Tax Time

As we head into the spring buying season it’s important to remember that many people buy at this time of year not just because the weather is nicer and they feel like actually being outside for more than 3 minutes at a time but also because they are getting their income tax refund(s).   The IRS reported that last year the average refund was $2651.  And that’s just their federal refund.  When you add in any state tax refund you have a great recipe for a down payment on a home.  This is the time when those refunds are hitting people’s bank accounts so make sure they know how to turn those refunds into home ownership…

It isn’t just the actual dollars hitting their bank that gets people off the fence there is also a real psychological impact that makes potential buyers feel more secure and ready to make the move into home ownership.  Sometimes we forget how scary and overwhelming that first home can be.  A nice tax refund can ease those fears and make that transition the exciting and pleasant experience it should be. 

This IRS chart shows some interesting stats from last year:

 Filing Season Statistics May 10, 2013

2013 FILING SEASON STATISTICS
Cumulative statistics comparing 5/11/12 and 5/10/13
Individual Income Tax Returns:	2012		2013		% Change
Total Receipts	135,473,000		134,349,000		-0.8
Total Processed	130,261,000		129,674,000		-0.5
E-filing Receipts:
TOTAL	112,089,000		113,954,000		1.7
Tax Professionals	70,344,000		70,380,000		0.1
Self-prepared	41,745,000		43,574,000		4.4
Web Usage:
Visits to IRS.gov	255,269,615		318,408,842		24.7
Total Refunds:
Number	102,522,000		101,082,000		-1.4
Amount	$277.180	Billion	$267.946	Billion	-3.3
Average refund	$2,704		$2,651		-2.0
Direct Deposit Refunds:
Number	79,308,000		79,880,000		0.7
Amount	$231.656	Billion	$228.467	Billion	-1.4
Average refund	$2,921		$2,860		-2.1

Page Last Reviewed or Updated: 21-May-2013

Interesting to note that folks who use direct deposit are those w/the larger refunds.  Now that your buyer has a nice tax nest egg in hand you can show them two more important tax impacts of buying a home:

 #1 – Their income taxes are likely to go down, perhaps substantially, when they buy a home thereby increasing the benefit of buying vs. renting.  Home buyers enjoy a nice deduction for all that interest they pay on their home loan (among other nice deductions you get when you itemize your deductions on your return).  It can mean the difference of $200-$300 per month on an average size home assuming average tax situation. 

#2 – You might suggest they talk to their accountant or HR person at work about changing their withholdings on their paychecks to get a higher net paycheck every month.  This can put more money in their pocket each month and, thanks to their new tax deductible mortgage, perhaps still keep their annual tax bill (or refund) the same as last year. 

Either way you slice it putting that tax refund towards a new home is a great investment and one that pays tax dividends for years to come.

Eric Lundberg - NMLS #261588

President, Chinook Mortgage Ltd - NMLS #261588

Eugene, OR.

541.302.3210

www.ChinookMtg.com

Home Path Buyers Incentive

Home Path Last Call

Time is running out fast to take advantage of the HomePath Closing Cost Incentive.  Up to 3.5% (of purchase price) in closing cost incentive is available but you must act fast.  Buyers must make their initial offer on a HomePath property by March 31, 2014 and close by May 31, 2014 to qualify.  This additional spiff is only good for owner occupied buyers who request the incentive in their initial offer during the First Look period.  Oregon is one of the eligible states for this offer.  Make sure to put the request for the incentive in line 38 of your addendum in your on line offer.    Last Call!!

By now most people are familiar w/the HomePath program.  Certain homes owned by Fannie Mae are available to qualify for the program and its perks… including this added bonus.  A list of qualifying homes available in your area is available at HomePath.com the official site.  3.5% towards closing costs is no chump change.  Buy a $250,000 house and that adds up to $8750 towards your closing costs.  Be aware that not all loan programs allow seller contributions that high.  Typically, on a conventional loan with 5% down payment the max seller contribution is only 3%.  Still it’s worth asking for it.  

But what if you your closing costs aren’t that high?  On smaller loan amounts this typically isn’t an issue but it can be for larger loans, say those over $200,000.  That’s because some of the closing costs are fixed and don’t rise as the loan amount does. The result is that larger loans have closing costs that are smaller in terms of their percent of price.  You can still capture all this added HomePath incentive (or any seller incentive) by buying down the rate.  Commonly called “points” these additional closing costs can soak up any additional seller paid cost to get a lower rate for the buyer.  But don't wait...

