May 2009 Archives - Arizona Mortgage Team

New Home Buyer 8000 Tax Credit Down Payment: Answers To Questions

May 30, 2009 19 Comments

Yesterday HUD issued Mortgagee Letter 2009-15 which gave official guidance on how exactly you can turn the 8000 Tax Credit for new home buyers into cash to help you cover your closing costs and possibly part of your down payment.

Home Buyer Tax Credit Monetization: How To Claim The 8000 Tax Credit

While many people have many questions, I decided to cover the most popular ones that I hear. What people are asking me about the first time home buyer tax credit being used as a down payment:

What Do I Fill Out To Claim The 8000 Tax Credit?

In order to claim your tax credit, you will need to obtain the IRS Form 5404 from the IRS.gov website.

Can You Assign The Tax Credit To Someone Else?

The IRS will only issue the tax credit to the taxpayer, not a third party. You cannot assign the claim for this credit to a third party.

Can You Use The Tax Credit For Your Down Payment?

The hot topic recently is “can I use the tax credit for my down payment?” and the answer to that question is technically yes – but – you cannot use the tax credit to cover the first 3.5% of your down payment, you must come up with that on your own or have it gifted to you from a blood relative.

Once you come up with the initial 3.5% down payment that is required by FHA, if you would like to use the 8000 tax credit to add to that down payment, that is allowed.

Who Will Provide The Bridge Loan / Monetization Of The Tax Credit?

FHA will permit FHA lenders and other approved government organizations or non-profits to issue you a bridge loan in exchange for a second lien on the property.

If I Take This Bridge Loan, Do I Have To Make Payments?

You might, it will depend on who you get the money from.

If payments on the loan are going to be required on the loan before 36 months, then your monthly payment will have to be considered in your debt ratios when qualifying for your first mortgage.

If payments are not required by the lender before 36 months and you decide to just “not pay” by the deadline you agreed on, the loan will convert into a “soft second” mortgage – at which time principal and interest payments will start to be required.

Is It Possible To Get Cash Back At Closing?

No. The tax credit advance, when combined with getting an FHA loan may not result in you getting any “cash back” when buying the home.

How Much Will Using Your Tax Credit For Down Payment Assistance Cost?

Any costs to you from the lender or organization who “purchase” your tax credit are supposed to be “reasonable”. FHA has even went further on this issue – they have said that any amount charged to you over 2.5% of the anticipated credit are considered excessive.

As an example, if you were going to receive a $6,000 refund, after all fees associated with the transaction, it should not cost you more than $5,850.

If You Wish To Use The $8000 Tax Credit For A Down Payment or Closing Costs:

If you are planning on using the 8000 tax credit for part of your down payment or closing costs, be ready for these things to happen when getting your file ready:

You will be required to complete the IRS Form 5405
The lender will contact your employer and review your pay stubs to confirm there are no outstanding garnishments
The lender will ensure that you have no unpaid student loans or other debts that could offset the 8000 tax credit – including IRS debts
The lender will have to validate that all requirements to receive the tax credit have been met

Other Resources:

HUD Official Announcement

Official Mortgagee Letter 2009-15

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Filed Under: 8000 tax credit, FHA Loans, Government, Mortgage Guidelines Tagged With: 8000 bridge loan, 8000 tax credit, 8000 Tax Credit Bridge Loan, 8000 tax credit loan, new home buyer bridge loan, new home buyer loan, new home buyer tax credit down payment

The FHA Streamline Refinance: Do You Need A 620 Credit Score?

May 26, 2009 1 Comment

I have had more than one call recently from someone asking me a question similar to:

“Do I need a 620 credit score for the FHA streamline program?”

And I am happy to report that my answer a.) is accurate as of today and b.) is generally the answer they are looking for.

The FHA Streamline Refinance: Do You Need A 620 Credit Score? %spacebasename I don’t remember the last time that someone with a credit score of 740 called me and asked me “hey, do I need a 620 credit score…?” because the truth is that in my experience, the only people who care about whether or not a particular credit score is required are those people who have recently been told that they didn’t qualify.

The good news (for now) is that if you have recently been told that you need a 620 credit score to qualify for the FHA streamline program, your loan officer was probably right. What I mean by that is that many lenders are requiring that you do have a 620 credit score and your loan officer was probably working with those lenders. Which means that although he was right — you can still get a loan if you ask a different loan officer.

But to my knowledge…

As of today…

I have more than one lender who will allow you to participate in the FHA streamline program with no minimum credit score required.

