Tax Credit

FHA backs away from no down payment loans

June 2, 2009 1:51 pm

After announcing a plan that would have allowed first time homebuyers to use a special tax credit to cover the 3.5% required down payment on an FHA-insured loan, the Dept. of Housing and Urban Development apparently had second thoughts.

Late last week HUD released a newly remodeled plan that does not allow the first-time homebuyer tax credit to be used for the down payment. Seems there was plenty of push back that allowing borrowers to land a mortgage without any "skin in the game" was not exactly a great idea. What's amazing is that the proposal even got floated in the first place; the notion that taxpayer dollars would have been on the line for mortgages that required no down payment was a bit of a head spinner.

What HUD finally settled on was that lenders can essentially advance qualified home buyers the value of their tax credit today to reduce their mortgage costs, but only if the borrower can bring a minimum 3.5% down payment to the table. Approved uses of the tax credit include paying for closing costs, making a larger down payment (to thereby reduce the monthly mortgage cost) or buying down the interest rate by paying points. The real value of the new rule is that eligible homebuyers can now "use" their tax credit today, rather than having to wait to recoup the value of the credit when they file their 2009 federal tax return in early 2010.

Basically, if you meet the eligibility rules you can now get a maximum of $8,000 advanced to you to buy a home. Single homebuyers with income below $75,000 and married couples who file a joint return with income below $150,000 are eligible for the max tax credit. (A limited credit is available for individuals with income between $75,000-$95,000 and joint filers with income between $150,000 and $170,000; the credit completely phases out above those income levels.) Anyone who has not owned a primary residence for three years is considered a first-timer but to grab the tax credit you must close on an FHA-insured loan before December 1 of this year.

April 2009 Housing Data

All information borrowed from HomeDex

The median price for all North County home sales increased 4.65% in April from March, to $340,000. Detached homes in North county increased 7.14%, from March 2009 to April 2009, from $364,000 to $390,000. Detached home prices OUTSIDE North County increased 1.64% from March 2009 to April 2009, from $305,000 to $310,000.

The countywide median price of homes sold increased from $325,000 to $335,000. Attached home prices in North County increased during April 2009 by 5.91%. Non North County attached home prices increased 3.24%. Median days on market for single-family detached homes in North County decreased from 46 to 42 days. the number of North County homes single- family homes sold increased 5.7% last month from 684 to 723.

Just the Facts (First time home buyer)

There are definitely some positive signs in the existing home sales.
In 3/09 existing home sales increased slightly, in comparison to market expectations of a slight decrease. The month's supply has been relatively even over the past 15+ months. The housing market appears to be stabilizing.

With a low housing affordability index of 14.3% in 2007 to a higher affordability of almost 45% there appears to be a lot more activity among first time home buyers.
A steady market has about 37% of all home buyers are first time home buyers. The current rate is almost 35%. Also, with rental rates almost matching mortgage payments more renters are jumping into the housing market.A first time home buyer can buy a detached home in San Diego for $250,000 using a 3.5% down FHA loan and pay either the same or a little bit more then his or her rent payment. This is causing many buyers to ask themselves, "why rent when I can buy". This used to be the saying before the affordability index tanked.

Interest Rates are at an all time low for 30 year fixed rates. Along with the $8000 tax credit this is causing many first time home buyers to get into the market. Also, FHA loans only requiring 3.5% down as well as attractive VA loans are another factor for an increase in the housing market.

Why buy now (just the facts)

ALL THIS INFORMATION IS BASED ON INFORMATION FROM CAR. I DO NOT GUARANTEE THIS INFORMATION.

I have been having many conversations with buyers. Their concerns are valid and are
1. Home prices will continue to decline
2. No home buying activity
3. It is cheaper to rent
4. there will be more foreclosures that will depress home prices
5. A lot of people still can't afford homes

Are you ready? Let's tackle these issues with facts. First of all I am not a slick haired shiny suit Realtor. I always recommend you buy when you are ready and buy the home that fits your comfortable financial situation.

Ok let's go. 63% of current home buyers are buying because prices have come down and 37% are buying because now they can afford to move to better neighborhoods. These buyers are able to buy because the affordability index went from a low of 22% to a present high of over 50%.

