Buyer’s Choice Realty blog

The U.S. Department of Housing and Urban Development recently announced that eligible borrowers who intend to purchase an FHA-insured home may elect to ‘monetize’ the first-time homebuyer tax credit and apply those funds toward their down payment or closing costs. Previously, buyers could only receive the credit (up to $8000) by amending their 2008 income tax return or waiting until they file their 2009 return.

Read more about this new program:

HUD news release (opens as a Word document)

IRS tax credit answers

Hud Secretary’s announcement of new plan

Here are a few of the rules involved (per HUD’s letter) in order to be able to use this credit before you actually purchase your home:

• 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 amount needed for the down payment, closing costs, and prepaid expenses.
• Secondary financing may be “soft” (silent) or require a monthly repayment.
• If payments are required, they must be included within the qualifying ratios and, when combined with the first mortgage, cannot exceed the borrower’s reasonable ability to pay.
• Payments must be deferred for at least 36 months to not be included in the qualifying ratios.
• If the tax credit advance loan has a short term for repayment, it must also provide that if the borrower fails to repay by the designated deadline, principal and interest payments begin automatically or the loan converts to a “soft” second.
• The secondary financing may not require a balloon payment before ten years.

So, you have 3.5% of the purchase price saved up to use as your down payment on your FHA loan and you want to use the tax credit you qualify for in order to not have to pay closing costs out-of-pocket. What’s the next step? Get your lender to participate in this program. However, most, if not all, lenders are not participating.

You will have a hard time actually using this new program and getting your tax credit up front. As of today, it is near impossible. Why? Lenders want to be able to have borrowers sign a document that would allow the credit to be disbursed directly to the lender when the borrower files their 2009 income taxes, but they are not allowed to do this because the government feels it would not protect the consumer.

As a result, lenders have little to no protection or guarantee that the borrower will send the credit to them next year and have no desire to have these short-term loans convert to secondary liens on homes. If this does not change, it will be yet another example of good idea, bad implementation.

*The above material should be used for information only. Please consult your lender and tax professional with any questions. Maybe your lender will allow you to do this. If so, please share your success with me. And, if you are looking to cash in on the tax credit in Massachusetts, let me know and I will provide you with all the information you need. At Buyer’s Choice Realty, we only work for buyers and have saved thousands of buyers millions of dollars.

The Federal Open Market Committee (FOMC), a component of the Federal Reserve, announced today that they are lowering rates yet again. Without getting bogged down in the minutiae, this is great news for potential Massachusetts real estate buyers.

Why? Property values continue to fall in Massachusetts as a whole as well as the Boston area, but it is very possible, and indeed likely, that Boston area real estate market values will reach a bottom over the course of the next year.

How will this happen? With the help of today’s FOMC decision, key interest rates will soon reach their lowest levels on record. The cost of capital will be almost nil, and as a result banks will undoubtedly lower mortgage interest rates. Lower rates mean that more folks that are undecided whether to purchase a home will lean towards buying.

Think how much money you could ’save’ by paying 4.5% over 30 years versus paying 5%. This thought, combined with the ever-volatile equity and bond markets, means that real estate will be your best investment (and most stable).

To learn how buying real estate in Massachusetts will be great for your investment portfolio, feel free to contact me at 1.800.25.BUYER (ask for John) or email me

The Federal Reserve announced today that over the next year (18 months at most), they will be buying up mortgage-backed securities to the tune of $500 billion.

This is what the Fed had to say in a statement, per a Bankrate.com article,

“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.”

What a nice Thanksgiving-week treat! Rates have immediately dropped today, and are likely to drop slightly over the next few weeks barring any unforeseen financial collapses or other major news. If you are currently in the market for a home loan, experts suggest you lock in your rate to take advantage of the recent drop. 30-year mortgage rates are back below 6%.

If you are interested in purchasing real estate in Massachusetts, feel free to contact me to discuss what this will mean for your prospects. While I am not in the mortgage industry, I can assist you in shopping for loans and finding an advantageous rate with few or no junk fees, and I know the questions to ask any potential lender. At Buyer’s Choice Realty, we are on the buyer’s side 100% of the time.

call 800.25.BUYER (ask for John) or email me

It appears our economy is in a bit of a spot right now. No kidding, right? We learned over the past few days that our U.S. banking system has effectively been nationalized. How did this happen? Hammerin’ Hank, of course.

Paulson conspired worked with his Wall Street buddies, the Federal Reserve, and the FDIC before deciding how to use the first $250 billion that we recently invested into the HPHF.

