quoted in a Bloomberg article on the topic when asked who is running the scams, “A number of them previously worked in subprime mortgage companies. Some of these perpetrators have gotten very creative at separating homeowners from their money.”
So what’s a homeowner supposed to do?
Be very careful of who you take advice from. Don’t blindly trust the media, family, friends, neighbors or even “experts” as they often don’t have 100% of the facts. Nor do they have to live with the repercussions of their advice – only you will.
So, do your own research and question everything. Understand that there’s no “magic” that will solve all your problems, despite how desperate you may be for a solution. Yes, there are always several actual outrageous success stories, but the chances of it happening for you are similar to your chances of winning the lottery. Most actual solutions involve a LOT OF WORK.
Lastly, remember that hope is not a plan, nor a strategy. You MUST take action or someone will do so for you and their solution will be what’s best for them, not you.
Now let’s try to bring some clarity to the chaos.
STEP #1: Build a Budget!
If you’re struggling with your finances, the only logical way to fix the problem is to complete a very comprehensive monthly budget. Issues to keep in mind:
- For your income remember there are 52 weeks in a year, not 4 weeks in a month.
- Don’t forget items you may pay only quarterly, semi-annually or once a year.
- Be careful about being unrealistically aggressive when budgeting.
STEP #2: Can You AFFORD to Stay in your Home?
This is one of the hardest questions to honestly answer as it involves a lot of emotion. You may want to seek the assistance of someone you trust outside of your household to review your budget and be blunt with you on its viability.
If you wait too long to take proactive action, you’re options will be fewer, if any.
USING SAVINGS TO LIVE OFF OR SUPPLEMENT INCOME – if you plan to ride out the storm by living off savings or a buyout, then you need to know how long you can do so. The challenge here is being realistic and knowing when to throw the towel in and look at the other options.
STEP #3: You Want to Stay, but Can’t Afford the Current Payment
If you’ve reduced your spending on everything you can, but your expenses are still greater than your income, then you need to consider other options to reduce expenses.
REDUCING YOUR MORTGAGE PAYMENT – Obama’s “Making Home Affordable Program”
The Obama administration initiated a plan on March 4, 2009 to help an estimated 7 to 9 million homeowners keep their homes by lowering their mortgage payments through one of two ways:
Home Affordable Refinance
Even if you owe slightly more than your home is worth, you may be able to refinance to a lower rate if:
- Your mortgage payments are current (no more than 30 days late in the last 12 months)
- The property is your primary residence
- Your loan is owned or guaranteed by FNMA or FHLMC
- You owe no more than 105% of your home’s value
- Your stable & continuing income will support the new monthly payment
- You apply before June 10, 2010
Challenges on this program:
- No cash out or debt consolidation is allowed
- 2nd mortgages may not be paid off.
- 2nd mortgages must subordinate for this program, but they don’t always agree to do so!
Home Affordable Modification
If you owe more than 105% of your home’s value or you’re behind on your mortgage payments, this option may help you if:
- Your primary residence is a 1-4 family property
- Your mortgage was originated prior to January 1, 2009
- Your mortgage payment + taxes + insurance exceeds 31% of your gross monthly income
- The Servicer of your mortgage voluntarily participates in the program
- A modification plan must be in place prior to December 31, 2012
Participating (voluntary) lenders are instructed by the plan to modify mortgages to 31% of a homeowner’s income, using the following steps in order:
- Lower the interest rate in 1/8% increments to a floor of 2%
- Extend term of a loan in 12 month increments to a maximum of 40 years from mod date
- Forebear a part of the loan, with no interest, which will have a balloon payment.
- Voluntarily only – agree to reduce the principal of the loan.
LOWERING UNSECURED DEBT PAYMENTS
Many credit companies will negotiate payments and interest rates to help consumers avoid defaulting on their accounts. Some things to keep in mind:
- The credit account will usually be closed so it can no longer be accessed.
- It may also result in late payments being reported to credit bureaus. This is done to make it difficult for a consumer to open up new credit accounts until the negotiated account has been paid. Often, an agreement in writing can be made that upon full payment, the reported late payments will be removed.
- Get all agreements in writing!
- HUD Certified Consumer Debt Counselors are available 888-995-HOPE, website http://www.hud.gov/offices/hsg/sfh/hcc/fc/)
STEP #4: No Options to Afford to Stay or Don’t Want to Stay
If you’ve explored all your options, but still can’t afford your home OR you wish to more on for other reasons, then you can explore a short sale, deed-in-lieu of foreclosure or wait for the inevitable foreclosure.
RENTING OUT YOUR HOME
It’s most likely that whatever rental income you can get won’t cover your payment. If it does great, just be careful to go over this with a rental professional as there are all sorts of hidden costs associated with being a landlord.
If the projected market rent doesn’t cover your payment, it may cover enough for you to be able to comfortably make up the difference. Again though, check with a professional so you’re aware of the hidden costs involved.
NOTE: Be VERY careful when considering this strategy! Once you rent out your home you lose many tax benefits and legal protections.
SHORT SALE
A short sale is where you get your mortgage lender to accept less than you owe them in order to sell your home. Keep in mind:
- The average short sale takes 2-3 months to complete AFTER a buyer is found
- Your lender may not stop their foreclosure actions even if you find a buyer
- 2nd lien lenders will make short sale negotiations much more difficult
- TAX ISSUES – most lenders will send a 1099-C and leave it to you to address tax issues. At the end of 2007, the Mortgage Debt Forgiveness Act was enacted. If you receive a 1099-C, it may not be taxable under this act. Read IRS Publication 4681 for details. NOTE: cash out from your home used for anything but home improvement will usually be taxable!
- DEFICIENCY JUDGMENTS: most 1st lenders will agree not to pursue. Many 2nd lenders will want to preserve their rights to pursue a judgment at some later time.
- NEW MORTGAGE: FNMA currently requires a 2 year waiting period after a short sale.
DEED-IN-LIEU
This is where a lender agrees to take your home back via a Quit Claim Deed, instead of pursuing foreclosure. Due to excessive foreclosure inventory, many lenders are not currently agreeing to this strategy.
- If you have a 2nd lien, this strategy is usually NOT an option unless both liens held by same lender.
- Tax & Deficiency issues from above apply
- NEW MORTGAGE: FHA allows the shortest waiting period of 3 years.
FORECLOSURE
In Michigan, the foreclosure process can take up to 9 months or more to complete. During this time, you can live in your home without making payments.
- Michigan gives lenders two options for foreclosure: judicial and by advertisement (most common)
- A homeowner has no legal obligation to move out of their home immediately after Sheriff’s Sale
- Most residential homeowners in Michigan are allowed a 6 month Redemption Period
- You have no Tenant rights in Michigan after expiration of Redemption Period
- DEFICIENCY JUDGMENTS: If 1st lender bids amount they are owed, it’s unlikely they will pursue a deficiency judgment. If they bid less than they are owed (becoming more common) they can pursue a deficiency judgment for the difference between what they are owed and what they bid (must be at least fair market value). 2nd lenders can pursue deficiency judgments unless they agree to forego for a reduced settlement.
- NEW MORTGAGE: FHA currently requires a 3 year waiting period after a foreclosure, an exception is possible if extenuating circumstances.
BANKRUPTCY
The possibility of deficiency judgments may force many homeowners to also consider filing bankruptcy after a short sale, deed-in-lieu or foreclosure.
A homeowner may also consider bankruptcy if they feel strongly about staying in their home and choose to let all their unsecured debt go and focus all income on saving their home.
Closing Thoughts
Many people reading this document may be desperate enough to believe almost anything that appears to offer some sort of assistance out of their dilemma. Do not make this mistake.
There are many websites advertising how they can help you ‘walk-away” from your home, many of them represent you can do so with no financial repercussions. As mentioned above, this is not the case.
Be proactive and seek out the assistance of experienced and reputable professionals. Question everything! If someone cannot or will not explain your options to your satisfaction – run, don’t just walk away from them. This is a sign they either don’t know themselves, don’t think you’re worth the time or don’t want you to know. None of which you should accept.
WARNING: This post is not intended to offer any legal advice so, it’s highly recommended that competent legal & professional advice be obtained.
Posted in 1-TLE, Affordability, Bankruptcy, Credit, Debt, Deed-in-Lieu, Deficiency Judgment, Expert, Foreclosure, Housing, Loan Modifications, Recovery, Refinance, Short Sale | 2 Comments »
April 26th, 2009
A look at the 3rd quarter numbers reveal some interesting statistics that show the housing crisis is not over.
DETROIT, MI – According to a recent National Association of Realtors (NAR) report, national homes sales were up in February, but down slightly in March when compared to last year.
In the Detroit Metro area, sales through the end of March were up in every area:
This of course, is good news as our area has been hard hit with the highest unemployment in the country and for awhile, Michigan led the nation in foreclosures.
So start the party as our housing crisis is ending?
Put the champagne and party hats away.
A deeper look at the numbers, show that it’s the sales of distressed properties that are responsible for the improvement:
Now let’s look at what’s happening with the sales of homes owned by private individuals (true retail sales):
(*Note: Realcomp recently introduced fields for several distressed types of transactions, so these numbers may be somewhat suspect)
As you can see, retail sales are drastically down everywhere.
It’s obvious that first-time buyers and real estate investors are scooping up distressed properties and ignoring retail properties.
Why? Because distressed properties are cheaper and potentially better values than retail properties.
This is not good news for homeowners that have to sell. It also affects move-up buyers that would like to sell their existing home to buy a bigger home and take advantage of low home prices.
Home sales are heading in the right direction, but don’t let anyone tell you we’re in a full recovery yet. That won’t happen until retail sales at least stabilize.
For now, first-time homebuyers need to understand that there’s lots of competition out there for distressed properties. Not only from other first-time buyers, but also from real estate investors – many from out of state. These investors usually buy with cash and banks are more likely to accept a slightly lower cash offer than a higher offer that requires a mortgage. Too many mortgage applications are being declined these days due to tightened lending standards.
All this may require first-time homebuyers to settle for a good deal, rather than a great deal.
Posted in 1-TLE, Affordability, Detroit, Distressed Property, Expert, First Time Buyer, Foreclosure, Housing, Housing Tax Credit, Housing Values, Michigan, NAR, Purchase, Real Estate Sales, Recovery, Short Sale | 1 Comment »
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