Should I Buy a Home?

Today is a tempting time to buy a home with interest rates and prices at their lowest levels in years. Deciding whether to buy or rent can be complicated, and potential home buyers have a lot to consider this summer. As part of National Home Ownership Month, the American Bankers Association came up with these key questions to help shoppers make wise financial choices when considering buying a home.

1. How much can you afford to put down? Can you afford the monthly payment?
A mortgage down payment of 5 to 20 percent of the selling price is typical, but can vary depending on the situation. The size of the down payment will impact the monthly cost. Assess your financial health, determine how large of a down payment you can afford and consider if you can then afford the monthly cost.

2. What other debt do you have? Consider all of your current and expected financial obligations and ensure you are able to make all the payments. Aim to keep total rent or mortgage payments plus other credit obligations fewer than 35 to 40 percent of your monthly income. If you can’t keep payments below that, you may be better off renting for a while or searching for a more affordable home.

3. What is my credit score? Can I qualify for a good interest rate? A high credit score indicates strong creditworthiness, which qualifies you for better interest rates on a mortgage. Maxing out your credit lines and paying bills late will lower your credit score, and the impact of a credit score on interest rates can be significant. For instance, a borrower with a score of 760 could pay nearly 2 percentage points less in interest than someone with a score of 620. That equates to over $3,000 less in mortgage payments each year. If your credit score is low, you may want to delay buying a home and take steps to raise your score.

4. How much will taxes, monthly maintenance or other fees cost? Owning a home means you will have to pay real estate taxes and other costs like insurance and maintenance. However, owning a home can bring tax savings at the end of the year. Remember to factor in these costs and incentives. Renters have neither these costs, nor tax advantages.

5. How many years will I stay here? Generally, the longer you plan to live someplace, the more it makes sense to buy. Over time, you can build equity in your house where renters do not. Yet, renters have greater flexibility to move as they don’t have to worry about finding new tenants.

Source: Rismedia

Taxageddon - What it Means for Housing and Home Builders

At the end of 2012, a number of tax and spending policies are scheduled to change. Taken together, these changes may exert a strong fiscal drag on an already fragile macro-economic environment depending on the actions of Congress. Federal Reserve Chairman Ben Bernanke calls this the “fiscal cliff.” Tax policy analysts call it “taxageddon” or “taxmageddon.”

Regardless of its name, it represents the next dramatic policy deadline in Washington. Under present law, in 2013 the 2001/2003 tax cuts expire, the payroll tax cut expires, extended unemployment benefits end, and federal government spending levels decline due to last summer’s Budget Control Act.If implemented, these changes would have large consequences for housing and home builders.

First, at the macro level, the fate of the ongoing recovery in housing is dependent on economic growth, job creation and household balance sheet repair. If all of the scheduled tax hikes and spending cuts go into force, the Congressional Budget Office (CBO) estimates that the total 2013 fiscal drag on the economy will be $560 billion.

If the full fiscal drag is inflicted on the economy it would clearly be harmful to GDP growth. Negative or virtually flat GDP growth would obviously be harmful for housing, as it would cause more job loss, set back household balance sheet repair, and depress the already weakened housing market. Besides the macro impact, certain individual policies will have a direct negative impact on housing and home building.

For home builders, the expiration of the 2001/2003 tax cuts would represent a business tax hike for a majority of the industry. According to NAHB census of membership data, 80% of NAHB members are organized as pass-thru entities, such as S Corporations or LLCs. For pass-thru entities, individual income tax rates are business tax rates. And if the 2001/2003 tax cuts expire, all the rates will increase – from the bottom rate of 10% increasing to 15% to the top rate of 35% increasing to 39.6%.

Taxes would rise for capital income as well. Capital gains tax rates, important for multifamily developers and C Corporations, would increase from 15% to 20%. Dividends rates, important for some S Corporations and C Corporations, would increase from 15% to ordinary income tax rates up to 39.6%. Finally, the top estate tax rate would increase to 55% and the exemption amount would fall to $1 million. For the nation’s family-owned home builders, the estate tax is a threat to keeping an multi-generational enterprise alive.

For housing demand, a number of expiring tax law provisions would reduce after-tax income and homebuyer and rental demand. For example, if the 2001/2003 tax cuts expire, the marriage penalty returns for a significant number of taxpayers. The child tax credit falls from $1000 to $500 per child.