What do you mean, ‘nationalized’? The always insightful folks at the Wall Street Journal wrote an informative blog post describing what actually happened early this week. Basically, Hank bought a bunch of super senior preferred shares from many of the country’s largest ‘banks’. Goldman Sachs, a bank? Apparently it is becoming one. A few of these firms got $25 billion each, and a few got $10 billion. JP Morgan Chase, Wells Fargo, Citi group, Bank of America, you get the drift. These preferred shares mean that the HPHF owns up to 28% (in the case of Morgan Stanley) of the shareholder equity in each of these companies.

HPHF stands to make out pretty well. They will be paid 5% per year for the next five years on their investment in the form of quarterly dividends. The government gets its share before any other preferred or common shareholders do. After the initial five-year period, they will make 9%.

Hank himself terms this capital injection a ‘temporary investment’ in order to restore confidence in our banking system and encourage private equity to reinvest in these companies.

What effect does this bank bailout have on real estate/the housing market? It is HPHF’s hope that banks will now send that new money through the system by writing new loans and providing liquidity to the credit markets. Will more folks be able to qualify for a loan? Probably not, but here’s hoping. Keep an eye on the LIBOR, which has dropped almost 30 basis points over the past few days, and is a solid indicator of where mortgage rates are going.

Caveat Emptor - Buyer Beware! While this rule usually applies to buying a home in Massachusetts, it also can apply to applying for and obtaining a loan on your home purchase. Boston Business Journal recently reported on a temporary cease-and-desist order taken by the Massachusetts Division of Banks against a company based in New Hampshire that also operates in Mass.

Here are the details, as well as the company involved,

“The order against The Mortgage Specialists Inc. of New Hampshire was taken after examinations by the Division of Banks revealed it had knowingly inflated borrower income and falsified documents to secure loans. The regulatory move requires the company to place all remaining loans with a qualified lender or broker and forbids it from initiating any new mortgage loans pending a Division of Banks hearing on the firm’s practices.”

This is not a permanent order, and the company can appeal the decision. I took a look at their website, and found a message from company president Michael Gill. A highlight,

“We feel that because of the climate in this industry that this has been blown up. We feel confident that we will resolve this with the banking department quickly.”

Gill basically stated that this was a ‘compliance’ issue and defended his company’s integrity and track record. I have never had buyer clients work with this company so I don’t have an opinion, but be sure to do your homework when shopping around for a mortgage so that you can be confident the company that loans you money is reputable and honest. I will update this when more information is available, and a decision has been reached regarding the operations of The Mortgage Specialists Inc.

What is the team approach? All I need is a decent agent and I’ll find a good home and be all set, right? Only in rare cases.

When thinking about buying a home, consumers are often unaware of the complexities involved. Here are the players that should be on your team:

1. An exclusive buyer agent (EBA). This type of agent will work in an office that does not take listings. Why? No potential conflicts of interest. They will put your interests first. An EBA functions as the ‘quarterback’ of the team, helping to find other members of the team and keeping everyone on the same page with effective, timely communication.

2. A qualified, thorough, licensed home inspector. In Massachusetts, only buyer agents are legally allowed to recommend a home inspector. Knowlegeable exclusive buyer agents will often recommend only a select few inspectors, for numerous reasons. They will have worked with each inspector in the past and will know that they will put in the time necessary to find any previously unknown problems in the home, which will save buyers money. Many large firms only allow their ‘buyer agents’ (agents that are designated for that transaction only to work for a buyer) to give a lengthy list of home inspectors so as to avoid liability.

3. A real estate attorney. Agents that are also attorneys pose some problems for clients. Sure, you may get a discount on services, but being an agent and being an attorney are two full-time jobs. Will they get the job done to your expectations? Good agents will be able to tell you attorneys they have worked with in the past, much the same as finding an inspector.

4. A lender/loan originator. Again, firms that offer in-house financing may not be in your best interest. Will the agents in that firm push you to get a loan from the finance officer that they work next to? Of course. You, the consumer, should not be pressured. An agent with no connections like that will be able to tell you what to ask a potential lender or a loan originator, and will help you understand some of the complexities involved in finding a good loan. Again, they will have worked with honest, ethical lenders in the past and will know who offers the best rates and terms. Junk fees can be avoided.

5. A home insurer. The same applies to this person. Solid agents will know who is honest and efficient, as well as who sometimes is not as good. Insurance is so important, especially since most home buyers are making the biggest financial purchase of their lives, and they need and deserve to know that they and their purchase will be protected.

With these five teammates on your side, your home purchase is sure to become a little bit less overwhelming, and maybe even a little fun.