And if it changes, I will be sure to keep everyone updated.

So if you have been told that the FHA streamline program has recently begun to require a minimum of 620 credit score – you were mis-informed. What is true though is that most lenders and investors have started requiring a minimum of a 620 credit score before they will lend you money.

And remember — it is the lenders/investors who lend you money, FHA only insures your loan.

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Filed Under: Credit Scores, FHA Streamline Refinance Program Tagged With: 620 credit score, fha minimum credit score, fha streamline minimum credit score

What Happens When Interest Rates Go To 10%?

May 25, 2009 3 Comments

I was alive in the early 80’s but I wasn’t worried about my mortgage payment. I was busy watching ET and playing little league baseball. But to hear people who are just a little bit older than I am, getting a 30 year mortgage at interest rates in the high teens in the early 1980’s wasn’t uncommon.

Assume for a moment that inflation kicks in and at some point in the future, the average rate that you see quoted on a 30 year fixed rate mortgage is 10%.

What does that do to your buying power?

What Happens When Interest Rates Go To 10%? %spacebasename If interest rates rise to 10%, your monthly Principal and Interest payment on a $200,000 mortgage will rise by $742/month.

Although I don’t remember what 10%-20% interest rates felt like, I can remember well what 7% interest rates felt like – it wasn’t that long ago! If interest rates rise to 7%, the P/I payment on a $200k loan will go up by $327 per month.

Are we going to see 10% interest rates in the foreseeable future? I don’t know, I will leave that to the experts to pontificate about. What I can say for certain though is that as interest rates rise, people are going to buy “less of a house” than they are currently buying.

And I wonder what that will do to real estate prices…

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Filed Under: Interest Rates Tagged With: 10% Interest Rate, Interest Rates

Does It Cost Money To Extend Your Lock?

May 23, 2009 Leave a Comment

When you are in the process of getting a mortgage, at some point your loan officer will “lock” your loan. When your loan is locked, essentially what happens is that your loan officer has let the lender know that you have completed the initial paperwork for a loan and that you intend to close it within the lock time frame.

Each lender has different lock time frames – but typically they are in 10,15,30,45 or60 day increments.

What does it mean to extend a lock?

It means that for whatever reason, when your loan officer initially locked the rate, he needs longer to fund your loan.

Say for example that when your loan officer initially locked your loan, he locked it for 30 days, but now it has been 28 days and you are still 7 days away from your loan funding.

What happens is that your loan officer will contact the “lock desk” at the lender and extend your lock for as long as needed.

And the longer the lock is extended, the more money it costs – usually.

Does it cost money to extend a lock?

Yes and no.

Yes, it costs money, but under most circumstances that I have seen the loan officer just ends up “eating” the cost. Not always, but most of the time. I guess it only seems right – heck, the loan officer is the one who recommended how long to lock your loan in the first place.

So if your loan officer tells you that it will cost you money to extend your lock and it wasn’t because of anything you did – email him this article and have him call me for a ridicule session for wanting to charge you for his screw up.

Those calls are always fun.

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Filed Under: Mortgage Guidelines, The Business of Mortgages Tagged With: loan lock extension, loan locks, lock extension, mortgage loan lock

Arizona Jumbo Mortgage Financing: Signs of Life

May 22, 2009 2 Comments

I wouldn’t exactly say the Jumbo mortgage market is hopping right now. If you currently have a jumbo loan and want to refinance and get cash out – it is going to be somewhat close to impossible to get done.

Especially if you live in a “declining market”.

And keep in mind that it is the lenders definition of “declining market” so if you call me up and tell me there are bidding wars going on in Queen Creek right now – I will agree with you but sadly let you know that the Lender hasn’t found that out yet.

So, basically – Jumbo mortgage refinance and trying to get cash out = ~~impossible~~ very difficult.

If you just want to refinance your jumbo loan, it will be easier than if you wanted to refinance and get cash out – but still difficult. First, you will have the “appraisal issue” (and you know how talking about HVCC makes me feel) and then when your appraisal states that your home has lost value, you are probably going to run into mortgage insurance “challenges”.

So – Jumbo mortgage refinance without trying to get cash out = difficult to very difficult.

And now for the good news.

I had a Account Executive in my office this week and he was from one of the large national banks handing out product sheets for their jumbo products.

I haven’t seen an AE in my office talking about Jumbo Products in over a year.