Click Here to visit the HomePath site for additional details on the program and available homes.  If you are a borrower make sure you are working w/a real estate agent that has experience w/this unique program.  And by all means if you are on the fence about buying a home save yourself some green and buy while the cash incentive remains.

Eric Lundberg - NMLS #261588

President, Chinook Mortgage Ltd - NMLS #261588

Eugene, OR.

541.302.3210

www.ChinookMtg.com

Borrowed Funds for Down Payment

In many cases your buyer CAN borrow the money for their down payment.  The most important thing to remember is that the loan must be secured, they must document the value of the collateral and the lender must count the payment when qualifying.  The exception is we don’t have to count the payment if the buyer is borrowing against their own money ie. their 401(k).  It’s not uncommon for a buyer to tap their retirement account for the needed funds to close but it’s critical to do it right to avoid taxes and penalties.  

First, nearly every loan type allows for borrowed funds.  Buyers get in trouble when they take an unsecured loan or credit card advance and try to use those funds for their down payment only to have the lender deny their application.  Using a car as collateral for example is fine and the buyer has their down payment as long as they:

A – Don’t borrow more than the collateral is worth

B – Document the value of the collateral and terms of the loan

C – Prove that they actually own the collateral and

D – The lender counts the payment in their qualifying ratio’s

  

If the buyer is using their retirement funds and they can document that if they don’t repay that loan the lender (the retirement account administrator) will take the money from their retirement account rather than come after the borrower’s assets (like the house!).  This is usually standard procedure and documented in their loan agreement.

Even better, when a buyer borrows against their retirement account the mortgage lender will not count the loan payment when qualifying.  And, as long as it’s a loan and not a withdrawal there is no tax or penalty.  And though it should be obvious…when the buyer repays their retirement loan they are actually paying themselves back.  It was their money to start with!

More on the procedure for borrowed funds.  Your borrower will need to document that they own the collateral they are borrowing against.  Using the car example a copy of the title or registration will work.  Then you need to document the value of the collateral as well.  For a car loan it’s pretty straight forward.  I usually hop on the internet and look up the Kelly Blue Book value and print it out.  Get a copy of their car loan paperwork and it’s done. 

But what if your buyer has something a little more exotic to use as collateral?  The rule is they can use anything they can document.  From cattle to stocks to their antique Martin guitar.  Documenting the value gets a tad more complicated but it’s usually just a matter of getting a professional to give you an estimate of value (or your insurance company may be able to document the insured value).  Take that old guitar down to the local guitar shop and ask them to give you a written appraisal and you’re on your way.

Why wait and scrimp and live on Ramen noodles to accumulate a down payment only to watch home values continue to climb out of reach?  Have your buyer take stock of their assets and leverage them to get into the home of their dreams now. 

Eric Lundberg - NMLS #261588

President, Chinook Mortgage Ltd - NMLS #261588

Eugene, OR.

541.302.3210

www.ChinookMtg.com

Private Money Financing

The loan we love to hate:  Private financing.  What we used to think of as throwing our clients to the sharks has changed dramatically these last few years.  When banks were so tight they squeaked it was the private sector that came to the rescue more than once.  While rarely anyone’s first choice due to their higher interest rates and fees they offer some pretty enticing advantages over bank financing.  Need a loan closed in 72 hours to make your deal happen?  Forget the banks.  Call in the private cavalry to save the day.  Those higher interest rates look pretty good when the alternative is losing the deal.  Not all private money firms are created equal however.  Lucky for us there are some respectable firms right here in town…

It’s true.  Looking for private money can feel like swimming w/sharks.  But, we’re lucky to have several good private money firms in Eugene.  One of the oldest and possibly best known is Gallic Financial often touted for not having pre payment penalties.  After all, most of the time when you need this type of financing it’s a short term fix.  I’ve dipped my own ladle into the private money cauldron more than once and I’ve yet to be sorry.  We bought a duplex for a song at the bottom of the market and it would never (and I mean NEVER) have qualified for any kind of bank financing due to its condition.  Just as important the seller needed cash and needed it now.  Enter the private money financier.  The duplex has since been remodeled and refinanced and a grateful nation thanks the private money folks at Gallic for closing that particular investment emergency.     

What works for private money and what doesn’t?  Some folks think that bad credit = private money.  Not so fast.  Private money companies don’t want a bad credit risk any more than any bank.  Any bad credit better be well explained, in the past and unlikely to reoccur.  What private money lenders are looking for is the one that falls through the cracks at the bank.  An odd property.  A unique employment situation or funds to close coming from an unusual source.  Something that makes sense to everyone but a bank.  And lately there’s been no shortage of those kinds of deals. 

