First Ohio Home Finance

This just in from the Franklin County Save our Homes taskforce:

Struggling to pay your mortgage? Have an adjustable rate mortgage or a balloon? Not sure what your mortgage means? Realizing that your lender didn’t escrow and now you have a big property tax bill? Worried about foreclosure?

The Franklin County Save our Homes Taskforce in cooperation with the county treasurer is holding a Borrower Outreach Day on Saturday, September 13, from 10-1. This event will be at Memorial Hall, Board of Elections (Downtown) at 280 East Broad Street in Columbus.

If you are worried about making your next monthly loan payment for any reason, you will have the opportunity to:

• Meet with servicers/lenders privately
• Learn about refinancing
• Learn about foreclosure prevention, legal rights, loss mitigation, and credit counseling.

For more information, please contact:
The Franklin County Treasurer’s Office at 614-462-7503

This event may help you if you are concerned about your mortgage status.  If you need help understanding your home mortgage in Ohio, call us today at 888-818-1850. We are committed to building the wealth of our clients. We want you to succeed in homeownership!

Did you know that Ohio families need no-money-down loans?

The number one incoming search term for this website is 100LTV and 100% loans. People are really looking hard to buy a home with no down payment. No problem, right? There’s 100%, 80/20 split loans, FHA, and the list goes on.

Unfortunately, that’s wrong! Most of these loan products have dried up in the last 12 months – FHA with down payment assistance (DPA) being the only survivor.

Here’s how it works. Sally Buyer wants a home but has no savings. So she writes a contract on a home that includes a line about qualifying for an FHA mortgage. In that negotiation, Sally offers to pay 3% more than list price for the home if John Q. Seller will “donate” 3% of the purchase price of the home plus $400 to a certain “charity.” John Q. Seller agrees because Sally Buyer seems solid and this is a full-price contract – a sale! Sally Buyer also signs an agreement with the “charity” to accept a 3% “gift,” contingent on the sale closing and the seller donating.

These non-profit organizations have been under fire for years because DPA is a loophole that allows home purchases with “no skin in the game” while inflating home prices. But legal challenges from the assistance providers themselves have kept the life support on.

Under the Housing and Economic Recovery Act (HR 3221) recently passed into law, DPA programs will no longer be available as of October 2008. That’s right: no more AmeriDream, Nehemiah or other “charity” gifts to get you an FHA mortgage with no money down!

Using down payment assistance is entirely normal, and many of our clients have used it to good advantage. But it should be remembered that what can help a single family may be a recipe for disaster when it becomes common practice across the country. Mortgages with down payment assistance go into default and foreclosure at nearly three times the rate of those borrowers with some money out of pocket, according to FHA.

And while some groups are trying to save DPA, the solvency of the banking system and FHA is at risk now, so it’s understandable that they would try to stop the bleeding. Especially when you consider that we - the taxpayers - are ultimately holding the bag when it comes to bailing out banks or funding HUD and FHA through our tax dollars.

Nevertheless, this is going to be a blow to our mortgage company, as well as a blow to the entire market here in Ohio.  Maybe it’s smart given the rise of foreclosures.  But 0-down loans are 64% of our FHA purchases, or 13% of total business. So yeah, it hurts when 13% of your company revenue goes whoosh!

If you are looking to buy a home, now is your chance to find a no-money-down loan! You don’t have to be a first-time buyer.  Call before it’s too late!

Well it appears the new housing bill had some concessions for home buyers, but at the expense of home sellers. So what’s up with capital gains tax and mortgage and real estate? Check this out.

With HR 3221, Congress created revolutionary new rules to capture more tax revenue on capital gains - rules that could prove detrimental to many families holding mortgage loans in Ohio. You see, under the old rules, sellers were tax-exempt on up to $250,000 of home sale gains as long as they lived in the home for 2 of the last 5 years.

However, under the new rules effective January 1, 2009, exemptions from capital gain taxes are a more complicated formula based on the actual number of days a home was “primary” residence during the last 5 years.

So if you only lived in a home for 2 years, you will be paying taxes on 60% (3 divided by 5) of gains under $250,000. Would you rather have 40% (2 divided by 5) of your honest gain tax-free — or the current 100%?

Are lawmakers assuming very few are still making real estate gains?  Are they trying to encourage a flurry of sales this year?   How will the IRS determine residency date?  Doesn’t this seem like a raw deal for the average homeowner who ends up renting their old home since they are having a hard time selling?

Check out this sample analysis from AgentGenius.