And here are the basics if you want a jumbo loan without sounding too much like a mortgage-guy-numbers-jockey:

Mid Credit Score	LTV Up To	1/1 ARM	30 Yr Fixed
720+	75%	3%	5.80%
700-719	75%	3.25%	5.90%
680-699	75%	3.5%	5.95%
650-679	75%	4%	6.10%

NOTE: THIS IS NOT A RATE QUOTE, JUST A BALLPARK ESTIMATE

But now you have a general idea of what the Jumbo mortgage market looks like in Arizona right now. They are still loaning out money to people with good credit, good jobs and want get a great deal on a house (and take advantage of the 8000 tax credit, and, and, and…)

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Filed Under: Jumbo Loans Tagged With: Arizona Jumbo Loan, Arizona Jumbo Mortgage

Does FHA Have Minimum FICO Score Requirements?

May 21, 2009 10 Comments

I hung up the phone with someone yesterday who asked me a few questions about FHA credit score requirements. The answers I gave to the questions she asked were just strange enough that I thought it might be helpful to share with others – because they may have these same questions.

Question: Does FHA require that people have minimum credit score requirements?

Answer: No, but investors do. And because investors all have different credit score requirements, you will find that they won’t lend you money unless you meet their minimum credit score requirements.

What has essentially happened over the last year or so is that there has become a “normal” credit score requirement by many investors of 620 – meaning your middle credit score must be 620 to be able to get the investor to lend you money that can be insured by FHA.

But not all lenders require a 620. Some require a 580. Some require a 500. Some have no credit score requirements at all.

It all varies by investor, and each loan officer generally works with many different investor, no matter what company they work with.

If you called me today, and asked me “if I work with you as my loan officer, what is the minimum credit score that I will need?” Here is the answer I would give today:

If you are refinancing your current FHA loan, I have an investor that doesn’t require a minimum credit score for the FHA streamline refinance.

If you are purchasing a house using an FHA loan, all of the investors that I work with currently require that you have at least a 620 middle credit score.

And of course, that all can change – as in maybe even 2 minutes after I hit “publish” on this post.

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Filed Under: Credit Scores Tagged With: credit scores for mortgage, fha credit score, fha minimum credit score, minimum credit score, minimum credit scores for mortgage

Do You Have To Close Your Loan At A Title Company?

May 20, 2009 1 Comment

I am working with a handful of people who currently live out of state to refinance their home and they are amazed that they don’t have to go to their local title company to sign final paperwork.

They can actually sign their final loan paperwork on their dining room table in the comfort of their own home if they want.

Of course, they always have the option of going to a local title company to sign the final paperwork, but they aren’t required to by the lender.

What is required though is that a notary is present to notarize their signatures and verify the identity of the borrowers. This means that we can’t just email you the final loan paperwork and have you sign it and mail it in – there must be a notary present.

Now… for something completely cool that isn’t reality for most lenders yet – electronic signatures are coming soon. Soon as in the next few years, not the next few days.

At some point in the future, it will be possible on a large scale to sign your final mortgage paperwork via an electronic signature over your computer.

Maybe even your iPhone!

It is currently being tested by a handful of companies – but nothing on a large scale. So for now, your options when signing your final mortgage loan paperwork are to go to your local title company or have the title company send a “mobile notary signer” to your home.

And your loan officer should be well versed at how to arrange either.

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Filed Under: The Business of Mortgages Tagged With: mobile notary, mortgage loan closing

8000 Tax Credit Bridge Loan: Bridge To Where?

May 14, 2009 9 Comments

You remember the feeling.

Remember back in high school when your teacher announced a pop quiz and you didn’t study the night before because you were hanging out at your friends house watching the A-Team?

You know the feeling and you can describe it in two words. (hint: the first word is “Oh”)

That is how I felt yesterday when I learned about the possibility of the 8000 tax credit being used for a down payment as mentioned by HUD Secretary Shaun Donovan in a prepared speech.

Apparently it is now being called a “bridge loan” today and details are still very sketchy as to what exactly is going to become official.

8000 Tax Credit Bridge Loan: Bridge To Where? %spacebasename

My disclaimer at this point is that to my knowledge, things can still change with this thing, and I promise to keep you updated since I opened this can of worms. Also, rant ahead.

A bridge loan?

You have to be kidding me.

The term “bridge loan” is a term that is used by MBA’s when describing the way they are financing a company. It is right up there with words like “mezzanine financing, tranches, series A, B, C rounds, cap tables, convertible debt” and “warrants”.

It is not a term that you use when handing out a loan that has financing terms worse than a payday loan and could be considered criminal if not cloaked in the right light to someone who works as a manager at the local Kentucky Fried Chicken and probably can’t afford the house he is buying in the first place because he is one missed paycheck away from being late on his mortgage.

