Fairfax-VA.  The ML 2010-24 is guidance for Combined Loan To Value (CLTV) refinance transactions – only. The new policy and guidelines are more restrictive than the old FHA policies guidelines.  In the past FHA policies did not have a restriction on minimum equity limits (LTV and CLTV in loan talk), but Wall Street and the big banks added their own restrictions that allowed an FHA loan to be underwater by only 25% of the appraised value.  Essentially in the past,  FHA didn’t care how far underwater a borrower was, the loan request was able to be approved if the loan circumstances met FHA guidelines. But the companies that funded FHA loans do care how much equity a homeowner has. In the end,  investors (Wall Street and the big banks) did and do care how far a homeowner is underwater so they set the max at 125% of the home’s value as the limit.  Just as in the past, he who has the gold sets the rules. Wall Street and the big banks have the money and clout, so they set the rules to try and limit their exposure to potentially bad loans which could result in large losses.

An explanation of three different FHA programs is below:

Homeowners are now restricted to a 97.75% LTV (2.25% remaining equity) on rate and term refinance, 85% LTV (15% remaining equity) on cash out refinance and 125% CLTV (underwater by 25%, so ZERO equity) for an FHA streamline refinance.  The refinance for borrowers in negative equity positions (underwater) is only available if the current servicer is willing to give up 10% of the current loan balance and that loan must not be a FHA insured plus many other restrictions.  The LTV limit is 97.75% and the CLTV limit is 115%, you should not get excited about this product since it will be more difficult than getting a short sale approved.  This is based on the ML2010-24: Combined Loan-to-Value Requirements for Refinance Transactions (8/6/10).

Fairfax, VA – With the increased role FHA has taken in the lending world since 2007, FHA has experienced an increase of foreclosures which caused FHA to tighten lending guidelines, increase down payment requirements and institute minimum credit score requirements to qualify for an FHA loan.  Here are some changes that have been made or are on the horizon.

Credit Scores – A minimum credit score of 500 is required.  Borrowers with credit scores below 580 would have to put at least a 10% down payment on the property.  Although FHA has minimum scores of 500 and 580, most lenders have score requirements of at least 620 or higher.

Underwriting – Underwriting is a tool lenders use to document information about the property (value) and the borrower (income, credit score, debt).  The underwriting process is used to assess whether the borrower is likely to repay the loan.  Most lenders today use an automated underwriting system (LP - Freddie Mac or DO/DU – Fannie Mae) to get approval of the loan.   If the automated system flags the loan, a more in-depth manual underwriting procedure would take place to ensure the borrower qualifies for the loan.  The underwriter could require additional funds for cash reserves equal to one mortgage payment or explanations or documentation to further clarify certain aspects of loan file. 

Cash-out Refinancing – Is when a homeowner removes equity from the home in the form of a higher loan amount than before the refinance.  Currently a borrower can take up to 85% of the home’s current value.  Previously, this amount was 95% of the home value.  In order to be eligible for a cash-out, you must have excellent credit and have at least 15%  equity after the refinance. (Example: Value $100,000, Owe: $50,000, Equity available is $35,000 less any applicable closing costs.

Seller Concessions – This is a big one.  A seller concession is an amount that is negotiated in the sales contract that the seller will pay towards the buyers closing costs.  The FHA wants to slash allowable seller concessions in half, from 6% to 3%.  Some buyers want to roll in their closing costs, appraisals, etc. into the loan amount. This is not allowed with FHA loans. But this doesn’t ban concessions of over 3%.  What the new guidelines require is a dollar for dollar reduction in the home’s sale price and reduce the amount of the allowable loan.

Short Refinancing – If a borrower has no equity in their home,  they would be allowed to refinance into an FHA loan.  This is on the first loan only.  If there is a second mortgage, the two loans combined cannot exceed the current value of the home by more than 15% once the first loan is refinanced. Not every lender will allow a short refinance since the current service could be losing money by reducing the loan amount.

You’ve heard about the Credit Crunch and its tightening effect on lending guidelines in the mortgage industry, but what does it mean to millions of Americans who need student loans to help pay their college tuition?

The student loan market looked pretty bleak during the first quarter of 2008. Not only did the reduced benefits created by the College Cost Reduction and Access Act in 2007 kick in, but for the first time in 40 years, no bonds backed by student loans were purchased during this time. The new bill, which was good news for students, was funded by cutting subsidies to student lenders already feeling the effects of the credit crunch. According to Forbes, this loss of liquidity spooked a lot of investors of the student loan asset-backed securities market, destabilized Sallie Mae, the largest federal student loan provider and servicer, and sent student lenders into turmoil, as at least 50 federal student loan providers scaled back or ended participation in this type of lending.

