FHA Mortgage Expert - Tri-State Area - New Jersey/PA/Delaware

 

 

BUYER BEWARE of Tax Credit

 

The first time homebuyers tax credit of $8,000 has been approved by HUD for all FHA loans. But don't get too excited too quickly. If you get a chance to read the mortgagee letter, ML 2009-15, it states that you can't use this tax credit for the required down payment of 3.5%.

HUD originally put out mortgagee letter 2009-15 on May 12th, but was rescinded the next day. Please read about that here : $8,000 tax credit rescinded by HUD. For some reason, it was prematurely placed on HUD's web site, but apparently wasn't finalized. Now we have a new version and if not read correctly, you could be putting misinformation out there. So what does the new mortgagee letter state?

 

 

 

Here is the positive part about the tax credit. You can receive the first time homebuyers tax credit upfront, but not through the IRS.  This would be illegal. Please read : It's illegal to receive your tax credit before you close on your home.  Buyers - BEWARE, please read that, because too many people are saying that you can get the money directly from the IRS prior to closing. The IRS & HUD both say no!!!

So how can you receive this upfront?  It can be given to you as a second or a silent second from any Federal, State, or local agencies, and any FHA mortgagee or any FHA approved non-profit organization.  People, in layman's terms, this is already acceptable by HUD's standards, except for the lender that is now able to give the monies upfront in a form of a 2nd mortgage. Another terminology is that this can be an advance loan from any of the entities mentioned above.

 

 

 

Summary :  Essentially, this means that the entities mentioned above, are purchasing this tax credit on your behalf and giving it back to you. The short version of this is that you can use some of the money from the $8,000 Tax Credit as your down payment, but after you put down the first 3.5% of that down payment. Meaning, you have to come up with 3.5% of your own money still. With FHA loans, it can still be a gift from a relative/family member.  It also can come from non-profit or government agencies to be used as your initial down payment, but not used through the tax credit. Overall, the tax credit that is advanced, can be used for all closing costs. But you can't receive monies back at closing. 

And again, keeping in mind, it's illegal to receive this tax credit upfront directly from the IRS. There is more verbiage in the mortgagee letter 2009-15 , but the main point is that you have to have 3.5% of the downpayment yourself, before you can use the tax credit that would be 'loaned' to you.

 

 

THOUGHTS??? - Well, in all honesty, how does this truly help? What is the gov't thinking here? As a buyer, I would still need the initial 3.5% of my monies for the down payment. Again, needing money to buy. I know some of you are for this fact, that buyers should have skin in the game. But keep in mind, this was not the true demise to our foreclosure mess. We need to sell houses to keep this economy going.  Just my opinions and food for thought.  thanks

 

 

My Series on the First time homebuyers $8,000 tax credit - Everything you need to now, from start to finish - What's allowed and what's not allowed :

• The $8,000 tax credit for first time home buyers - The basics - What to know about it  - Understanding what the tax credit is all about.

• Use a 6 month gift from a relative to buy a home, thanks to the Tax Credit - How to get creative in using the tax credit and some FHA mortgage guidelines in helping you use this tax credit to your advantage.

• Using First-Time Homebuyer Tax Credits for the Downpayment - It's GONE !!!! - The story of the $8,000 tax credit - The bottom line, you can't use the actual tax credit as your downpayment.. for your downpayment, unless you get it from other sources prior to buying the house and receiving the tax credit.

• FRAUD ALERT - Advice on the $8,000 first time homebuyers Tax Credit - Do you chance it??? - This explains to you that it's fraud if you directly obtain the money from the IRS before you actually purchase the house. Even HUD and many lenders/investors acknowledge this also.

• The $8,000 tax credit for First Time Homebuyers - How & when to get it legally -  So how can the tax credit be received legally for your downpayment? Just be careful of those that promise other ways not mentioned. I talk about what is illegal in the previous blog above. Please click the link.

• The First time homebuyer $8,000 tax credit has been amended - May 29th, 2009 - Buyer, beware !!! You still need 3.5% of your own money for the down payment. It can't come way of an upfront loan through the tax credit.

 

 

 

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger

 

Memorial Day

 

- How many of us truly know what Memorial Day is and what it stands for?  Besides that extra day off, that many of us celebrate it with friends and family. Do you know that today is a day to honor all of those men and women that died while serving in the military. It's not suppose to be a day to honor those men and women that now serve us, but those that gave their lives for us to enjoy the freedom that we have today, as Americans.