Finally, while already in the baseline, there is also the issue of the “tax extenders.” For housing, important tax extenders needing approval include the 9 percent credit fix for the Low-Income Housing Tax Credit, the 25C energy-efficient remodeling credit and the 45L new energy-efficient home tax credit.

So what do we expect to happen? While a lot rides on the results of the 2012 presidential and congressional elections, the best guess is that Congress manages to avoid the fiscal cliff, but as usual, runs close to the effective deadline. Thus, most, if not all, of the 2001/2003 tax cuts will be extended, perhaps for just a year or two. The payroll tax cut and extended unemployment benefits will likely lapse, but we expect the net spending cuts from the Budget Control Act to stand, even if there is some shifting or postponement among certain programs.

It is worth noting that there is a long-run fiscal challenge. Current budget deficits are unsustainable year after year if present policy is extended. Hard choices are going to have to be made regarding government spending - particularly entitlements – and tax revenues. But those choices do not have to be enacted in 2013, and given the weakness in the economy, they should not be.

While our expectations are that an economic crisis is averted, how the fiscal cliff problem is solved in 2012 will shape the tax reform debate in 2013. And given then importance of the MID and other housing tax rules, the importance of the short-term political challenge should  be apparent.

SOURCE:NAHB(National Association of  Home Builders)

How Not to Get Loan Approval

Here are seven sample scenarios that could make it difficult to obtain financing for a new home...

1. Changing jobs before the loan closes
The underwriter approved your application based on your documented income covering two years or longer, from one source. At closing you must certify that all the information in your application continues to be true, which short of committing perjury you won't be able to do if you switch jobs. Your revised job history will be numbered in days rather than years, which could cause a rejection.

Back in the pre-crisis days, underwriters had discretion to use their judgment in such cases. If the borrower was moving up to a better position in the same field, for example, they would let it go. In today's market, however, underwriter discretion has been markedly reduced, and the likelihood of rejection is uncomfortably high. The prudent thing to do is to defer the job change until after the loan closes. Nobody will care what you do then.

2. Counting future expected rental income as income needed to qualify for the mortgage 
Anticipated rental income cannot be counted as qualifying income unless it is documented in the owner's tax return for at least two years. Further, only income net of expenses would be counted, and that number would be very small or zero if you expense everything you can in order to avoid taxes.

3. Using your income and your spouse's credit to qualify
Good credit without the means to pay is of little value to lenders, and good income without the willingness to pay is not much better. Lenders require both capacity to pay and willingness to pay in the same person.

Before the financial crisis, married couples who had one spouse with the required income and the other with good credit often took "stated income" loans. Stated income was not verified by the lender. These loans were taken in the name of the spouse with good credit, who stated that the income of the other spouse was theirs. But stated-income loans no longer exist.

4. Not understanding what pre-approval means
The main purpose of preapprovals is to establish the bona fides of potential homebuyers to home sellers and their agents, who don't want to waste time dealing with wannabe buyers who can't qualify for a mortgage. With an increasing number of potential homebuyers unable to qualify, the value of reliable preapprovals has increased.

However, the same factors that make it more difficult to qualify for a mortgage today also make preapprovals less reliable. This is especially the case with self-employed buyers, who may be rejected despite having been preapproved. Preapprovals are always subject to conditions, the most important of which is a minimum appraised value. If an appraisal comes in below the minimum, the preapproval dies.

5. Getting financing for a "nonpermanent resident alien"
The terms for this type of buyer is a little stiffer because of the risk that you might be obliged to leave the country. Lenders will require a larger down payment and/or a higher interest rate. In contrast, a "permanent resident alien" suffers no penalty.

6. Not understanding that your student loans can affect your ability to get a loan
If you must begin repaying the debt within the first year of the mortgage, and if the amount is large relative to income this could cause problems with qualifying. If the payments are deferred more than a year, it is a judgment call by the underwriter who will consider the size of the student debt, your credit and perhaps other factors.

