Fixed Rates on 30-Year Home Loans Rises to 5.05 Percent

February 25, 2010

Freddie Mac announced today that the average rate for 30-year fixed-interest rate loans has risen to 5.05%, up from last week’s 4.93%. Average rates on 15-year fixed-interest rate loans also rose, to 4.4% from last week’s 4.33%. This is the first rate increase in the last three weeks. Interest rates are evaluated weekly by Freddie Mac, the Fedaral Home Loan Mortgage Corporation.

Austin Mortgage Bankers See Rates Climbing

We have spoken with several respected Austin real estate mortgage bankers, and all are in agreement that once the Federal Reserve stops buying Mortgage Backed Securities through subsidies, that interest rates will gradually climb as private money enters the mortgage market. The current Fed mortgage purchasing incentives are set to expire at the end of March. Of course, there’s nothing to say that these incentives won’t be extended and keep rates low, for the short-term.  But, there has to be a breaking point where rates will be forced to climb. The government simply cannot subsidize the situation forever.

Interest Rates, Tax Credits, and Home Buyers

The lesson to take away from this: if you are on the fence and are looking to purchase a home at the lowest possible interest rate AND take advantage of current tax credits, seriously folks, now may be the last chance to do so. Yes, this week’s interest-rates for 1-year Adjustable Rate Mortgage’s went down from 4.23% to 4.15%, signalling that private investors believe that in the short-term, rates may drop slightly. But, the housing tax credit deadline is looming and is highly unlikely to be extended (although anything can happen).

What are your thoughts regarding the current interest rate situation and real estate prices in the short-term, particularly in the Austin area?

Using In-House Lenders From Austin Home Builders

January 15, 2010

I recently had a closing with a client who bought a beautiful new home from D.R. Horton in a rural area, just outside of Austin.  D.R. Horton prides themselves on being a one-stop shop that caters to first-time homebuyers.  This has been one of the keys to D.R. Horton’s success as a national home builder: offer incentives to the buyer if they use their in-house title company and their in-house lender.  If the buyer chooses to use their lender and title company, D.R. Horton currently offers significant incentives.  When used in conjunction with the USDA loan program, a home buyer can buy a home for practically zero money out of pocket.

Are Incentives a Good Idea as a Builder?

Sure, for several reasons.  The builder gets to control the entire process of the transaction.  They know if an issue arises with the lender, they can handle it because it is their internal person handling the loan. Same with title issues.  And, due to current tax laws for corporations and their subsidiaries, companies like D.R. Horton can take advantage of significant tax incentives that far outweigh the discount they offer to buyers.  And they can use these incentives as a marketing tool to attract more sales.  It’s a win-win-win for builders.

Are Incentives a Good Idea as a Buyer?

“No money down and no closing costs to buy a brand new home?  I’ll take two, thanks!”  While it’s true that in certain neighborhoods that qualify for the USDA Loan Program, you can buy a home for no money down, there are some important things that the buyer should research and be aware of before they steal the pen and scribble on the dotted line.

Research the Neighborhood Comps and Don’t Overpay

Be sure you aren’t overpaying for those incentives.  Have your Realtor check comps in the area and the neighboring areas to make sure you are paying a fair price relative to recent solds.

The 2% Funding Fee For USDA Loans

USDA Loans offer 100% financing for buyers that qualify for the program, and for select rural neighborhoods that qualify (although there is talk that the USDA loan program will begin phasing out certain Austin neighborhoods soon.)  Buyers should be aware of this 2% fee, even though it is rolled into the loan.  In essence, the buyer is paying 2% more for the house than the purchase price, and it is added into the amortization table over 30 years.

Compare Their Lender’s Note Rate to Outside Lenders

The old adage “What the big print giveth, the small print taketh away” could apply here.  Up-front incentives are great, as long as they don’t cost you more over the long-term.  Be sure to do the long math to make sure that it still pays to use the builder’s lender.  Mortgage calculators are available for free.  Use them!

Regardless of Incentives, Calculate Your Financial Picture

Everyone considering a purchase of a home, both brand new or resale, should sit down and take a close look at their finances.  Prepare a budget, and truly be aware of how much home you can afford.  If you get stumped, contact a financial advisor who can assist you.

If everything looks great, then and only then you are prepared to pull the trigger and become Austin’s next home owner!

Tax Credit Extended For Home Buyers

November 6, 2009

It’s been all over the news & now it is finally OFFICIAL!  The tax credit for first-time homebuyers (FTHBs) has been extended into the first half of 2010.  The program extends the tax credit that was set to expire on November 30, 2009 and it also goes further to include current homeowners. The extension also includes a higher income cap than before.

New Housing Tax Credit Deadlines

The new deadlines for the tax credit are as follows:

1) The Contract must be in effect no later than April 30, 2010.

2)You must close on the Contract no later than June 30, 2010. 
 

Tax Incentives for Current Homeowners

If you are a current homeowner, the tax credit is not the full $8,000, but is a nice $6,500 – as long as the buyer has owned & occupied a primary residence for a period of five consecutive years during the last eight years.

 

Income Qualifications

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.

 

Maximum Purchase Price

Qualifying buyers may purchase a property with a maximum sales price of $800,000.

First-Time Homebuyer Tax Credit – Frequently Asked Questions (FAQ)

Here are answers to some commonly asked questions about the tax credit.

 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.

What is the tax credit for first-time homebuyers (FTHBs)?

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 for the 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.

As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How do I claim my housing tax credit?