Since then, Congress has passed legislation and taken other measures to ensure that student loan companies continue to issue federally subsidized student loans. Now, according to the National Association of Student Financial Aid Administrators (NASFAA), most “traditional” students should have no problem getting federal student loans from the remaining 2,000-plus lenders participating in this market.

For those students forced to seek private or alternate education loans, however, this is a much different story. NASFAA says many students could have trouble getting these types of student loans. Because of this, NASFAA added that private student loans should only be used as a last resort when it comes to paying for college.

Which students are affected?

• Students attending smaller schools and for-profit career or trade colleges, or other institutions that rely heavily on private lenders, will find it more difficult and expensive to gain access to private student loans than they have in the past – especially if they have credit issues.
• Older students, students with poor credit, or those students without a creditworthy co-signer (e.g., mom and dad), are likely to pay higher rates for whatever private student loans they are able to find.
• Students whose college tuition is more than their federal loans provide could also be affected if a) a private loan is necessary to make up the difference or b) the student does not qualify for Federal Perkins or PLUS loans or other types of financial aid programs.
• It’s important to note that financial aid, including Pell Grants, Federal Work Study, and education tax benefits are not affected by the Credit Crunch.

The biggest mistake students and parents can make in these situations is loading up credit cards and taking on expensive private loans to pay for college. Over the course of four or five years, this could really add up and put you or your children in debt for years to come. If you’re a homeowner, however, you may be able to avoid this credit trap by consolidating credit card balances and other debt through a home refinance.

Before you make any major credit decision regarding college tuition, give us a call. We’ll gladly review your finances and help you make the best decision for your specific goals and needs.

The Federal Housing Administration (FHA home loans in Virginia) is eliminating one of the mainstays to its program sometime this summer. Gone will be the 6 percent seller concession and in will be the 3 percent seller concession. The reason for eliminating the concession according to FHA is the 6 percent seller concession exposes them to too much risk. This has been one of the key selling points with FHA for decades. But if sellers and buyers move fast there is a possibility they can still take advantage of the higher seller concession.

The buyers must still save or be gifted the money for the down payment to purchase the home. The current minimum down payment is 3.50% of the sales price. The current guidelines on seller concession allow sellers to pay for all of or part of buyers closing costs when purchasing a property.  Items connected with the transaction such as — loan origination and discount points, state and county transfer stamps and fees, an appraisal, inspections, attorney and title closing costs.  

When it comes to lower priced homes, closing and loan expenses typically represent a higher percentage of the total loan closing costs than on higher prices homes. In Fairfax, Virginia and Northern Virginia, closing costs typically run between 2.50% and 3.50% of the sales price of the home. So on a $300,000 home purchase, that could be an extra $7,500 to $10,500 of out of pocket expenses for a home buyer. Current with FHA financing rules, the contract can be structured so the seller agrees to pay all closing costs up to 6% ($18,000) at settlement. This amount could even include some small required repairs.  Once the rule change takes effect, the max concessions will be a flat 3% of the sales price.

If you use Fannie Mae or Freddie Mac financing, seller concessions is generally limited to 3%  for down payments below 20% of the sales price. Although concessions can be much higher when larger down payments are being used.

Bottom line is this: the helping hand of an FHA home loan is getting smaller and smaller. First the down payment was increased from 2.25% (3% in the new home) to a flat 3.50% down payment. Then a minimum credit score, now a decrease of seller concessions from 6% to 3% of the sales price.

Fairfax, Virginia: Do you realize that your biggest expense every month is TAXES?  If you don’t believe me, just look at your paycheck and see how much you earned versus how much you are actually bringing home!  As you strive to save more money, eliminate debt, and build a successful financial future, minimizing your tax expenses each year can make a huge difference in your financial success. 

The Internal Revenue Code is more than 67,000 pages!  Once you determine the proper forms you must complete, it can take hours to complete them properly.  Mistakes can be costly, leading to you paying more taxes than you should, or underpaying which can lead to penalties and interest. 

Fairfax, Virginia taxpayers who do their own taxes often refrain from claiming deductions, exemptions and credits they are entitled to out of fear of making a mistake or not understanding. The result: They pay far more in taxes than they actually owe. And tax-preparation software is of debatable help. If you skip or misunderstand a question, the software will produce the wrong forms or complete them incorrectly.  (*According to the Treasury Department, 56% of all the returns prepared in 2007 by volunteer tax preparers contained mistakes!)