Memorial Day was first known as Decoration Day and is celebrated on the last Monday of May each year. It's a day for those to go around to the cemeteries to decorate the graves of those that fought and died for our country. One of the traditonal ways to observe this time is a national moment of remembrance that takes place at 3 pm on Memorial Day. Another tradition is to fly the flag of the United States at half staff from dawn until noon. For more information on this great day, Memorial Day, please read : Memorial Day  (the picture and some of the information supplied is from Wikipedia)

 

 

I was watching the news last night, which I hardly do anymore for several reasons. But they had interviewed this gentleman, Tom Day, who is a retired military officer who started Bugles Across America. What touched my heart the most while watching this interview is that this is a person that feels that our Veterans that died in the military should deserve a live rendition of taps played by a live bugler. What is intriguing about this is that Congress passed legislation stating that Veterans had the right to at least two uniformed military people to fold the flag and play taps on a CD player. Mr. Day wanted to take this a step further.

 

 

Overall, this touched me on several issues and I wanted to spread this message to others. My grandfather, James Quinn, fought in World War II and passed away on May 30th, 2003. We had a very nice service for him and even had the bagpipes there. But at the very end, the two in uniform that were there on behalf of the military, had a problem folding the flag. And I was asked to help if I had an idea on how to tuck the end of the flag in, because I had served in the U.S. Army from '86 to '88. At one time, we actually had a quick class on how to tuck the flag of the United States, so I was honored to help. But I commend Tom Day and his organization, to make sure that the men and women who died so courageously for our freedom, that they get the real thing. If anyone has ever been to a funeral to where there is real live taps being played in the background, it sends shivers down your spine. At least it does for me whenever I hear this. And to think that we can just make a small effort in making sure that this is real, for those that died while serving our country, I think it is the least that we can do.

 

Now, Mr. Day does ask for donations on his site. I know in a struggling economy, this might not be easy. But they also look for volunteers that could actually play Taps on the bugle or a few other instruments while doing the same. His organization now has more than 5,000 buglers that can volunteer acros the Untied States. For more information on this and information that he displays on his site, please go to : Bugles Across America

 

 

Part of my passion in writing this was because not only was I inspired to write about this because of Tom Day's desire to give Veteran's a proper and honorable burial, but that I was inspired after reading Missy Caulk's post, What are you talking about around the picnic table. Something that I think many of us don't do as often as we should do. And keeping in mind that this is not Veteran's Day, which is a day to honor and thank all those men and women who served in the military, those living, who died, or those on active duty. Please just keep the focus here and honor all those that died for our country.  

 

 

 

 

Proud to be an AMERICAN

 

 

 

 

 

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger

 

 

Good Faith Estimates  - Extremely important message below!!!

 

If you are a consumer looking to purchase or refinance, this is a must read. It could cost you thousands if you don't pay attention. This is not a threat, but a warning from someone that has over 16 years of experience in the mortgage industry.

When shopping for a mortgage, even if shopping with more than 2 lenders, you want to get a good faith estimate from everyone that you speak to.

 

 

So, here is my pet peeve.  This is a major red flag -  if you speak to a loan officer, on the phone or in person, and they didn't offer you a good faith estimate, don't walk, Run!!!

The Good Faith Estimate is an over abused term and can be misleading. If the loan officer qualifies you for a mortgage, no matter if its a FHA loan or a conventional loan, you should receive one in a few hours. In reality, if the loan officer qualifies you and tells you a rate, a payment, and your total costs, they should be able to give you that good faith estimate in a matter of minutes. Think about it, they had to do this already in order to give you those figures.  There is no excuse. Sure, things happen, but just being busy is not good enough. Unless they specifically tell you that they will give it to you the next day. This can happen, but other than that, if they dont communicate this with you, no excuse. And this could be indicative to how your loan process will go.

Let me ask you this. If you are shopping for a car, don't you want to see your payment, interest rate, and total costs?  I know I would. If you have to keep asking for a good faith estimate and it's been 3 days, major red flag.

 

Overall, it doesn't matter if you are applying for a FHA loan, a conventional loan, or any other type of mortgage.  If you have to beg for a good faith estimate, you are just asking for trouble in most cases.

 

 

 

 

THE GOOD FAITH ESTIMATE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

So, what is a good faith estimate? Its an estimate of all your costs associated with buying or refinancing your home. But here is the catch. There are some costs that are known costs and not just estimates. These would be the lenders fees. The lender fees are all fees that are under lines 801 to 823. I enlarged this section below for you.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three things that you want to look for when you first look at your GFE.

