Most of you have already heard that Secretary of the U.S. Department of Housing and Urban Development announced yesterday that FHA is going to permit it's lenders to allow home buyers to use the $8,000 tax credit as down payment.
First of all, it was not clear that this was to be a short term or bridge loan from approved entities. And there are no entities offering this short term loan as of yet.
Second, the letter has been removed from HUD"s website and we have been told that it has been recinded. Speculation is that it goes against HUD's policy of allowable sources of funds for closing which includes:
1. Buyers own funds
2. Gift from relative or employer
3. Monies from Federal, state and Local Governmental agencies and non profit agencies of government.
4. Secured funds ie 401k loans
As of now, nothing has been changed in the guidelines to allow for this short term bridge loan against a future tax credit.
Please clarify this with your clients who may be getting mis information from the media, or other lenders that have jumped the gun and not gotten the facts.
For more information, please visit or refer your clients to my website for recent blogs about the subject.
www.colleencraig.com
In a later email from another lender, Eric Mitchell of Prospect Mortgage:
"FHA has announced they will allow buyers to finance their tax credit and use that as their down payment. However, this new policy will probably take at least 30 to 60 days to filter through the system before investors will buy the paper. The announcement was made but the system is not allowing it yet."
The Obama Administration's Housing and Urban Development Department has thrown open the doors to high expectations for many first-time buyers. How this will play out in the short, medium, and long term is just unknown at this point.
`` SCV Home Team
Thursday, May 14, 2009
Update on FHA plan to allow use of tax credit for down payments
FHA plans to allow use of tax credit for down payments
By AUBREY COHEN
SEATTLEPI.COM STAFF
According to a release, HUD Secretary Donovan is going to allow an advance of the $8000 tax credit for first time home buyers to be used for the down payment on FHA loans. Rather than waiting for refunds after the closing, funds will be available at the closing. A second mortgage will be filed and repayment terms will vary. It is important to keep the home as a primary residence for at least 3 years.
Updates to the HUD handbook are as follows [although lenders who implement the program will have clearer instructions]:
II. FHA Guidance
The Tax Credit: Secondary Financing:
Entities that can offer tax credit advances with second liens.
• Federal, state, and local governmental agencies and nonprofit instrumentalities of government.
• FHA-approved nonprofits.
Additional information about these entities:
• Government agencies and instrumentalities of government are described in handbook HUD-4155.1 REV-5, paragraphs 1-13 A and B.
• FHA-approved nonprofits can be found, per each Homeownership Center jurisdiction, at: http://www.hud.gov/offices/hsg/sfh/np/np_hoc.cfm
How the secondary financing works:
• The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the borrower. The second lien may not exceed the total needed for the downpayment, closing costs and prepaid expenses.
• The tax credit advance must provide that if the borrower does not repay the amount borrowed by the designated deadline, that principal and interest payments begin automatically.
• If payments on the tax credit advance are required, they must be included in qualifying the borrower and, when combined with the first mortgage, cannot exceed the borrower’s reasonable ability to pay.
• If payments on the tax credit are deferred, the deferment must be for a minimum of 36 months in order for the payment to not be included in the qualifying ratios.
• The tax credit advance second mortgage must not provide for a balloon payment before ten years.
The Tax Credit: Short-Term Loan:
Entities that can offer the tax credit advance with short-term loans:
• Federal, state, and local governmental agencies and nonprofit instrumentalities of government, FHA-approved nonprofits, and FHA-approved mortgagees may provide short-term or “bridge loans” secured only by the anticipated tax credit due the homebuyer as collateral.
How the short-term tax credit advance loan works:
• The amount that may be borrowed in this manner may not exceed the anticipated tax credit due the homebuyer based on the computations of form IRS 5405.
• Fees and charges for the tax credit advance loan are not to exceed a nominal amount necessary for preparing and administering the loan.
The Down Payment Assistance Program has come back in another form.
[Is this a repeat of the public policy mistakes of the past, using 'no-down mortgages'? Since something should be done to stop the continuing slide in prices, encouraging those who have limited means to buy homes is one way to do it. Will this just extend the time of foreclosures further into the future? Probably. However, we as Realtors and as Homebuyers will always continue to take action in our own best interest. As they say, public policy issues are above our pay grade. We just hope that those who are in that pay grade have the experience and the wisdom to make the best decisions on behalf of the national interest. If time proves them wrong, we should vote them out, and the sooner the better.]
By AUBREY COHEN
SEATTLEPI.COM STAFF
According to a release, HUD Secretary Donovan is going to allow an advance of the $8000 tax credit for first time home buyers to be used for the down payment on FHA loans. Rather than waiting for refunds after the closing, funds will be available at the closing. A second mortgage will be filed and repayment terms will vary. It is important to keep the home as a primary residence for at least 3 years.
Updates to the HUD handbook are as follows [although lenders who implement the program will have clearer instructions]:
II. FHA Guidance
The Tax Credit: Secondary Financing:
Entities that can offer tax credit advances with second liens.