The first “nonprofit” group in America to cloak their greed in public?

The Memphis Area Home Builders Association.

From what I can tell, here is how the mechanics of the “bridge loan” program work if you live in Memphis and want to buy a $100,000 house with a “bridge loan”.

You don’t have the $3,500 for a down payment on an FHA loan.

You borrow the $3,500 from the “non-profit” arm of the Memphis Area Home Builders Association and agree to pay them a “service fee” of $500.

The non profit then handles the paperwork needed for the amended tax return and bank account setup to handle the arrival of the $8,000 tax credit.

TRANSLATION: “We are going to loan you the money, you are going to pay us five-hundo right up front. Then we are going to have you sign over your tax refund check to us and we will set up a separate bank account with us as signers so that we can be sure we get our money back from you when the government wires the money into the account.”

This is possibly the greatest LEGAL business scam I have ever heard of — the only thing that I can find wrong with it is that the MBA guy who came up with it used a term he was familiar with like “bridge loan” to describe it. For his target market, he may have been better served to have called it “a little get-you-by” money or maybe even “Obama money” so customers knew who to vote for in the next election.

Let’s do the math.

Loan out $3,500, collect $500 up front and get $3,500 90 days later (that is being very generous – it could take days or even weeks to get the money back).

The above transaction described means that conservatively this transaction should generate north of about a 60% interest rate on an annualized basis.

HOLY HIGHWAY ROBBERY. TO SOMEONE WHO CAN’T AFFORD IT.

Sounds exactly like something called a “tax refund anticipation loan” to me. Google “Tax Refund Anticipation Loan” and see what the financial wizards have to say about those things.

But what do I know.

I am just a loan officer.

Who hands out free money to people because all of the smart people who make the rules tell me that I should.

I think that I am going to go start a non profit.

Heck, who knows – maybe this will be the silver bullet that turns the market around.

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Filed Under: 8000 tax credit, Miscellaneous Fun, The Business of Mortgages Tagged With: 8000 Tax Credit Bridge Loan

Can The 8000 Tax Credit Be Used As A Down Payment?

May 13, 2009 14 Comments

Can you use the 8000 tax credit as a down payment for your home?

Not yet.

But that may change soon.

Yesterday, Secretary of Housing and Urban Development Shaun Donovan gave a prepared speech at the National Association of Realtors Real Estate Summit. He said something that was probably beyond interesting when he mentioned that FHA was currently working on a proposal that may involve people being able to use the 8000 tax credit as a down payment.

An excerpt from that speech regarding FHA’s position on the 8000 tax credit being used as a down payment:

And we are taking action to further help the housing market recover. I’m excited to announce here at NAR that FHA’s policy on the “monetization” of the first-time homebuyer tax credit will soon be published. I know that you’ve been waiting anxiously to hear FHA’s position on the matter. We, like you, believe that this new tax credit is not only a tremendous opportunity for first-time homebuyers, but also an enormous benefit for communities struggling to deal with an oversupply of housing. According to estimates by the National Association of Home Builders, this new tax credit will stimulate 160,000 home sales across the nation – 101,000 of which will be first time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first time buyer purchased their home.

We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a downpayment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to “monetize” the tax credit through short-term bridge loans. We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit. FHA will be publishing the details shortly.

Enabling first time homebuyers to use the 8000 tax credit as a down payment would be a big win for the market – it would allow many more people to move into a home who currently may not have enough for a down payment.

We will be sure to keep you posted on developments in this situation as the happen.

(h/t Mark Madsen at MyFHAMortgageBlog for sharing the video about the 8000 tax credit being used as a down payment and the guys at ThinkBigWorkSmall)

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Filed Under: 8000 tax credit, Arizona Home Financing Options, Buying a New Home in Arizona, Government Tagged With: 8000 tax credit as down payment, 8000 tax credit down payment, 8000 tax credit use as down payment

New Home Buyer 8000 Tax Credit Down Payment: Answers To Questions

The FHA Streamline Refinance: Do You Need A 620 Credit Score?

What Happens When Interest Rates Go To 10%?

Does It Cost Money To Extend Your Lock?

Arizona Jumbo Mortgage Financing: Signs of Life

Does FHA Have Minimum FICO Score Requirements?

Do You Have To Close Your Loan At A Title Company?

8000 Tax Credit Bridge Loan: Bridge To Where?

Can The 8000 Tax Credit Be Used As A Down Payment?

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