I have heard of MCC, a mortgage credit is back in effect in Michigan. How do I know if I qualify? Well, technically you are applying for the credit after the appraisal but the general rules are the following;

The qualifications include: First time home buyers, defined as more than three years from previous ownership ( though there are “target areas” that allow it to be just be purchasing their primary home.) Target Areas Link

The buyer(s) must fall into MSHDA rules regarding income and purchase amount. ( current guidelines.)

Must be a primary residence that is standard build or condominium. No mobile homes, multi-family homes or businesses/multi-use housing are allowed.

It can be on a conventional, FHA, VA  but not rural development loans. Can not be two acres or more!

Can I get this on my pre-approval? No. This is only allowed to be applied for after the appraisal is done.

Is there a cost? Yes, always in the real world. It is 1 point or one percent of the loan for a charge.  The point needs to be on the loan (it could be dropped if not approved for the MCC) so there doesn’t need to be a re-disclosure of APR from the Good Faith Estimate.

What’s it worth to me if I get it? Okay, here is where is gets good. You get the credit EVERY year as long as the loan is open and the house is your primary residence. And if the credit is not used it can be forwarded for up to three years.

How much is it? 20% of the interest paid on the loan will be the interest credit amount! Pay $5,500 in interest and the credit would be $1,100. You can not have more of a credit than your tax liability so it would be forwarded for up to three years.  If you paid in $4,000 to the government in taxes and your tax liability was going to be $3,000 then you would expect to get the $1,000 back as it would be normally plus, $1,000 from the MCC credit and next year have a start of $100……Confused? Hope not. Then next year you would again take the interest paid on the mortgage and use 20% for the credit, plus that $100. Credit will slowly decline every year until paid off.

Are there any problems when I sell the home? Yes and no. The federal government looks at this program as a subsidy and will attempt to get a tax on it called a recapture tax. However, Michigan has created another program to pay back any tax paid to the government based on the recapture tax call the Recapture Tax Reimbursement Program. So you may need to have help at tax time but it will keep your benefit intact.

Do loan officers do this program automatically? Its more paperwork, it may delay the loan closing so the answer is “no.”Exception is I will always try to do them because it is a huge benefit in the future.

Any other reasons why? Well, there may be a client who is slightly over the line on the ratios of housing to income. I can use the amount of savings as “income.” Thus a higher ratio will be allowed. The hard part is I can’t “guarantee” the program will accept and thus may not be approved. Situations like a married couple buying a home with just one of their two incomes. Both incomes are generally used for calculating household income. It may allow the loan to be approved but not the MCC  credit.

Can any mortgage company do the MCC? No. They must be approved. And Yes Mortgage 1, Inc. is approved!!!

Who should I call? Easiest answer of all since if it has to do with a mortgage you should always call Dave Peterson 248-224-5475

The seller may need to reduce the price because there is traffic but no takers. It may get an offer if the price is reduced by 10%. But what if instead of a price, 10% reduction, or a smaller reduction, and use the buy-down to create a lower payment for the buyer.

Say 160,000 where the mortgage would have 20% down….making the mortgage $128,000, at 5% give a payment of $726.77

The seller can reduce the price by 5% and have the new price and mortgage$152,000 with 20% down the mortgage is $121,600 and with 5.5% the payment would be $690.43

Instead if the seller stays at $160,000 with 128,000 mortgage but the seller pays 2% to pay for the points ($2,560) to lower interest rate to 5% the payment will be $687.13, which means to the seller instead of a reduction of $8,000 the seller can get the payment for the buyer to almost the same payment with only $the $2,560 saving themselves the difference of $5,440.  And it is a write-off the sell price, though not the transfer tax, if applicable but is a write-off for the buyer of the $2,560 this year. The seller makes out and so does the buyer. Win-Win!

This is easy. Rates are so low there is realistically almost no reason to think you’ll refinance. If you finance it by having the seller pay the points, you have the immediate year benefit (You may verify your situation with a CPA) of a tax write-off come April 15thof the following year of $2,560. The reduction in rate will be all thirty years of the scheduled payments saving money on every payment.

Taking $128,000 mortgage at 5.5 = 726.77

vs.