• Look at the loan program and make sure this is the program that you want. If it was an adjustable, it would say differently.  This would fall under the term of the loan.

• Look at the mortgage rate. Make sure this is what you discussed when speaking to your loan officer. (Up top, middle of page, yellow highlight)

• The 3rd issue are the fees. As I mentioned above, everything in section 801 to 823 would be the lenders fees or anything the lender is going to charge you. (left hand column with highlighted items) Don't ever be fooled if one lenders fee is higher than the other. You still need to compare the mortgage rate.

(Speak to your tax accountant to make sure what can be written off and what cant. But typically just the points can be written off)

 

 

What not to do when comparing good faith estimates.

• Don't compare total fees at bottom of the GFE, which I will explain why below.

• Just dont compare the APR of the loan. (explained here)

 

 

 

 

Conclusion:  Again, don't always shop and ask for total fees. Compare the lenders fees the most. In regards to your escrows, each state is different. I highlighted this in red. Your property taxes are paid either quarterly, twice a year, or once a year. I have seen some loan officers sometimes not show enough for your escrows in regards to the property taxes.  Its very easy for a loan officer to say at closing, ˜these aren't my fees, so all I can do is give an estimate.  Word of advice, yes, its an estimate. But I have seen some loan officers estimate less to make the overall cost look cheaper. And just be careful, because some of these figures are not worth the paper that they are written on. It's just that, an estimate based on good faith. Make sure that you always speak with a Mortgage Professional.  And don't shop yourself right out of the market.

 

One other thing, if you have 3 good faith estimates in front of you, always go back to the person that you had the best feeling with, that you are comfortable the most with, and share the other 2 with them. Just don't run to the person with the best rate and or fees. I always like my clients to come back to me no matter what. I might be able to point something out to them. And this next topic must be discussed when receiving a GFE, otherwise this Good Faith doesn't mean squat.  Locking or floating my mortgage rate !!!!

 

Lastly... if you are going to shop rate & costs, ALWAYS shop on the same day !!!  Rates change daily...

 

 

 

UPDATE :  The laws in some states are different, when a good faith estimate must be given. In Paul McFadden's example, comment #15, they have 3 days from the day they pull credit. According to RESPA, the lender has 3 days from the time of application. When just casually shopping, there is no time period or law.

In regards to my example, with the rate and points, this is just an example. Besides, not all rates or good faith estimates come with points. And I don't charge fees. But there is a cost of doing business with any lender or bank out there.

 

 

 

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger

 

 

How hard it is to pre-qualify or pre-approve a borrower now than it was 2 years ago?  Some would say much harder. I would agree and disagree. Here is why....

Let's put aside the appraisal issues, the mortgage insurance issues, credit scores, and several other factors, because those would be some of the main reasons why it is harder to approve someone. I just wanted to dwell on the basics that so many seem to forget or overlook. I bring this up because Lenn Harley wrote a blog last week, Qualifying borrowers is not rocket science, which has received 200 + comments. If you haven't read this, I suggest you do.

 

 

 

When I asked which came first, the chicken or the egg, my basic point that I would like to make is whether a borrower should be qualified to the maximum purchase price or the payment that they feel most comfortable with. There would be many arguments that would defend both sides. But let's think about this for a moment and what Lenn Harley was trying to convey in her post.

Lenn was trying to determine a price range with those potential borrowers and not take a loan application. She was using a basic method...  Qualifying ratios and assets. It's very simple. Lenn was using 30/40 ratios, which would be 30% for the front ratio and 40% for the back ratio. The normal conventional ratios are 28/36 and for FHA loans, they are 31/43%. But let's not stop there.  Lenn wanted to know about the buyer's assets also. If one had 10% to put down, and with those ratios, qualifying the borrower would not be rocket science.  Yes, we need to check their income and credit scores do matter. Lenn has a few preferred loan officers that she works with, who would pull their credit. And Lenn has a financial sheet that she asks all borrowers to fill out, which would also question other debts that they have monthly, their monthly reoccurring debt.  All she wants to do is see if they would fit the basics, to make sure it would be worth driving them around for a day, just to get a feel for what is out there. If they didn't fit the basics, she would then advise them to get fully pre-qualified by a reputable loan officer.  I found that to be very basic and easy to understand message. Let's take the qualifying issues a little further.

