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 – The House of Representatives approved the Federal Housing Administration Reform Act.   The purpose of FHAR is to bring stability to the FHA lending program. Currently, FHA loans make up about 30 percent of the loans originated in the US. This is a far cry from early to mid 2000’s when real estate agents frowned on any government loan of any type.
 
The FHAR Act is a two-step process which was designed to shore up the crumbling foundation of FHA’s capital reserve account.  The first step to increasing the reserve account occurred in April of 2010 as the up-front MIP (mortgage insurance premium) premiums collected from the borrower was increased from 1.75 percent to 2.25 percent of the loan amount.  But the bigger plan was for FHA to increase the monthly mortgage insurance premium which is currently .55 percent for purchase loans with less than 5 percent down payment or refinance loans with at least 5 percent equity to .50% for homes or loans with at least 5 percent or more equity.  Under the law passed today, the agency will be allowed to increase its annual premium to 1.55 percent of the unpaid balance of the loan. The change or increase is expected to be a two part process. The first change is expected to increase annual MIP to from .55 percent to between .85 percent and .90 percent, then increase the annual MIP to the full 1.55 percent later in the year.  The thought from FHA and Capital Hill is that the increase in the annual MIP will allow for FHA’s capital reserves to increase, but with less impact to the consumer since the annual MIP is paid over the life of the loan instead of a lump sum addition to the loan amount at the time of closing. But this is incorrect.

The FHA reserves were getting hammered by homes going into foreclosure or just plain scammers at work with straw buyers or however mortgage fraud is perpetrated.  This is fact. What I am not sure is taken into account is the effect of the higher monthly mortgage insurance will have on the home buying public. How can tripling the monthly mortgage insurance have no impact to the consumer or to the nation’s housing market?  I read a Freddie Mac article in the early 1990’s that stated for every .25 percent increase in interest rates 250,000 home buyers are priced out of the market. To show this is not true see the example below. Using a $300,000 loan amount as the example, the numbers don’t look good for home buyers after September 7^th.   This date can change, call me if you have any questions. 

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.

Interest rates have rallied and improved dramatically on the heels of the recent European debt concerns…and what is most important is that due to the highly unusual set of circumstances that exist in the market, those who are acting quickly are saving.

 In fact, Freddie Mac reported last week that rates have met either all-time lows or 2010 lows. Bottom line, they are “smokin’ hot” right now – but won’t be for long.

Regardless of whether people want to convert their loan to a 15-Year fixed to potentially save over $100,000 in payments over the term…or drop their payment several hundred dollars a month, people are acting now!

However – one thing you have to know…rates are incredibly volatile and are not likely to hold these levels. We might only have a couple of days to lock people in at the best rates they will ever see.

I would love to look into your situation and see just what we can do to put some money back in your pocket. I never thought I would see rates this low across the board – so don’t miss this chance.

Home sales and home prices continue to improve. Monday, the NAR released information that shows strength in housing. If you are in the market to buy a home, act now before monthly payments increase as both prices and rates move higher.

Or, if you are looking to refinance and could not last year because of home values…you just might be able to now. Call me!

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.

Waiting a few extra days or weeks to purchase a home this spring could cost buyers thousands of extra dollars as the office of Housing and Urban Development (HUD) implements several changes for loans guaranteed by the Federal Housing Authority (FHA).

Coming just weeks before the April 30 deadline for the Home Buyer Tax Credit and just days after the March 31 expiration of the Federal Reserve Board’s mortgage backed securities purchase program (which has kept home loan rates artificially low for over a year), these FHA changes make it even more important to act now to save big.

Here are a few reasons why:

On April 5th, the cost of required up-front mortgage insurance for loans guaranteed by the FHA will increase from 1.75% to 2.25%. For a borrower purchasing a $200,000 home with a $7,000 down payment, the up-front mortgage insurance will increase by $965. Up-front mortgage insurance is typically financed in the final loan amount so the impact to a monthly payment will be minimal but overall, the increase is still borne by the borrower both upfront and monthly.

Later this spring, the amount of money that a seller can return to the buyer from their sale proceeds will be reduced from 6% to 3%. The reduction in these “seller concessions” can increase the amount of cash a buyer will be required to pay at closing by $6,000 for a home purchase of $200,000.

There is only one way to avoid being affected by all of these costly changes that lie ahead – submit all FHA mortgage applications by the last week of March.