• Federal, state, and local governmental agencies and nonprofit instrumentalities of government.
• FHA-approved nonprofits.
Additional information about these entities:
• Government agencies and instrumentalities of government are described in handbook HUD-4155.1 REV-5, paragraphs 1-13 A and B.
• FHA-approved nonprofits can be found, per each Homeownership Center jurisdiction, at: http://www.hud.gov/offices/hsg/sfh/np/np_hoc.cfm
How the secondary financing works:
• The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the borrower. The second lien may not exceed the total needed for the downpayment, closing costs and prepaid expenses.
• The tax credit advance must provide that if the borrower does not repay the amount borrowed by the designated deadline, that principal and interest payments begin automatically.
• If payments on the tax credit advance are required, they must be included in qualifying the borrower and, when combined with the first mortgage, cannot exceed the borrower’s reasonable ability to pay.
• If payments on the tax credit are deferred, the deferment must be for a minimum of 36 months in order for the payment to not be included in the qualifying ratios.
• The tax credit advance second mortgage must not provide for a balloon payment before ten years.
The Tax Credit: Short-Term Loan:
Entities that can offer the tax credit advance with short-term loans:
• Federal, state, and local governmental agencies and nonprofit instrumentalities of government, FHA-approved nonprofits, and FHA-approved mortgagees may provide short-term or “bridge loans” secured only by the anticipated tax credit due the homebuyer as collateral.
How the short-term tax credit advance loan works:
• The amount that may be borrowed in this manner may not exceed the anticipated tax credit due the homebuyer based on the computations of form IRS 5405.
• Fees and charges for the tax credit advance loan are not to exceed a nominal amount necessary for preparing and administering the loan.
The Down Payment Assistance Program has come back in another form.
[Is this a repeat of the public policy mistakes of the past, using 'no-down mortgages'? Since something should be done to stop the continuing slide in prices, encouraging those who have limited means to buy homes is one way to do it. Will this just extend the time of foreclosures further into the future? Probably. However, we as Realtors and as Homebuyers will always continue to take action in our own best interest. As they say, public policy issues are above our pay grade. We just hope that those who are in that pay grade have the experience and the wisdom to make the best decisions on behalf of the national interest. If time proves them wrong, we should vote them out, and the sooner the better.]
Wednesday, May 13, 2009
Surprise: FHA Will Allow 'Advances' on FTHB Tax Credit
National Mortgage News and SourceMedia, Inc.
May 12, 2009
The government today gave the green light to the financing of bridge loans of up to $8,000 to first time home buyers who qualify for tax credits under the Obama Administration's economic stimulus plan. The new mortgagee letter stipulates that government agencies, non-profits and FHA-approved lenders can give advances on the tax credits. Housing secretary Shaun Donovan told a national Realtor group Tuesday that, "We want to enable FHA consumers to access the tax credit funds when they close on their home loans so that cash can be used as a downpayment." The mortgagee letter is now available online but more details are to follow.
May 12, 2009
The government today gave the green light to the financing of bridge loans of up to $8,000 to first time home buyers who qualify for tax credits under the Obama Administration's economic stimulus plan. The new mortgagee letter stipulates that government agencies, non-profits and FHA-approved lenders can give advances on the tax credits. Housing secretary Shaun Donovan told a national Realtor group Tuesday that, "We want to enable FHA consumers to access the tax credit funds when they close on their home loans so that cash can be used as a downpayment." The mortgagee letter is now available online but more details are to follow.
Understanding Your Credit Part 3
Understanding Your Credit
And Making The Most Of It. (Part 3)
A Quick Recap!
A credit score is a number lenders use to help them decide: If I give this person a loan or credit card, how likely is it that he or she will become 90 days or more late in a 24 month period. A credit score is a snapshot of your credit risk at a particular point in time. It may range from 350 to 850 with the average consumer score being 686. Credit scores are provided to lenders by the three major credit reporting agencies also know as repositories: Equifax, Experian and TransUnion.
Five Factors Determining A Credit Score
1. Late payments.
2. Frequency and patterns of credit use.
3. How long credit has been established.
4. The number of times credit has been requested (inquires).
5. The types of credit (i.e. revolving, installment, secured, unsecured.)
How Credit Bureaus Rank your Credit Score
1. 35% is based on payment history.
A recent 30 day late payment is worse than a 90 day late payment that occurred more than 12 months ago. This can lower your score by 60 points or more.
2. 30% is based on existing balances.
Make sure the balances do not exceed 50% of the maximum limit on each card. Over 50% of the credit card limit will have a significant negative effect on your credit score. Distribute existing credit card debt among three to five cards.
3. 15% is based on how long your credit has been established.
Do not close accounts that have a perfect payment history and have been open for at least three years. These cards have a positive effect on your credit score.
4. 10% is based on types of credit.
A combination of credit types is best. For example, a mortgage, an auto loan and three to five revolving credit cards is ideal. Home equity lines of credit are reported as a credit card debt when the amount is less then $30,000. Try to apply for lines of credit for at least $30,000.
