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

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!

We heard recently from one of the lenders we deal with that Fannie Mae is killing its broad declining market policy. Before you celebrate, though, read on to see what plans they have for real estate!As recently as January 2008, Fannie Mae decided that labeling entire zip codes or counties – even states like California and Florida – as declining markets was a good idea to protect their interest in residential real estate. The blanket designation could not be appealed or overturned by specific underwriters.

As the GSEs like Fannie, Freddie and FHA’s Ginnie steer away from blanket designations, they are going to a 20-point appraisal review system. This will allow underwriters more authority to review each file and grade the property appraisals.

If the appraisal has comparable sales outside of the time or location guidelines, excessive adjustments to value or other problems, the value would be cut or the appraisal rejected.

We are having to fight harder and work more closely with our approved appraisers to keep deals afloat. I am still trying to get my hands on the specific guidelines. When I do, I’ll let you know.

A further complication is the Fannie and Freddie guideline that, as of January 2009, employees involved in loan production will not be allowed to order appraisals or choose an appraiser. Appraisals will be ordered by non-production employees or the end lender AND only from a handful of national appraisal management companies or AMCs (think Old Republic, Land America, etc).

So what does all that mean?

Consumer’s cost for residential financing will be driven higher and higher as AMCs that get government blessing will have a monopoly and charge higher and higher prices. This, in turn, will engender new regulations called price controls. National appraisal companies already charge 40% more than the typical $350 conventional appraisal.

Regulation also has a way of forcing small business out of the market (the ones to best know local markets) as it aggregates power and control higher and higher. That goes for everyone involved in loan origination – appraisers, local brokers and correspondent lenders, title companies, etc.

Since this new regulation does not yet apply to FHA, it also means that more financing will be FHA-insured loans. That can be a good thing for both borrowers and FHA-approved lenders. The downside is that FHA guidelines are fairly cut and dry – unimaginative, if you will. That means the pool of borrowers – such as the self-employed who write-off expenses, fixed income seniors with high DTI ratios, bruised credit borrowers, etc - will become smaller and smaller.

Bottom line: good for major banks, bad for consumers and small business.

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.

This is a critical question because so many loan officers are NOT keeping up with the changing mortgage environment, but still issuing bland letters that indicate a borrower simply needs to come to closing. The pre-approval process is much more thorough than pre-qual. Read the rest of this entry »