You bought a home in January 15 2004 and paid $500,000. This has been your primary residence until this year, January 15 2008, when you bought another property and moved your primary residence. Say you sell your original property next year, January 15 2009, for $600,000. Your capital gains are $100,000. Your capital gains exemption formula:

1460 [days] / 1825 [days] = 0.80 x $100,000 = $80,000 Capital Gains Exclusion

Which means you would pay capital gains tax on $20,000. Capital Gains Tax is currently at 15%, so you would pay $3,000 in new taxes that you would have avoided prior to this new law. *Please note this does not account for the state portion of capital gains…

It may sound like a small number when you profit $100,000 to only pay $4200, but what happens if the new government leaders change the Capital Gains Rate? This rate has been as high as 45.5 percent in the past. This is not good for future sellers of real estate.

As always, remember we are a mortgage company.  If you think the new Capital Gains Exclusion rules will impact you personally, get professional advice about it.   If you do not have a qualified accountant, (which we think that’s a critical part of building wealth) we would like to refer one to you.

h/t Dan Green

If you’ve dodged the dust-up between John McCain and Paris Hilton, you probably heard this week that the Federal Open Market Committee left interest rates untouched last Tuesday. That means the Prime Rate remains at a low 5.0%. What does it mean for mortgage rates? What does it mean for you?

For those who’ve followed the gurus Greenspan and Bernanke, you’ll remember that when the Fed announces a decision on Discount and Fed Funds rates, the decision is less important than the accompanying policy statement. These statements are short reviews of the Bank’s view on the economy and inflation – and therefore give clues to future monetary policy decisions.

Those opaque statements are what move mortgage bond markets, and thus mortgage rates. You can read the whole thing in less than 30 seconds right here.

A policy decision for the status-quo does signal to investors that market forces are in balance – or at least rates cannot be safely lowered. Because the Fed talks of an economic slowdown with no end in sight, rates will be stable to lower until inflation picks up. To further illustrate this, consider that one year ago, Prime Rate was at 8.25%.

The immediate result of the current decision was for stock markets to rally and rates to rise.
If there is good news here, it’s that slow economic times mean mortgage rates will not be rising significantly. I’d say that perspective is here for another 6-12 months at least.

If there is bad news here, as the economy slows and foreclosure rates rise in Ohio, credit standards will continue to tighten and the cost of financing will creep up. Tight credit standards – like the end of down payment assistance and 100% financing programs – will be discussed in the next few posts about the new Housing and Economic Recovery Bill (HR 3221).

Starting today and continuing for the next handful of posts, I want to explore some of the interesting parts of this new law. How will it help homeowners? How will it help first-time buyers? How will it help America? And what are its drawbacks? It’s only right that we get an understanding of what’s going on in real estate.

Here are the highlights:

• First-time home-buyer tax credit up to $7,500
• Major increases in capital gains tax
• FHA Foreclosure Rescue
• Prohibition of Seller-funded downpayment programs
• Conforming loan limit increases to $625,000 in high-cost areas
• Neighborhood revitalization funds (up to $4 Billion)

The first part of HR 3221 to understand is the Homebuyer Tax Credit. Now you will undoubtedly hear this touted from Realtors, builders and others. But you would do well to read the fine print. Here’s how I see it working.

• Only available for first-time home buyers – no homeownership for past 3 years
• Get a tax credit of 10% of your home purchase price, up to $7,500
• The credit must be repaid on your federal income taxes at the rate of 6.67% per year
• If the home is sold, the pro-rata remainder must be collected and returned to the IRS
• Applies to purchases between April 2008 and July 2009
• Buyers must have income below $75,000 single, $150,000 couple.

So what do you think?  Sound like a good deal?

Well, you get to reduce your federal tax bill in the year you purchase, so you are essentially borrowing from the government. This is going to generate enormous tax refunds to Americans. So its not only an incentive to buy, it will stimulate the economy. Just be sure you realize it has to be paid back.

Taking an average central Ohio example, the Smiths buy their first home for $250,000, and fit the income guidelines for this tax credit. They get to claim $2,500 tax credit on their taxes files in April 2009. When you wash their tax liabilities against their payroll deductions, they end up getting a $4,200 tax refund in May ($1,500 normal refund plus $2,500 homebuyer credit). If they are like most Americans, the money will disappear into vacations, home improvements and debt reduction before the end of summer.

When they file taxes in 2010 (and going forward), they have to pay back the credit by adding $167 (remember, 6.67%/year) to their tax bill. This reduces their refund in the summer of 2010 from $1,500 to $1,333. No big deal.

Ohioans, on average, move every 4-5 years. If the Smiths follow that average, they would sell the home in 2013 and have an IRS charge of $1,665 (6.6% x 5 years) on their settlement statement. Again, that’s not going to make or break most home sales.

Assuming that there are a million first time home buyers next year, that means the U.S. Treasury will lend without interest about $2.5 BILLION. Those are your dollars!

As always, though, remember that I am a mortgage guy and not a qualified accountant. If you think the new tax credit rules will impact you personally, get professional advice about it.