First Ohio Home Finance

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

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.

Think it’s a strange time to invest in real estate? Well, think again. With the discounts offered by home builders and competent Realtors, there are a number of good ways to become invested in real estate.

Some clients are surprised when I mention investing in new homes. Most people think of real estate investment as the rougher multi-family units, such as near college campuses. But those situations are not for everyone.

The hard part about investing – having your units torn up, chasing down rents, patching up 60-80 year old homes – can go away when you buy a new unit. And with builders stinging from a plunge in new buyers, they have begun to offer some genuine discounts that make cash flowing an investment that much easier.

One of these programs is with long-time local builder Dunmoor Homes. Gary Dunn and Bill Moorhead have worked hard to build quality homes and place lease option clients in them. With two-year leases and reasonable cash flow already in place, it’s a good time for investors to step up.

The other thing that really sets Dunmoor Homes apart from a mortgage and personal finance perspective is Bill understands the financial condition, perspective, and traps for average Ohioans. He’s even held countless seminars in the Columbus market called Seven Steps to Smart Homeownership. He makes a personal investment in setting up tenants to succeed so one day they, in turn, can own the place they’ve called home.

I personally can’t think of a better answer to the current foreclosure mess, than to have men with integrity doing everything possible to ensure your neighbor can succeed in the American Dream!

The best way to find out more about this easy way to invest in real estate is to shout out to Bill.Moorhead@DunmoorHomes.com or visit their website at www.1031homes.com.

Central Ohioans have known for more than a decade that Delaware County has a lot going for it. Such advantages as reasonable real estate and mortgage costs, low crime, and easy commute to one of the nicest cities in the Midwest have made Delaware County one of the fastest growing places in America.

First, Forbes.com ran this story naming Delaware County the 5th best place to raise a family and touting the Columbus Zoo and Polaris Fashion Place.

Then, CNN Money Magazine released their list of top places to live, with Delaware County ranking 13th best place to live in America.

Lately, though, we’ve really been earning attention with solid ratings from national media. Topping the list was job growth at 42% - that’s almost unbelievable! Players in that sandbox certainly are JP Morgan Chase, PPG Industries, Ohio Wesleyan University, and McGraw Hill Companies, to name a few. There’s no doubt that a booming economy helps to keep real estate and mortgages services affordable.

The Ohio Department of Development have a detailed county profile here. No other city in Ohio made the lists, so it feels pretty good to be in the hot spot of good living. Columbus had been #8 on the best big city list in 2006.
Here are the Best Places to Live from Money Magazine:
1. Plymouth, MN
2. Fort Collins, CO
3. Naperville, IL
4. Irvine, CA
5. Franklin Township, NJ
6. Norman, OK
7. Round Rock, TX
8. Columbia/Ellicott City, MD
9. Overland Park, KS
10. Fishers, IN

Hat tip to Maureen McCabe of Real Living HER for bringing this to my attention. We look forward to working with her clients on the mortgage side.

I had the privilege this morning hearing Steven Anderson talk about Thriving Under Pressure. You’d think I went because the mortgage industry is under tremendous pressure as brokers and lenders sort out who’s on first. There’s a natural tension in mortgage lending that’s accentuated when times get tough. Who drives the industry: the small businessmen and women that find and retain clients, the massive banks that control the regulations and capital, or the US taxpayer that gets to bailout every industry when times get tough? (If you are laughing at that last option, you pass the test.)

Actually, that’s not the main reason I went.

I accepted Tom Broadbent’s invitation because I am challenged by balancing work hours, home life, and volunteering with several organizations. Just like you, I would guess.

Learning to deal with stress benefits every American because, as Steven Anderson said, “We humans are smart enough to kill ourselves.” Specifically, in today’s economy, we need tools to deal with more and more stress from the financial side of our lives. Not only do we run into the aggravation of minding passwords for dozens of bill paying sites, but most Ohio families don’t have enough money to go around each month. There are urgent decisions like enrolling your children in another sport or paying down debt that we all carry.

Here are two important lessons I took away from the seminar that I thought could help you in managing your personal finance.