For those taking advantage of the tax credit in 2009, you may choose to either apply for the credit with your 2009 tax return or you may apply for the credit sooner by filing an amended 2008 tax return with Form 5405 (http://www.irs.gov/pub/irs-pdf/f5405.pdf).

Can you 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. Examples of this would include a land contract, contract for deed, etc. According to the IRS, factors that would demonstrate the ownership of the property would include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property.

Are there other restrictions to taking the credit?

Yes. According to the IRS, if any of the following describe your situation, a credit would not be due.

• You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
• You do not use the home as your principal residence.
• You sell your home before the end of the year.
• You are a nonresident alien.
• You 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.)
• Your home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
• You 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, 2009, 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, 2006, through July 1, 2009.

Can you buy a home from a step-relative and be eligible for the credit?

Yes. Provided the person you are buying a home from is not a direct blood relative, the purchase would be allowed.

Can parent(s) who will not live in the property cosign for a mortgage for their child and the child that is a qualifying FTHB still be eligible for the credit?

Yes.

Can a separated spouse who has not owned a home for four years qualify for the FTHB tax credit if the spouse has owned a property anytime in the last three years?

No. However, the spouse may be eligible for the repeat buyer credit. The best path to take in any situation regarding income taxes is to speak with a professional tax preparer or CPA.  If you have any questions that fall outside of the situations here, contact us.

HUD vs REO vs Short Sales in Austin: Which is best for a first-time homebuyer?

September 29, 2009

In the current housing market, there are considerably more HUD and REO homes on the market than ever before. As a result, we’ve been placing offers and selling more of these types of homes to both first-time homebuyers and investors. Someone recently asked Team Ensor about HUDs, REOs and short sales, and which one I thought made more sense for someone looking to buy their first home in Austin.

For those readers who aren’t familiar with the difference between the three, allow me to explain.

HUD homes are synonymous with Foreclosures. They are owned by a government agency (called HUD) and they sell them through a blind auction process. You submit your highest and best bid for what you are willing to pay for the house. On a set date pre-assigned by HUD, they will open the electronic bids and see who submitted the highest bid.

REO homes are bank-owned properties. A home or condo becomes REO when the owner has stopped paying mortgage payments and the lender decides to take possession of the house. This slightly differs from a short sale.

A short sale is a “pre-REO” where the homeowner is missing payments and contacts the bank for help. The bank asks the owner to complete a Hardship Packet that outlines the owner(s) financial situation. If the bank agrees to help, they will place the house for sale at a price “short” of what the bank is actually owed. During the short sale period, the owner will be allowed to continue to occupy the house while the sale is attempted. This is better in the eyes of the bank than letting a house sit vacant and be a possible victim of vandalism or theft and ultimately cost the bank even more money.

So, which one is better for a first-time homebuyer?

The answer: it depends. I know, I know…what an obvious answer. But it really does depend on the buyer, their time frames to take possession of the home and their patience levels. With a HUD home, you can expect to close in a “normal” closing time period: usually between 30-45 days if you need financing. You also get instant gratification of knowing if your offer was accepted once the bid process is completed. With REO properties, it usually takes a while longer. But, it depends on the bank who owns the property. Some banks have a very efficient REO department and can make decisions and contact the buyers quickly. Some banks…not so much. With short sales, however, the time frames are completely up in the air. I have heard about a bank that held a buyers’ offer hostage for almost 6 months and still has yet to provide an official accept/reject response.

Also keep in mind that almost every distressed sale — whether it’s a HUD, REO or short sale — is going to require some degree of work to bring it back to life. Don’t expect to walk into a foreclosure that is move-in ready. It is very common with these types of homes to find the appliances conveniently “missing” along with most doorknobs and light fixtures, etc. Expect anything not bolted down or anything that can be quickly sold to be gone. If you’re a first time buyer and this sounds intimidating, perhaps a distressed sale isn’t something you should be considering.

My advice for first time homebuyers looking to get a distressed sale and close quickly is to go for a HUD home first, followed by an REO second. Leave the short sales for investors, unless you’re in no hurry whatsoever to take possession any time soon. But if you’re looking to also capitalize on the $8000 Tax Credit for first time homebuyers, you should now be looking at HUD homes only if you want a distressed sale, or even better a regular resale home from a motivated buyer.

$8000 Tax Credit for First Time Home Buyers is Expiring Soon

September 26, 2009

There is only about three more weekends worth of house hunting left for first time buyers to get their hands on up to $8000 of tax credit incentives for real estate purchases. Reason being, that with the increase in underwriting regulations, lenders are now requiring up to 45 days to close from acceptance of a contract.

Yes, there’s a chance that the $8000 Tax Credit will be extended beyond the Dec 1, 2009 deadline, but why take the chance of missing out? If you’re on the fence or are considering a home purchase for the first time, take a few minutes to look through Austin homes and condos for sale using our Search page. If you see something you like, send us an email or complete the Contact Us form.

A few quick rules about the $8000 Tax Credit:

• Up to $8000 or 10% of your home purchase, whichever is lower.
• First Time Home Buyer is defined for the purposes of the tax credit as those who have not owned a home in the past 3 years.
• Income restrictions apply.
• You must keep the home for at least 3 years.  If not, you have to pay back the Tax Credit amount received.
• Foreclosures, HUD and REO Homes do qualify for the tax credit.  If you’re looking for a fixer-upper AND are a first time home buyer, this is a wonderful opportunity for you.

For additional details, please contact us and we’ll talk about your options.