It’s much better to have a certified public accountant (CPA), enrolled agent (EA) or tax attorney prepare your return for you. With narrow exceptions, these are the only people who can represent you in matters pertaining to the IRS. 

As a tremendous insurance policy, if your CPA, EA or attorney makes a mistake that causes you to owe additional tax, you’ll pay only the tax. They will pay any interest or penalties owed. (It’s unreasonable to ask preparers to pay the tax itself; that’s always the taxpayer’s responsibility.)

Ric Edelman, author and top financial planner says, “If you are concerned about the costs of using a professional tax preparer, think of if from a different perspective. According to the latest statistics released by the IRS, the typical married couple in 2005 with an adjusted gross income between $75,000 and $100,000 per year paid $7,300 in federal income taxes. That’s an effective tax rate of approximately 8.4%.”  If the CPA, EA or tax attorney’s fee is $600, that’s just 0.7% of their income. Considering all the time and aggravation saved, plus interest and penalties resulting from errors you might make, this relatively small fee can be well worth it.

By the way, the fee you pay your tax preparer is tax-deductible. If you don’t already have one and need a referral, contact us at jeff@lendingsolutions.net or 571-482-8301.

Deductions in the Loan Process For Homeowners in Fairfax, Virginia

Write-offs are the government’s way of rewarding taxpayers when they’ve done something the government likes. And to judge by the write-offs, the government likes it when people borrow money to buy a house. There are write-offs aplenty, many of which people often forget.

Fairfax, Virginia homeowners need to make sure they take advantage of every break the IRS will give. Here are a few they tend to forget:

Points:
According to the IRS, origination fees charged as points must be paid for the use of money, (for example, to obtain a lower interest rate) in order to be tax deductible. Origination fees that constitute a “service fee” are not tax deductible. The question must be asked, “Does the fee apply to the use of money, or is it a service charge?”

Pre-payment penalties:
Unforeseen circumstances often cause borrowers to pull out of their mortgages sooner than expected. Fortunately, pre-payment penalties are tax deductible, which helps ease the pain.

Fairfax, Virginia Pro-rated real estate  taxes:
Even if the seller sent the tax collector the check, chances are the buyer paid a pro-rated portion of the taxes for the year at closing. Be sure they know to deduct their fair share.

Pro-rated mortgage interest:
Depending on when in the month the home sale closes, buyers pay either a hefty or a tiny amount of pro-rated mortgage interest for that month. Big or small, they can write that off. The Final Closing/Settlement Statement will show just how much they’re due.

Home construction loan interest:
As long as the construction period doesn’t last more than two years before they make the new place their “principal residence,” they can write off the interest for that construction loan.

It pays to pay attention – all these write-offs can add up to some serious savings when tax time comes around.

With over 1,000 changes to FHA programs since 2000, it is important to work with someone that understands how the “new” FHA loan works.  In the last 5 years there have been significant changes made to FHA guidelines designed to make it much easier to originate these loans. but that has not actually been the case. Some changes make it more costly for the consumer. The Upfront MI charge has changed, the streamline progam has been altered and it could cost the consumer more money to refinance. Please call it you have any questions about FHA, VA or conventional loans.

The Senate voted to extend the $8,000 first-time home buyer tax credit. Additionally, the new bill also includes a $6,500 credit for existing homeowners who have been in their current residence for at least five years.

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NAR summary and comparison

Summary:

The Refurbished Home Buyer Tax Credit Details

Current

• Existing $8,000 tax credit is through November 30, 2010. (10% of sales price, up to $8,000 credit.)
• Original tax credit has $8K credit had income limits of $75,000 for singles and $150,000 for married couples filing jointly.

New

• Extension of the existing $8,000 tax credit is through May 1, 2010. (10% of sales price, up to $8,000 credit.)
• To claim the credit you must enter into a valid written contract by May 1, 2010. Must close before July 1^st 2010.
• NEW for long-time residents of same principal residence. 10% of sales price, up to $6,500 credit. Basically a credit for current homeowners that have at least 5 consecutive years in the same home. (This is over simplified version)
• Max sales price of $800,000, Applies to primary residences only.

Military

• Armed Forces – deployed on duty outside the United States. Extensions to May 1, 2011 and must settle before July 1. 2011). Deployment must be for at least 90 days between Dec 31, 2008 – May 1, 2010.

Fraud

• As with every gift, there are those that want to take more than their fair share. So the government has added some fraud prevention measures.
• Must be at least 18 years old to apply for the credit
• Properly executed settlement statement used at closing of home must be included with the tax return. Completed Form 5405.