7. Divorce decrees and title to your previous home
If you are still on title for your previous loan you are still responsible for it. If you can afford a new mortgage but not two mortgages, your ex-spouse will need to agree to refinance the mortgage in their own name to remove your name from the current deed. Such a provision should have been part of a separation agreement.
The only other possibility is to convince the new lender that the ex-spouse remaining in the house is sufficiently creditworthy that there is negligible risk of your having to meet two payments. That will require documentation that your ex has been making the payments on their own already for at least a year.

Source:  Jack Guttentag at Inman News®

Mortgage Rates Declining

Mortgage rates continued their descent into uncharted territory this week as investors seeking a safe haven from the European debt crisis snatched up bonds backed by mortgages, and the Federal Reserve continued programs intended to keep a lid on long-term interest rates.

Rates on 30-year fixed-rate mortgages averaged 3.67 percent with an average 0.7 point for the week ending June 7, down from 3.75 percent last week and 4.49 percent a year ago, Freddie Mac said in releasing the results of its Primary Mortage Market Survey. That's a new record low in Freddie Mac records dating to 1971.

For 15-year fixed-rate mortgages, rates averaged 2.94 percent with an average 0.7 point, down from 2.97 percent last week and 3.68 percent a year ago. Rates on 15-year loans have never been lower in records dating to 1991.

Rates on five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans averaged 2.84 percent with an average 0.7 point, unchanged from last week but down from 3.28 percent a year ago. Rates on five-year ARMs hit 2.78 percent during the week ending April 19, an all-time low in records dating to 2005.
For one-year Treasury-indexed ARMs, rates averaged 2.79 percent with an average 0.4 point, up from 2.75 percent last week but down from 2.95 percent a year ago. In records dating to 1984, rates on one-year ARMs hit an all-time low of 2.72 percent during the week ending March 1.

"Fixed mortgage rates reached new record lows for the sixth consecutive week as long-term Treasury bond yields declined further following downwardly revised economic growth and job creation data," Freddie Mac Chief Economist Frank Nothaft said in a statement.

Revised numbers show that gross domestic product rose 1.9 percent in the first quarter -- not the 2.2 percent originally reported. The unemployment rate inched up to 8.2 percent in May as the economy added 69,000 jobs, less than half of the market consensus forecast, Nothaft noted.

Although record-low mortgage rates have served as an incentive for homeowners to refinance existing loans, tight underwriting standards and fears about the strength of the economic recovery have kept some would-be homebuyers on the fence.

The Fed also continues to reinvest principal received from its holdings of Fannie Mae and Freddie Mac debt and mortgage-backed securities (MBS) back into agency MBS, and roll over its maturing Treasury holdings at auction.

"These policies have supported the economic recovery by putting downward pressure on longer-term interest rates, including mortgage rates, and by making broader financial conditions more accommodative," Bernanke said.

Although concerns about the European debt crisis and the health of banks in a number of eurozone countries "continue to create strains in global financial markets," Bernanke said, the demand for U.S. exports "has held up well. The U.S. business sector is profitable and has become more competitive in international markets."

Source: Inman News

The Future of Home Ownership

Many questions have circulated about the future of housing and whether the concept of homeownership will forever be changed in the United States. Well-known psychotherapist, Dr. Robi Ludwig partnered with Coldwell Banker Real Estate to explore the feelings Americans have on the value of the home and homeownership now, compared to before the economic downturn. An online survey conducted in April by Harris Interactive among more than 2,100 U.S. adults aged 18 and older found a clear consensus: the economic downturn has had a distinct effect on the way people view homeownership, but owning a home is still the foundation of the American Dream. 

According to Dr. Ludwig “This survey shows we are re-thinking what passed for conventional wisdom during the ‘boom years’. Instead of taking things for granted, people are protective of their jobs, homes and futures,” she explains. “Instead of looking at homes through the eyes of an economist, we’re realizing that a home doesn’t solely equate to financial return or measure only to a mortgage amount. Instead the home is the emotional center of our lives, and it remains a critical component of who we are.”

Here are some of the survey results:

84% of U.S. adults agree more people took owning a home for granted before the recession, and nearly three-quarters (72%) said they feel like Americans have a greater respect for it now than they did before the recession.

75% of U.S. adults agree that due to changes in the housing market and/or economy there has been an overemphasis on the financial value of a home rather than the emotional value of a home.

86%of Americans agreed that people are more closely evaluating how much home they can truly afford now, compared to before the recession.