Private money folks have been busier than anyone else during the financial squeeze of the last few years.  And because of that they have become more selective in the types of deals they are interested in funding.  A limited supply of money means they can pick and choose a bit more than in yesteryear.  Don’t be shy about calling them on any deal.  I’ve always been told to call, or have my borrower call, if it even looks like there is a deal to be made.  The private money guys (and gals) tend to be creative and think outside the box.  Maybe they can cross collateralize more than one property.  Maybe they need a cosigner to feel comfortable.  Whatever it takes.  They are masters of creative financing.  Just make sure you have an exit plan.

Eric Lundberg - NMLS #261588

President, Chinook Mortgage Ltd - NMLS #261588

Eugene, OR.

541.302.3210

www.ChinookMtg.com

What is the interest rate today?

 “So, what is the interest rate today?”  I’ve been asked this more times than I can count.  It’s always difficult to answer because there are so many variables…What loan type? Term? Credit score? Loan to value? Investment property?  2^nd home?  Primary residence, etc.  You could go to a lenders website or Bankrate.com but what I tell people, including realtors, is…Ask Freddie.  Freddie Mac puts out a weekly interest rate survey that gives you a quick average at a glance.  After all, most people don’t want more questions…they just want a number.  Here's a number or two:

More than you ever wanted to know about interest rates…Ok.  You’ve been warned.  Here goes:  

Interest rates for mortgages can and do change daily.  If it’s a volatile day they can change mid day.  And more than once.  It makes for an interesting challenge trying to quote interest rates on a day when things are changing rapidly.  Usually that’s due to stronger than expected economic news or world events.  Bad news for the economy typically translates into good news for rates.  It’s an inverse relationship…except when it’s not.  That’s the frustrating thing about trying to guess the direction of interest rates.  It’s like trying to guess the weather.  We know how accurate that little system is!

A person’s mortgage interest rate is also tied to several individual factors.  Things like your particular credit score can mean a big difference in rate compared to the next person in line.  Other common pricing adjustments reflect the risk to the lender.  For example a non owner occupied home (a rental) requires a higher interest rate than an owner occupied loan when all other variables are held even.  It’s interesting to note that even different parts of the country offer slightly different rates.  I get rate sheets from several different wholesalers every day and they nearly always adjust their pricing based on region.  So a person in Idaho may be quoted an ever so slightly different rate than someone in Texas.  Think of it like car insurance.  Your driving record, what you drive and where you drive it all impact your auto insurance rates.  Similar idea for mortgages.  It’s all about risk. 

Here’s a couple more things a lot of people don’t understand about mortgage rates:

#1 – There is a range of rates available to you at any given time.  It’s a question of cost.  So, you may be able to choose between a pretty wide range of rates based on what you wish to pay, or not pay, in closing costs.  People often assume there is one rate for a particular day.  There is always a range to choose from and the lowest rate is rarely the best deal.  A good loan officer should help guide you to the best choice for you. 

#2 – How long your rate lock is good for can have an effect.  The longer the lock term the higher the cost.  Lenders will often offer to let you “lock in” your rate for 30 days.  Or 15, 21, 45 or 60.  You then have that many days to get your loan closed.  It doesn’t do any good to take the 15 day lock in if it’s going to take 45 days to close your loan.  And while some lenders will allow you to extend your lock period for unforeseen delays they likely won’t do it for free.  Again, best to have an experienced loan officer walk you through it.

So, if you just want a “number” and don’t really need to know all the details a quick reference point is the Freddie Mac Weekly Rate Survey.  I try to post it to our website and our facebook page every week.  You can Click Here for a link as well.

Eric Lundberg - NMLS #261588

President, Chinook Mortgage Ltd - NMLS #261588

Eugene, OR.

541.302.3210

www.ChinookMtg.com

100% Gift on Conventional Loans

For over 20 years we’ve been telling realtors that your borrowers have to have at least 5% down of their own funds on conventional loans.  Well, no more.  Fannie Mae now allows all gift funds on conventional loans!  That is really good news that should open the door for many a borrower this year.  Conventional loans are usually a better deal for your borrower and are certainly easier on property appraisals.  

There is no pricing adjustment and yes, you can get mortgage insurance just like normal. 