5. 10% is based on inquiries.
Credit inquiries from various industries can lower your credit score up to 60 points. If multiple mortgage inquiries are within a 30-day window, they count as one inquiry in total. This is also true for the auto and insurance Industry inquiries. Personal credit and bank account review inquiries do not count.
Tips To Help Protect Your Credit
1) Be very careful providing personal financial information over the internet. If you are going to provide credit card numbers, social security number, etc over the internet make sure it is through a secure website. Look for https:// instead of http:// at the website address and look for the little yellow padlock on the lower right corner of the screen.
2) Use a paper shredder when discarding any personal credit information such as credit solicitations, credit card statements, pay stubs, invoices, bank statements, etc
3) Keep a list of all credit card accounts with their respective customer service phone numbers in a safe place in the event your wallet or purse is lost or stolen.
4) Never use your full name on personal checks, use your initials instead. For example: J. Doe or J.C. Doe. If your checkbook is lost or stolen, no one will know how to sign your check (except for the bank.)
5) When paying your credit card bill, do not put your full credit card number on the memo line of your personal check. Only list the last 4 digits of your account number.
6) It is not wise nor is it necessary to carry your social security card in your wallet or purse. Commit the number to memory and keep the card at home in a safe place.
7) If your wallet or purse is stolen, contact one of the three credit bureaus immediately and have them issue a fraud alert. That credit bureau will notify the other two. This will be done free of charge and you will receive a credit report showing that the fraud alert has been issued.
Here are the three credit bureaus:
Equifax 800-685-1111 www.equifax.com
Experian 888-EXPERIAN www.experian.com
Trans Union 800-916-8800 www.transunion.com
As always, if you need help or advice, just give me a call or email. More to follow!
And Making The Most Of It. (Part 3)
A Quick Recap!
A credit score is a number lenders use to help them decide: If I give this person a loan or credit card, how likely is it that he or she will become 90 days or more late in a 24 month period. A credit score is a snapshot of your credit risk at a particular point in time. It may range from 350 to 850 with the average consumer score being 686. Credit scores are provided to lenders by the three major credit reporting agencies also know as repositories: Equifax, Experian and TransUnion.
Five Factors Determining A Credit Score
1. Late payments.
2. Frequency and patterns of credit use.
3. How long credit has been established.
4. The number of times credit has been requested (inquires).
5. The types of credit (i.e. revolving, installment, secured, unsecured.)
How Credit Bureaus Rank your Credit Score
1. 35% is based on payment history.
A recent 30 day late payment is worse than a 90 day late payment that occurred more than 12 months ago. This can lower your score by 60 points or more.
2. 30% is based on existing balances.
Make sure the balances do not exceed 50% of the maximum limit on each card. Over 50% of the credit card limit will have a significant negative effect on your credit score. Distribute existing credit card debt among three to five cards.
3. 15% is based on how long your credit has been established.
Do not close accounts that have a perfect payment history and have been open for at least three years. These cards have a positive effect on your credit score.
4. 10% is based on types of credit.
A combination of credit types is best. For example, a mortgage, an auto loan and three to five revolving credit cards is ideal. Home equity lines of credit are reported as a credit card debt when the amount is less then $30,000. Try to apply for lines of credit for at least $30,000.
5. 10% is based on inquiries.
Credit inquiries from various industries can lower your credit score up to 60 points. If multiple mortgage inquiries are within a 30-day window, they count as one inquiry in total. This is also true for the auto and insurance Industry inquiries. Personal credit and bank account review inquiries do not count.
Tips To Help Protect Your Credit
1) Be very careful providing personal financial information over the internet. If you are going to provide credit card numbers, social security number, etc over the internet make sure it is through a secure website. Look for https:// instead of http:// at the website address and look for the little yellow padlock on the lower right corner of the screen.
2) Use a paper shredder when discarding any personal credit information such as credit solicitations, credit card statements, pay stubs, invoices, bank statements, etc
3) Keep a list of all credit card accounts with their respective customer service phone numbers in a safe place in the event your wallet or purse is lost or stolen.
4) Never use your full name on personal checks, use your initials instead. For example: J. Doe or J.C. Doe. If your checkbook is lost or stolen, no one will know how to sign your check (except for the bank.)
5) When paying your credit card bill, do not put your full credit card number on the memo line of your personal check. Only list the last 4 digits of your account number.
6) It is not wise nor is it necessary to carry your social security card in your wallet or purse. Commit the number to memory and keep the card at home in a safe place.
7) If your wallet or purse is stolen, contact one of the three credit bureaus immediately and have them issue a fraud alert. That credit bureau will notify the other two. This will be done free of charge and you will receive a credit report showing that the fraud alert has been issued.
Here are the three credit bureaus:
Equifax 800-685-1111 www.equifax.com
Experian 888-EXPERIAN www.experian.com
Trans Union 800-916-8800 www.transunion.com
As always, if you need help or advice, just give me a call or email. More to follow!
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