1. Learn the difference between Acute Stress and Chronic Stress. Making important decisions and dealing with short term problems is acute stress and is actually healthy. Planning and pushing through these experiences stretch you mentally, and can engender that team spirit that many families lack. Chronic stress, on the other hand, is the nagging burdens we carry around. These are nearly always caused by poor choices - either long-term debt like credit cards that we enter thoughtlessly or rashly, or the avoidance of major decisions in our household economy. Make good and decisive choices and your life will be better and longer.
2. Learn the difference between Stress and Anxiety. Stressors are external circumstances that pressure us - like a cucumber seed we can squirt one way when pressured and become anxious, or move right and choose our physical response. Anxiety is the internalizing of stress. Anxiety often gives rise to introversion, depression, and attempting to control others - obviously none of which are beneficial. Using stress to one’s advantage includes a plan to deal with it rather than allowing anxiety and its negative consequences.

The reason I write about this in a personal finance and mortgage blog is WAY too many people these days are allowing poor choices to dictate decisions with long-term consequences - like paying their mortgage on time.

More and more Ohio homeowners with a mortgage are walking away from their homes. Surprisingly, this is not an issue that only affects the low-to-moderate income neighborhoods. Hundreds and hundreds of above-average wage earners have invested in above-average homes with very little skin in the game, while even more Ohio families have bought homes that are at or just beyond the limit of their budget. In either case, floating these purchases becomes impossible with the smallest stressor.

Bottom line is making the hard decisions with an eye to the risks of the future is critical to long term homeownership and overall financial success for Ohioans. If you are having trouble making your mortgage payment, call me and let’s talk about the options. Call your lender. Call someone who isn’t afraid of telling you the truth - I will, even if it means a hard decision for you or a non-profit moment for First Ohio Home Finance. We’re in this together, and we’ll only get out of it together - using all the resources we have.

Thanks to Integrated Leadership’s Steven Anderson and Precision Printing’s Tom Broadbent for today’s inspiration!

As inflation fears eased on Wall Street, mortgage rates fell this week. It seems a new equilibrium is being reached in financial markets as the US dollar finds a bottom.

Credit guidelines are still tight but we are not seeing the rapid tightening that occurred through the winter and spring months. Some examples of the changing guidelines include the end of many subprime and 0-down programs, the end of 100% LTV lender-paid mortgage insurance, and a stronger scrutiny of most appraisals.

There are doors opening, too. Get this; you can now buy a HUD-owned home with only a $100 down payment AND use the FHA rehab program (loan amounts up to $340,000) to roll in as much as $35,000 in repairs!

Turn your nose up at HUD homes? Not so fast. There are more than 75 short sale or bank owned homes listed in Westerville now OVER $300,000! You can buy a mighty nice home with very little down.

If you have a substantial down payment for a large home, you can still get a jumbo adjustable below 6%, too.

I know the market is slower than sellers and professionals would like. But the bright side really is quite remarkable right now.

I have to say April is one of my favorite months of the year. It contains one of my favorite family birthdays. And you gotta enjoy sunshiny blue skies, breezy days and crisp nights, flowering bulbs and trees, watching the kids hunt for Easter eggs - even the occasional shower.

It’s also tax day. But April means more than this for Ohioans.

This collection of fabulous spring days has been designated as Financial Literacy Month in Ohio, which makes it a great time to re-focus on getting your finances in order. I don’t mean to encourage the kind of stress that comes from worrying about bills, fighting with your spouse, or trying to figure out how you are going to pay for college years in the future.

There are some great ways to get a clear picture of your financial health. And then take simple and clear steps toward improving the future for yourself and your family, if you have one.

A good place to start this process is at Your Money Now web site established by the Ohio Treasurer’s office. While many people are cynical about government officials actually helping the average citizen, I don’t write about this because Cordray is a ‘Public Official’. After following his career for almost a decade, I see a very smart individual who uses all available resources with a genuine interest in helping others.

With knowledge comes control – and it can be even be fun. This site does have some helpful information about avoiding fraud, tracking your cash flow, teaching your kids the basics, and managing debt. They even have a section in Espanol.

Other fun resources include personal finance blogs like here, here and here. There are even some focused on singles, marrieds, women, news, the heavily-indebted, and goals. Pick the one that meshes with you or put them all into a feed reader.

We recommend getting an annual mortgage review to make sure your loan is still the best for your ever-changing situation. And now is a great time of year to do that. If you’ve had changes recommended by your tax preparer, inherited money, changed jobs, or are even having trouble making your house payment – now is a great time to talk with a loan officer. The worst thing you can do is ignore the problem.

Here’s the Your Money Now website link. YourMoneyNowOnline.org Oh, and enjoy the fantastic spring!