One thing to be careful of here is to remember, at least at present, this only applies to Fannie Mae loans and not Freddie Mac.  Most of time this won't make a difference but in some cases it can.  For example I just had a cosigner deal that had to go Freddie Mac because Freddie will basically blend all income/debts when calculating debt ratio's where Fannie Mae wants the occupying borrower to stand on their own (or nearly so) debt ratio wise.  So, don't assume you can use all gift funds when you have a cosigner.  But don't worry, you can still go FHA if you have a cosigner AND all gift funds.  

Because lack of funds to close is the single biggest barrier to home ownership in our country this should go a long way to helping put people, especially first time buyers, into homes.   

A last note on gifts.  I've noticed a small but growing trend in grandparents helping their grandkids buy their first home.  When I interview a prospective buyer that "doesn't have anything saved yet" I always ask if a gift from a relative might be a possibility.  They usually say no straight away but I'm surprised by the growing number of buyers who come back (often shocked themselves) when grandma and/or grandpa offer to help them with the down payment.  And now we can put that good deed to good use with a conventional loan.

I love good news in any form but especially when it helps put people in homes...


Eric Lundberg - NMLS #261588

President, Chinook Mortgage Ltd - NMLS #261588

Eugene, OR.

541.302.3210

www.ChinookMtg.com

Top 10 reasons to LOVE Federal VA Home Loans

Eric's Top 10 reasons to LOVE  Federal VA Loans:

1 – Zero down payment required up to $417,000.

2 – No private mortgage insurance.

3 – Seller (or Lender) may pay all buyers closing costs/pre paids.

4 – Relaxed credit standards compared to other loan types.

5 – Seller is not required to pay any points.

6 – Lower interest rates than many other loan types.

7 – Energy Efficient Mortgage add on available to improve home.  To see our other blog on the EEM program Click Here.

8 - An assumable loan if veteran sells later on.  A big advantage if rates rise over time.

9 – Jumbo VA loans available over $417,000 w/some down payment required. 

And my personal favorite…

10 – Seller is allowed to pay up to 4% of the sales price towards any buyer debts and may even buy veterans gifts like a microwave, fridge, etc.  Think about the possibilities for a minute…the seller is allowed to pay off buyers debts so they may qualify to buy the home!  They can even payoff a veteran’s judgments and collection account(s).    

And here's 5 more just for good measure:

11 - 1 in 4 buyers can go VA.  Don't be afraid to ask.  We ask every client, every time.  Men AND women.

12 - Flexible property types.  I have 20+ years of examples of deals that went VA that never would have closed FHA.  Some still leave me shaking my head... An old farmhouse w/a "seasonal creek" running through the middle of the basement?  Loan closed.  True story.  

13 - A lifetime entitlement.  Lots of misconceptions about this one but federal VA loans allow a veteran to use his/her entitlement multiple times over their lifetime.  In simplest terms a vet buys home #1 with a VA loan, sells it after a few years and then buys home #2 with a new VA loan, sells it after a few years, repeat...There is even an allowance that let's a veteran finance a home w/a VA loan, then later refinance it to another loan type (typically conventional after some equity develops) and then restore their entitlement so they can keep their first house as a rental and buy a new home using VA again.  This can only be done once however as VA is not designed to finance investment properties.

14 - VA offers a very good 5/1 A.R.M.  While many people shy away from variable rate loans VA protects the veteran and the lender by offering this hybrid A.R.M.  Fixed rate and payment for the first 5 years then it becomes variable.  I'm not a huge fan but I mention it in cases where someone plans to move or payoff their loan w/in 5-7 years.

15 - This really should be #1... What better way to say thank you to a veteran for their service than to offer them great service and a great loan when they buy their home?  

Eric Lundberg - NMLS #261588

President, Chinook Mortgage Ltd - NMLS #261588

Eugene, OR.

541.302.3210

www.ChinookMtg.com

Free Credit Report

Every person is allowed one free credit report per year.  Get yours at the official site at www.annualcreditreport.com.  Be careful of similar sites.  They want to charge you!  There are 3 national credit agencies (Transunion, Equifax, TRW) and each is required to offer you one free report per year...One technique is to pull just one of the 3 now, saving your others to spread throughout the year.  This way you can keep tabs on your credit over time w/out paying a service.  And don't worry, pulling your own credit report does not ding your score like a real inquiry for credit does.

