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How Combining an FHA Loan With The Home Buyer Tax Credit Will Help You - But Not For Long!

If you are thinking of buying or selling some Real Estate in Bucks County, or anywhere in the U.S., and you want to get a great deal of help from Uncle Sam and the FHA (Federal Housing Administration) then you are going to want to keep reading.  Big changes are coming and you do not want to "miss the boat" for the opportunities that are TEMPORARILY available.

The "Perfect Storm" that caused home prices in many markets, including the Bucks County Real Estate market, to drop considerably has resulted in an opportunity you should take advantage of before it is gone.  Especially, when combining it with what the government has done to stem the decline in values.

Considering the fact that Homes in Bucks County have stopped their rapid declines, the numbers suggest we may have hit bottom, this generally means now is a good time to buy.

Combine that with the fact that interest rates remain near their lowest level, on historic terms, and this makes financing a purchase "cheap" and locks that advantage in for 30 years.  

Most of you probably already know as part of it's plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed new legislation that:

 

  • Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers 
  • Extends the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home

 

The legislation requires buyers to be "under contract" by April 30th, 2010 and close by June 30, 2010.  This reduces taxes owed on a dollar for dollar basis, which is much better than as a deduction or write-off. 

The government has also increased it's appetite for certain loans, known as FHA loans, by increasing the loan limit for such loans to $420,000 in Bucks County and it's surrounding counties.  The same program allows the seller to give up to 6% of the purchase price back to the buyer at settlement so they can buy the home with less money out of their pocket.  Plus, you only need a nominal 3.5% down payment which can be supplied by a family member, public housing state/county/township grant program as a "gift".  

The above loan program and tax incentive attributes basically gives anyone, with a job and the desire, to become a home owner for literally "no money down".  In fact, if you combine a grant program, 6% seller assistance and the tax incentive, one could make the case the government is going to PAY YOU and REWARD YOU WITH CASH for buying a home right now!  

Are you beginning to understand the opportunity that is available to you yet?  That is great news, right?  Well, there's a catch!

These programs will be expiring and going away for a very long time and perhaps for good.

Consider the fact the tax incentive program is set to expire on April 30th, 2010 for both exisiting owners and first time home buyers.  Folks, April is right around the corner and word on on the "street" is this program will not be extended.  Think about it, where is the money going to continue to come from?   These tax incentives will not and can not last forever.  Dramatic changes are taking place and to think or expect this program to keep on getting approved is short sighted, at best.  It wasn't exactly an overwhelming vote for yes the last time it was extended back in October of 2009.

Now consider the fact there was a pretty important election last night and it was won by a Republican.  The political tides just may be changing a bit in the senate which may make it even tougher to get an extension approved moving forward.

Add to this the announcement today that FHA will be tightening their guidelines sometime in/around the summer of 2010 and you will quickly realize the window of opportunity for first time home buyers in bucks county, and the whole country for that matter, to get into a home with little or no money down will be closed for a long, long time!

As reported in The New York Times and Wall Street Journal yesterday, today the FHA is expected to announce that beginning in the summer of 2010 the allowable assistance is going to be cut in half from 6% to 3%.  

And that's not all that is going to change with regards to FHA loans.  Borrowers who get an FHA insured loan will also have to pay a higher initial mortgage insurance premium, known throughout the industry as the MIP.  The new premium will be raised from 1.75% of the loan amount to 2.25%.  That's a $500 increase per every $100,000 in loan value!  Thankfully, the proposal that would not allow this premium to be financed into the loan was rejected.  This means, as is the current status quo, that you can "roll" the premium into the loan rather than paying it up front in cash.  So, while this particular change will not cost you additional up front costs it will increase your monthly payment amounts.

Borrowers who have a credit score below 580 will now need to put down at least 10%.

Other changes will try to hold lenders who participate in the FHA program more accountable by publicly reporting their performance rankings.  The new measures are aimed at shoring up the agency's finances while also screening out unprepared borrowers.

IMHO, the change with the most impact will be the reduction in the allowable seller assistance.

I know some of you are probably saying to yourself, this is great information, but what is it going to mean to me?

So, let me break down the numbers for you and show you what the cost difference is going to mean to you if you buy before April 30th, 2010 compared to if you wait and miss the chance to take advantage of the current opportunities.

The median price for homes sold in Bucks County in 2009 was $278,833. The median for first time home buyer areas in Bucks County is probably closer to $175,000 and the average taxes around $3,500 per year, insurance, let's say $1,000 per year add a conservative interest rate of 5.25%......and that is what I'll use.

If you buy a home using the current tax incentives and FHA guidelines by April 30, 2010 it would cost you, approximately, $6,200 in up front cash (after a 6% seller assist) with monthly payments of $1,401.24.  Combine your first time buyer tax incentive of $8,000 and that means the government pays you $1,875 for buying this house.  Add in a gift or grant program to cover the required 3.5% down payment and you are walking away with all $8,000 from Uncle Sam to do what ever you choose come tax time!!!

Let's compare this to what will very likely occur if you wait to buy the same house come July 1st, 2010.  Your out of pocket cost will shoot up to $10,445 (after the revised 3% max seller assist) with a monthly payment of $1405.91 (MIP increase).  Your Uncle Sam will no longer be answering your calls for $8,000.  At best if you can get a gift or grant program (which is not easy to get and does not happen often for numerous reasons) you will still need $4,320. 

Folks, that is a potential $12,000 difference!!!   

So, I'll ask you one more time.  Do you understand why it is important for you to take advantage of the current situation at hand?  

Do you understand if you wait it is very likely you will have cost yourself $12,000 for buying the same exact house at the same exact purchase price only two months later?

What would you do with an extra $12,000?   Do you think the people in Haiti could use $12,000?    If you don't take advantage of this you might as well just take your paychecks and flush them down the toilet.

Please, don't be "that guy/gal".   Find yourself a trusted realtor, mortgage consultant and tax advisor and get moving already because the train has all but left the station!!

I know, I know your thinking,"whatever Kevin, you're a real estate agent. When do you agents ever say it is not a good time to buy."

Well, those of you who have known me, know I have been and usually am at the forefront of what is going on in the real estate world.  I was buying investment properties before it was a cool thing to do.  I was buying short sales 11 years ago when most of the general public did not even know what they were.  Then I stopped investing in 2004, before most speculators, because I clearly saw the signs that the pendulum had swung in the other direction.  I was the first agent in Bucks County to start an internet based brokerage company five years ago before "internet leads, websites and virtual offices" were popular.  I am once again at the forefront of the pre-foreclosure market and I am telling you, mark my words.......  

If you want to be a home owner, have steady income and can afford the payments and you don't buy a home before April 30, 2010, you will have blown an opportunity to take advantage of a once in a lifetime opportunity and you will cost yourself thousands and thousands of dollars.

 

 

 

 

Disclaimer: While attempts have been made to verify information provided therein, the author does not assume any responsibility for errors, omissions, or contradictory information contained in this document. This document is not intended as legal, investment or accounting advice. The reader of this blog assumes all responsibility for the use of these materials and information.  

 

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Comment balloon 0 commentsKevin Kravcak • January 20 2010 03:50PM
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