When rental rates equal mortgage payments buyers start buying. With the new FHA loan programs buyers can buy a $250,000 home and pay the same as their rent. Yes, you can buy a home for $250,000 in Poway, Santee, Mira Mesa, Claremont, Linda Vista. Remember this is your first home not your dream home.

President Obama's stimulus package is also making it more appealing for people to buy. Home buyers will get a $8,000 tax credit if they buy between 4/8/08 - 7/1/09. If you purchase in '09 there won't be a repayment.

The subprime resets are as follows. The number of subprime loans are 21,500 which is 2.9% of total home sales. 39% have already reset and 35% reset in 2008 and 17% will reset this year and 9% will reset in 2010. Don't forget real estate is very local and these reset numbers will hit some areas more than others.

According the SDAR there is a 49% increase in home sales from 2008 - 2009. My buyers have been up against multiple offers on listings. The news reports a depressed housing market as you can see the facts are the facts. I have many buyers that have been renting for years and saving money. They are now back in the market.

Investors can now buy homes with 20% down and cash flow. That was not possible a few years ago. Investors and first time homebuyers are creating a floor for the housing market. In certain market areas time on market is less than 5 days. Yes, I said less than 5 days.

If you are on the fence I hope this article helps you make a wise decision. It's not for me to tell you whether to buy or not. I just provide the facts and let you make the best decision.

Mortgage Applications Surge

Mortgage applications index surged 32.2% to 1159.4% for the week ending March 20. Lower mortgage rates over the last few weeks are spurring application activity. The purchase index increased 4.2% on the week while refinance applications jumped 41.5%. The contract rate for the 30-year fixed dropped another quarter point or so this week. Refinance applications accounted for 78.5% of all applications, up from a week ago. This combined with better than expected home sales in February bode well for housing activity in March.

Housing starts jumped 22.2% in February to an annualized pace of 583k, much higher than an expected rate of 450k. Single family housing starts edged 1.1% higher last month to a pace of 357k but they remain 51% below the pace in February 2008. Multifamily starts surged 82% to an annual rate of 230k. In a hopeful sign, building permit issuance was led by an 11% gain in the single family sector.

Just the Facts

I am extremely excited about the current real estate market. I know the media is reporting doom and gloom. The facts are contrary to what the media is reporting. Let's look at the numbers.

condos/town homes
Number of sales in February
2008... 460
2009... 664
that is a 44% increase in sales

People are buying because it is a great time to get into the real estate market. With this said I feel it is very important to consult with a reputable lender and make sure you purchase a home in your comfort zone. Choose a loan program that best fits your economic situation.

Why NOW is a great time to buy

This is an email I received from an owner of a property management company

"The rental market in general is much slower than average right now. We have a
lot of tenants moving out because they are buying. This has increased
the supply of rental properties."

When first time home buyers are purchasing homes that is a MAJOR factor on market conditions. First time home buyers are the catalyst in the market. The rental rates are equally mortgage payments. When this happens they want to be homeowners. This same thing happened in 2004. Rates are low, FHA loans are great. Also, VA loan programs are fantastic. These are all the signs of a healthy market. Get off the fence and don't miss this opportunity!!

Just the Facts

The papers report that the market is horrible. We haven't hit the bottom yet. Don't buy for another year because the San Diego housing market is still going to go down another 5-10%. In my experience, I have noticed that the media is always behind by 6+ months. For example, I was watching on the Today show that they were reporting about these unethical lenders that were pushing the funny loan products. They reported as if it was a new awareness although it happened about 4-5 years ago. Wow, that is really behind the curve. Also, real estate is very local. Yes, certain areas are not doing well i.e. Chula Vista and Temecula. The areas in this article are in the I15 cooridor that are showing statistics from the last 30 days.

Market time, pending sales, and # of offers shows the health of a Real Estate market. I work with buyers alot. I am seeing what is actually happening in the market.

I have been negotiating on properties that have 10-14 offers on them and at times being over bid. Yes, 10-14 offers on properties. This might be a surprise for you but these are the facts!

The average market time in 2008 was 86 days on the market. Today's average market time is 57 days on the market. That is a a large reduction in market time.

There are over 151 pending sales in the last 30 days. Does that sound like a down market?

I hear every day from buyers "Craig, no homes are selling. The market is dead". Well, another falacy reported from the media. in the last 30 days there are 46 properties that sold under 10 days. A lot of them in my experience had multiple offers on them.