 

 

Jeff Belonger's top 10 questions to almost assure a successful qualification :

 

  1.  How much of a mortgage payment would you be comfortable with?  A payment range, to include taxes & homeowners insurance.

  2.  Are you buying the property as a primary, 2nd home, or investment property.

  3.  Is the property a SFD, condo, duplex, tri, etc, etc?

  4.  How long have you been on your current job.

  5.  Are you hourly, salary, or self-employed.  (how are you paid - twice a month or every two weeks)

  6.  Do you pay or receive child support/separate maintenance.

  7.  Have you had any bankruptcies or foreclosures in the last 7 years.

  8.  2 part question - What are your total assets to include checking, savings, 401-k, stock options, etc, etc. And how much of this do you want to use.

  9.  Do you rent and or own - how long have you been there. Do you pay by check, cash, money order.  And have you ever been 30 days late in the last 12 months.

 10. (I do ask if they have had credit pulled in the last month or so, and if so, if they knew their credit scores) And I ask specific credit questions, relative to their payment history.

 

 

 

What is one of my biggest problems/pet peeves in this mortgage business?  It's those individuals that claim to be both a loan officer and a realtor. Someone that can help you find a home and at the same time, do your mortgage application. This is not what Lenn Harleywas claiming to be. If you are working with someone that is doing both for you, I would highly suggest that you find someone else. I have many reasons for this and some will disagree.

What I find that so many borrowers are stuck on, fixated on??  It's that they want the best interest rate, yet they don't have a trusted loan officer that will ask them the first question that I try to ask first all the time. What payment do you feel comfortable in paying??

 

 

 

Summary :  Yes, we all want the best interest rate. But the best might not always be the best for you. It can certainly be a balancing act, trying to get the best of everything.  But I strongly think that we need to focus on what is good for you, and not how much of a house that you can get. I think that was the point that Lenn was trying to make. Besides, who cares if your rate is 5% or even 6%, when your payment would be $3,000. And that you could actually qualify for that $3,000 payment. But that payment is too high for you and you really wouldn't feel comfortable going over $2,000 a month. Hence why I ask the questions that I ask.

One last thing. Where do I see the major issues to why so many are denied last minute, outside the appraisal issues?   Numbers 5, 6, 7, and 10. It truly comes down to so many loan officers that don't know how to accurately calculate income and to properly read a credit report. This is my opinion, but I have closed many loans in the last 2 years that were denied last minute by other lenders due to these two issues alone.  And yes, I still got them to close. 

 

 

 

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger

 

 

Topic : $8,000 tax credit for first time homebuyers - And no, I am not trying to beat a dead horse. This post is timely and very important because of the comments and e-mails that I have been receiving. I want to share with you a list, the legal ways that the borrower can receive these monies.

As many of us know, you can't use the actual $8,000 tax credit for your downpayment. The IRS even lists this in their instructions. Please read what happened to the Tax Credit : The $8,000 tax credit as a downpayment - GONE - 

The second issue? It is fraud to use the tax credit monies as your downpayment. Please read : FRAUD ALERT : Advice on the $8,000 first time homebuyers tax credit.

 

 

Here is the basic issue about whether or not you can use the tax credit as your down payment. You can't get the money ahead of time from the IRS to use it for your downpayment. You can get other monies ahead of time from other sources to use as your downpayment, and then apply for the $8,000 tax credit. But you can only apply for the credit after you buy the house. The IRS states this on their web site and in their instructions. The instructions and form 5405 for the IRS Tax Credit  Here is what the IRS says in a questions & answers section :

Q. I am in the process of buying a home. I expect to close the deal before December 1, 2009. Can I claim the first-time homebuyer credit now? That would allow me to use the refund for a down payment.

A. No. You may not claim the credit in anticipation of a purchase that has yet to happen. Until you have finalized the purchase of your home, which for most purchasers occurs at the time of the closing, you do not qualify for the credit.  IRS news release 2009-27, First-Time Homebuyers Have Several Options to Maximize New Tax Credit, contains details for filing options if the home is purchased after April 15, 2009.

 

 

So, how can I get the monies before I purchase the home?  Here is a list of your legal options. And keep in mind, the IRS says that you can't claim the tax credit before you buy your home. But read below, there is one way to get part of your tax credit monies before you buy, LEGALLY.