91% of Americans agreed that owning a home is part of the American Dream (93% homeowners, and 89% of renters).

83% of renters said that they want to own a home someday.
94% of homeowners agreed that they are glad they own a home.

The survey found 95% of parents / legal guardians agreed that it is important for their children to own a home someday; and 74% feel it’s absolutely essential / very important.

78% said that owning a home is one of their greatest achievements, and 85% of U.S. adults (which includes both homeowners and renters) agreed that they always dreamed of owning a home.

71% of U.S. adults agree that their home is a reflection of their identity, with homeowners being significantly more likely to agree with this statement than renters (74%t, compared to 67% of renters).

Source: RISmedia

Flood Insurance Extension Passed By Congress

Congress passed and sent to President Obama a 60-day extension of the National Flood Insurance Program (NFIP)which was set to expire. The legislation gives lawmakers breathing room to look at a long-term extension and reform of the program, which NAR strongly supports.

The program, which provides federal backing of flood insurance for some 5.6 million home owners in 21,000 communities around the country, has been subject to more than a dozen short-term reauthorizations similar to yesterday’s in the last four years. Since 2008, the program has lapsed twice, with one such lapse lasting almost two months in 2010. NAR estimates that some 1,300 transactions a day were stalled during that lapse, creating enormous economic dislocations for the communities in which the properties were located. NAR has estimated that 8 million homes, or about 10 percent of all homes in the country, are located in either the 100-year flood plain or other types of flood hazard areas.

In testimony before the Senate Banking Committee earlier this month, NAR President Moe Veissi  asked lawmakers to turn to long-term extension of the program as soon as possible. “All stopgap extensions do is maintain an uncertain status quo while shut downs risk homes, businesses, communities, and the U.S. economy,” he told the committee. NAR is urging lawmakers to reauthorize the program for five years and make reforms to increase the program’s efficiency.
Among those reforms are changes to the appeals process for areas designated as flood hazards areas, streamlining and improving the review process for flood mapping, and making the pricing structure more accurate.

Source: REALTOR® Magazine

Home Prices Show Strongest Gain in 6 Years

Existing-home sales rose to 4.62 million (seasonally adjusted annualized rate) in April from a downwardly revised March rate of 4.47 million, the National Association of Realtors (NAR) reported Tuesday. Economists had forecast the April sales pace would be 4.66 million.

The median price of an existing home climbed 10.1 percent to $177,400 from $161,100 in April 2011, the strongest year-to-year gain since January 2006. The median price in April reached its highest level since July 2010 when it was $182,100.
The inventory of homes for sale in April rose to 2.54 million, the highest level since last November, bringing the months’ supply of homes on the market to 6.6.
The 10.0 percent yearly gain in the sales rate was the strongest since October when sales were up 14.0 percent year-over-year.
Distressed homes – foreclosures and short sales sold at deep discounts – accounted for 28 percent of April sales (17 percent were foreclosures and 11 percent were short sales), down from 29 percent in March and 37 percent in April 2011, the NAR said. Foreclosures sold for an average discount of 21 percent below market value in April (compared with an average discount of 19 percent in March), while short sales were discounted 14 percent in April compared with 16 percent in March.
The months’ supply of existing homes for sale remains well below the July 2010 cyclical peak of 12.4 which had been the highest level since 1982. Inventories as tracked by the NAR are 20.3 percent below their year ago level. However, anecdotal evidence suggests there is still a large “shadow” inventory of homes available for sale, especially bank-owned properties.
Regionally, existing-home sales rose in April in every region of the country led by a 5.1 percent month-to-month increase in the Northeast where sales were up19.2 percent over April 2011. Sales rose 4.4 percent over March in the West (a 7.3 percent year-year gain), 3.5 percent in the South (6.5 percent year-year) and 1.0 percent in the Midwest (14.4 percent year over year).
The median price of an existing home rose month-to-month and year-to-year in all four regions. At $256,600, the median price of an existing home reached its highest level since August 2010. The median price of an existing home in the South rose to $153,400, the highest level since July 2010 and the median price of an existing home in the West rose to $221,700, also the highest since July 2010.
The year-to-year price gain in the West, 15.9 percent, was the strongest since November 2005. The year-to-year price increase in the Northeast was the first since last June.