Taking 128,000 plus 2 points buried through seller concession so the mortgage is 130,600 times 5% = 700.87

So 726.77 – 700.87 = $25.90 difference Full break even is about eight years out minus this years benefit of the tax deduction that is in addition to the mortgage interest paid deduction.

This is basically buying extra with seller paid financing while getting the deduction. The seller gets to write it off from the selling price so the seller doesn’t pay any tax on it but does pay a bit on the transfer tax if applicable. Savings are both short term and long term.

If you are looking at the price of 160,000 and 20% down so the mortgage is 128,000 giving a principal and interest payment of  $ 726.77    on a 30-year mortgage. Now if you think the market will go down again because of the what you are hearing on television another 10% so you want to wait, but is this wise?  Let’s check this out and assume the television is correct that the interest rate might go up a full one percent. To wait or not to wait, that is the question (paraphrase Shakespeare, first and last time) if the price drops 10% to 144,000 and 20% down makes the financed amount $115,200 but the interest goes to 6.5% the payment would be $728.14 So your monthly payment is almost the same. Instead think if you bought the loan down in the first instance, paid points, adding cost to the loan but lower the rate to 5.0%… the $128,000 mortgage right now would allow the payment to be $687.13.  So the reasoning to wait while rates remain this low would be wasting your time. Find the house, a great many choices are out there waiting for you and your agent to make purchase offers on.

Why are prices on bank listings so low? The answer is apparent, they want a small stampede (large works for the banks too) so there can be a bidding war. Some bids get down right silly.  If a foreclosure is listed at $70,000 in a nice area that used to have $200,000 prices you run over to look. The other private sellers are at $120,000 so the buyers offer more than the $70,000….go ofter 20,000 -40,000 above the list price. The bank property gets sold for $90,000…… What is wrong here? Well, the banks get the buyers thinking they are getting super deals but when you add the costs to fix up the place, that the taxes aren’t being adjusted like they should be (not always but often not adjusting much)  and its cash for most of it then you should ask yourself, “why not buy a nice, already lived-in home, from the owner who needs to sell too, and looking for some reasonable person to make a decent off? I find it much easier to finance a person who buys a home from a private seller because the issues are about price and not the condition of the house. If its nice there isn’t the cash burn for the fixing. Some will refinance but that is worth more than $,2000 in outright costs not to mention the time and interest wasted in fixing them up. The logic eludes me on the over bidding. Yes there are some very good deals. But many deals are borderline insanity. Before you buy think Finance costs, plus fixing costs, plus time waiting to move in (payments usually 1 to 3 months) plus refinancing to get the cash back out, or leaving quite a chunk of cash in the home as equity. Remember, when you need money fast, that’s when the banks don’t want to give to you! (Think job loss, family emergency)

Prime time for some really excellent homes ready for living in right now, without the “foreclosure smell” and actual seller disclosures that mean something positive.

Sadly it is true. FHA is raising the minimum credit score on “streamline refinances” again. Expect 660 for a refinance seems to be on the horizon as FHA streamlines are at double the default rate for non-streamline refinances. There is concern that the properties will need appraisals as that is the only piece that is still around from the streamline refinances. The old way was if the payment goes down it is good for the customer regardless if the mortgage is starting the 30 years over or the equity in the house. All this has been rolled back further than ever before.

The purchase of a home with FHA financing is ready to go to 5% from the current 3.5% and will prbably have their minimum credit score raised again. We, Mortgage 1, Inc., just raised the credit to 640 from the 620 joining everyone else at that credit mark. We held out hope the FHA and HUD would see the adverse effect on the general market but instead appears tougher standards are still being sought by the banks (again, I blame banks for this underwriting fiasco which they want to blame on consumers and their “personal responsibility” for instead).

So tell your political friends to help people buy houses because there sure are plenty to sell! Automated underwriting is NOT the way to go. Banks want it because they can play with their loans cheaper but don’t even start to think that will help any consumers (EXCEPT THE BANK TOP PEOPLE BUY REALLY, REALLY NICE HOUSES FOR THEMSELVES) So should we just accept banks should get to decide what is best even though because of banks not paying attention to risks we find the decline in prices and our incomes but get to buy less, be approved for less and told its our own greed?