  

You won't get your credit score for free though.  Even on the free site they are only required to show you your credit report.  You get to pay extra to see your score.  Credit scores are a whole other animal and I will save that for another blog post but suffice it to say they are critical to good financial health and in getting the lowest interest rate available from mortgages to credit cards.  You can pay extra for your score(s) at annualcreditreport.com or there are commercial sites that offer your credit score, typically in addition to credit monitoring.  I don't normally advocate paying for something you can get for free and yet I myself subscribe to MyFico.com. The site has some useful tips and a free or discounted trial if you find yourself curious.  Use it if you are planning a major purchase, like a home, to make sure you're on track to get the best rate possible.

If you have a real issue w/your credit or have a client that is "credit challenged" you might even consider a commercial site to help repair it.  Again, I tread even more carefully here because most credit repair companies are dubious at best and outright crooks at worst.  Here's one I came across that appears reputable Credit West Consultants.  They send us useful email tips on credit repair and score improvement in general.  Most of it is common sense but I've learned some neat tricks from them.  

Bottom line:  Review your credit report at least annually and keep your score as high as possible to keep your interest rates as low as possible.

Eric Lundberg - NMLS #261588

President, Chinook Mortgage Ltd - NMLS #261588

Eugene, OR.

541.302.3210
www.ChinookMtg.com

Energy Efficient Mortgage a Win-Win

In honor of the recent Good Earth Home Show I thought I'd share this neat trick.  Using this little known tool you can easily add value for yourself or, in the case of real estate agents, your clients transaction.

The Energy Efficient Mortgage or EEM can help you when buying or refinancing a home by allowing you to add the costs directly to the loan for items that increase the energy efficiency of the home.  Storm windows and doors, a heat pump, digital thermostats and the like.  Even solar panels can work.  Anything that reduces the homes utility bill may qualify.  This works for FHA or VA loans. It's not a separate loan program; more like optional equipment you can add to your loan.   Let's start w/Federal VA, it's quicker and easier. Here's how it works:

3 Tiers to choose from:

#1 - Up to $3000 may be added to the home loan for energy efficient improvements with just a bill/contract from the company doing the work.  That's it.  And you can do the improvements after closing if you wish. You'll pay a final inspection fee, typically $100, but your sale is done and you can complete the repairs later. The lender will only hold the amount needed for the repairs.  Not the usual 1.5 times.  The veteran does not even need to qualify for the increase in loan amount since the utility saving is expected to more than offset the increase in the mortgage payment.  Every once in a while common sense prevails...

#2 - $3000-$6000 may be added as long as the project will return projected utility savings greater than the increase in the monthly payment caused by the loan increase.  Let's say you want to add a $5000 heat pump and the inspector (yes, it requires a simple energy improvement test to document the saving) says it should save $60/month in energy saving.  The increase in the borrowers payment will be, say $25/month.  You qualify.

#3 - Go over the $6000 limit and VA requires that the improvements add the same or higher value to the home.  So, a $10,000 heat system needs to increase the value of the home dollar for dollar.  Using this one is more than a bit rare for obvious reasons but can be done in cases where the value is not an issue.

You can see that #1 above is a slam dunk and ideal when you just need some smaller improvements done to the home but more costly improvements can be done as well.  Here's the list of items VA will consider:

Acceptable energy efficiency improvements include, but are not limited to

·   solar heating systems, including solar systems for heating water for domestic use

·   solar heating and cooling systems

·   caulking and weather-stripping

·   furnace efficiency modifications limited to replacement burners, boilers, or furnaces designed to reduce the firing rate or to achieve a reduction in the amount of fuel consumed as a result of increased combustion efficiency, devices for modifying flue openings which will increase the efficiency of the heating system, and electrical or mechanical furnace ignition systems which replace standing gas pilot lights

·   clock thermostats

·   new or additional ceiling, attic, wall and floor insulation

·   water heater insulation

·   storm windows and/or doors, including thermal windows and/or doors

·   heat pumps, and vapor barriers.

Want FHA?

For an FHA EEM you need a HERS (Home Energy Rating System) energy audit.  You can add up to 5% of the purchase price/value of the home for improvement costs but you'll need this more expensive energy audit.  At last check the only auditor in our neck of the woods is in Corvallis and charges >$700 for the HERS report. Contact us for more specifics on this program if you're interested or Click Here to visit HUD's guide.

I hope you find this tip useful.  Feel free to check in w/us before you move forward as lender guidelines can and do change.

Best,

Eric Lundberg - NMLS #261588

President, Chinook Mortgage Ltd - NMLS #261588

Eugene, OR.

541.302.3210

www.chinookmtg.com