• Saving monies to purchase
• up to 100% of a gift from a relative/family member (FHA loans only)
• From the Federal, state, and local governmental agencies and nonprofit instrumentalities of government (I will spell this out more below. This is about those certain states that will give loans upfront, to be used as your downpayment. This has been the main confusion of discussion.)
• FHA approved non-profits 
• monies from their employer in a form of employee contribution (for FHA loans only)
• monies from secured borrowed funds... IE. borrowing equity from your home to buy another home or borrowing against your car that is free and clear or borrowing from your 401-k, etc, etc
• Reducing your tax withholdings which will allow you more monies back in your pay check. (please read more about this below.)  But this is the only way to legally get some of your tax credit upfront. 

(please consult a CPA, tax accountant, or real estate laywer with further questions & specifics)

 

 

 

Are you in the blues, because you are still so confused?  Here is the breakdown of two main issues that people have been confused about.

 

  1.  Federal/State/Local programs- My state that I live in is offering a loan or monies for my downpayment. Yes, this is perfectly legal, because it is coming from a State or Local agency. You can also get this money upfront from a non-profit organization. No, not AmeriDream or Nehemiah, yet I am sure they are working on this. But there are other non-profit agencies out there that is not tied to the seller funded DPA's. 

       How does this work? Very simple..... you have to follow the state guidelines and use their financing programs. Yes, some lenders and banks are set up to do these state bond programs, in which the state has attached a second soft lien per se. Meaning if you sell or refinance the home in a certain period, that monies needs to be paid back. But keeping in mind, once in the house, you can then actually apply for the $8,000 tax credit, or what you are allowed to receive.

 

  2.  Partial Tax Credit monies upfront -  You can actually reduce your tax withholdings with the IRS.  This enables you to receive more monies in your pay check, because you are paying less taxes. You will just owe more at the end of the year. But wait, it can be applied towards the $8,000 tax credit that you can file for. Example :

       You do qualify for the $8,000 tax credit. If you didn't reduce your tax withholdings, you would have had to pay $1,000 to the IRS. But now you do reduce your tax withholdings and you were able to save an additional $3,000 up until the day you bought your house, the day that you settled on it. But now you will owe the IRS $3,000, plus your normal $1,000. That equals $4,000. Hey, but you can apply that towards the $8,000, which means that you will still get $4,000 back when you do next years taxes. And keep in mind, you can amend your taxes to receive the monies sooner. Again, speak to a CPA or tax accountant.

 

 

 

CONCLUSION :  So there you have it. In my first blog, you know that HUD rescinded the mortgagee letter, ML 09-15, which stated that some entities could do a bridge loan and give you your tax creditupfront, that you could use it for your downpayment. In my 2nd blog, I tell you that it's actually fraud to use any part of the tax credit as your downpayment, not unless you get it as I explained above. These are the basics and you need to be careful on who gives you what professional advice. Just because they say they are an expert or professional, doesn't always mean that they know what they are doing.  Sorry, but it's the truth.

PS... and for those that say builders in their states are offering this and or that...??. Unless they are using a non-profit setup, it's illegal. Please read what Ken Cook had to say about this. Ken Cook's Comment

 

 

 

My Series on the First time homebuyers $8,000 tax credit - Everything you need to now, from start to finish:

• The $8,000 tax credit for first time home buyers - The basics - What to know about it  - Understanding what the tax credit is all about.

• Use a 6 month gift from a relative to buy a home, thanks to the Tax Credit - How to get creative in using the tax credit and some FHA mortgage guidelines in helping you use this tax credit to your advantage.

• Using First-Time Homebuyer Tax Credits for the Downpayment - It's GONE !!!! - The story of the $8,000 tax credit - The bottom line, you can't use the actual tax credit as your downpayment.. for your downpayment, unless you get it from other sources prior to buying the house and receiving the tax credit.

• FRAUD ALERT - Advice on the $8,000 first time homebuyers Tax Credit - Do you chance it??? - This explains to you that it's fraud if you directly obtain the money from the IRS before you actually purchase the house. Even HUD and many lenders/investors acknowledge this also.

•  The $8,000 tax credit for First Time Homebuyers - How & when to get it legally -  So how can the tax credit be received legally for your downpayment? Just be careful of those that promise other ways not mentioned. I talk about what is illegal in the previous blog above. Please click the link.

• The First time homebuyer $8,000 tax credit has been AMENDED - May 29th, 2009 - Buyer, beware !!! You still need 3.5% of your own money for the down payment. It can't come way of an upfront loan through the tax credit.

 

 

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger