Wednesday, February 18, 2009

Another Detail on the Stimulus Bill

The American Recovery and Reinvestment Act has plenty of good news for first time home buyers that buy between January 1 and November 3, 2009. See yesterday's post for more information. One new detail has emerged that I didn't know yesterday. If a buyer takes the tax credit, it doesn't need to be repaid if they stay in the house for three years or more. If they sell before three years, the tax credit will be repaid from proceeds of the sale of the property.

Don't hesitate to contact me if you have not owned a house in the past three years and are considering a purchase.

Tuesday, February 17, 2009

Real Estate and the Stimulus Bill

Unless you've been hiding out in a dark cave for the past month or so, you probably know that President Obama is signing into law a huge economic package designed to rescue the economy. Since real estate is a major part of the U.S. economy there are several important provisions that hopefully will stimulate the U.S. and Rochester real estate markets.

Since this is still a bill and not yet a law, a lot of the information out there is still vague. For example, rumor has it that the bill will provide an $8000 credit for first time home buyers that purchase a home before December 1, 2009. No one has been able to tell me yet if that means they need to close the transaction before December 1 or simply have an offer accepted.

Here is what we do know. A first time homebuyer is defined as someone who has not owned property in the past three years. There are income restrictions; the credit is available to individuals making $75,000 a year or less or couples making $150,000 or less per year. As a tax credit, this should not be confused with grants or closing cost assistance. The tax credit will be taken in 2010 when homebuyers file their income tax returns for 2009.

I had wished that the bill will include all home buyers, not just first time home buyers. You see, in Rochester we have a shortage of inventory. I am currently working with 4 first time homebuyers that are looking in the $130,000 to $150,000 range and they are having a difficult time finding homes to look at much less purchase. One couple, in particular, had 4 houses purchased out from under them, several before they even were able to go see them and one before they could do a second walk through. I do believe that a credit to all buyers would motivate more sellers to move up or even down size.
Why is that good? Well, of course it means a payday for me but there are many other individuals that derive their income from the housing market, i.e., inspectors, appraisers, attorneys, surveyors, mortgage loan officers, title companies, etc. The government makes a few dollars as well with transfer tax, mortgage tax, recording fees, etc. and most new home owners pump additional dollars into the economy by hanging out at Lowes, Home Depot and other home improvement shops as well as potentially buying furniture, curtains and other items to make that house their home. In other words, a good real estate market stimulates the economy.

Wednesday, February 04, 2009

Getting a Mortgage in 2009

I am running into buyers that cannot be convinced to sit down with a mortgage loan officer to be pre-approved for financing early in the home searching process. Perhaps if I share a true life story about getting a mortgage in 2009, they will be more receptive to my nagging!

A client that I've worked with for several years was pre-approved for financing with a score approaching 800. During the time that he was shopping around for investment property, he made a major purchase on a deferred payment plan. The payment plan was a new line of credit and adversely effected his credit score by 70 points! He no longer qualified for the mortgage because his credit score was 7 points too low and he was stunned. He assumed that because he paid all his bills on time his credit was excellent. To make this even harder to understand, this buyer has enough cash in the bank to make a cash purchase but the lenders absolutely will not give him a mortgage.

In another situation, I had a client who's credit card company simply reduced the line of credit because of the credit crunch. Initially, my client was not the least bit concerned because she doesn't carry high balances but when she applied for a mortgage, she didn't qualify for as good of a rate as she had three months earlier. Her credit scores increased significantly because the reduction in the line of credit meant suddenly she had a higher debt ratio to credit available. It was the same effect as if she had made a major purchase on credit but this was totally not a result of her actions!!!!

There are many things that effect the FICO score that is used to qualify an individual for financing. Payment history is very important but so is the amount of debt owed as well as the number of new credit accounts opened and the length of the credit history. And from time to time, I still run into buyers that do not have any credit history which makes it just as difficult to get a mortgage as bad credit.

If you are thinking about buying real estate and have not recently won the lottery, please, please, pretty please start the process with a meeting with a mortgage loan officer. Not only will you avoid waisting a lot of time, you will be much less likely to have surprises and disappointments when you find a property that you want to purchase.