Better to buy a home than rent. Period. Just make it easier and not harder. So many to sell and more buyers would be appreciated.

Well you know I think this is wrong. The reason FHA is thinking it will increase the down payment from 3.5% to 5% is because the defaults have caused the reserves to drop under 2%. This highly unenlightened thinking is because of the banks blaming everything but their own underwriting. The whole idea behind FHA was to help more families own homes, at least that was the intent. Worked okay till banks started creatively trying to get around rules about down payments, where the down payment came from. Now the banks want to shift responsibility for the current mess to the consumer, not the economy and really poor thinking on what risks they took and still are taking. Making individuals save the 3% would have been good but the banks creativily came up with ways to get around that. Now They are blaming the down payment and not the economy for where the market is. First, there are too many unemployed and under employed. The economy has she a tremendous amount of jobs as we all know. But blame the worker for not keeping the job and paying for the house? Foreclosures are a fact of life but to decide it was the buyer and not the ecomoy is amazingly short sighted. The FHA is supposed to help families get out of the rental game of increasing rents. When the banks are involved you just need to look at who benefited from the boom market? Fifteen years ago we probably never heard of Wells Fargo except on TV Westerns, Bank of America, CITI Bank and so on. What happened? They found new novel ways of making money, usually through fees. They stopped making money like a bank and stepped into all sorts of commercial business. So to increase fee income They needed more deals. Now they are making fees selling foreclosed properties, charging for real estate services,(yes they are now in real estate), and still looking for more businesses to take over. Competition is not needed. States are not allowed to regulate them at all. Federal regulators are almost always fresh out of college or hired from a bank, and the regulators all expect they will be hired eventually by a bank in the future. How tough a regulator do you think they are?  So here the banks point to the defaults happening in the softest area of the real estate market. The banks are sure it wasn’t their fault. Never is. Get ready for FHA to become irrelevant. And Banks to continue to become larger and larger. Its been a year and not one bank has been ordered to decrease its size. Thats because its more profitable to the upper management to be huge to justify their own huge (Absurdly huge like 20 million dollars huge) salaries and benefits. Think $50,000 a year for a 30 year period, a workers life time income, is 1.5 million. So a bank president is earning 20 million that is about 15 workers lifetime incomes every year….so if he works for 10 years at that income he gets 150 life time incomes. We aren’t talking about a person but many. Incomes are based on their span of control (how many under them) and that is why they are fighting to not have been.

Yes they are and I do all of them.

The FHA and VA are both government loans that have assumable features. They require the new buyer to qualify. The reason finance FHA or VA is it may be a great sales feature if the sale prices and payoff are similar. The buyer will need cash to pay the difference and pay escrows, taxes. These can be negotiable.

VA loans are easy, especially for a veteran. You don’t have to be a veteran though. The veteran does not recover  the portion of his benefit when it is assumed.

VA, FHA and Rural Development loans are all low money loans. They do require reserves and some money invested depending on the program. All have qualifiers.

Questions? Contact me at Dpeterson@MortgageOne.Biz

09/23/2009 The Treasury Secretary, Geithner, explained how the Fed is holding the over half of the original stimulus money because it will be needed to help big banks not fail. Apparently the idea is  we,  the Tax Payers, can’t handle a major bank collapse. I think most people would be inconvienced at worst and at best feel they got what they deserved. Of course, it would help if they were just banks.  Still, a year later the Fed has no plan to stop banks from becoming “too big to fail” or how to downsize them. Apparently BOA, Well Fargo, Chase and the other s are being encouraged to buy other banks. With that idea in mind expect a major increase in small bank failures as large banks use their funds not for loans but purchasing small banks holding our capital.

“Don’t look here, move along, move along, nothing to see.”

The train wreck of banks that stepped out of the making money through loans and into creative finance has cost tax payers dearly. Our homes, often referred to as “retirement assets,” have devalued, the stocks devalued and we are hearing that the low interest rates are devaluing the dollar and causing inflation. Gas will cost more, your insurance for health will be unaffordable, (Death panels won’t be needed when you simply can’t pay), and jobs will still be hard to come by. Expanding the Fed regulaory authority won’t work because the regulators will be supplied by the banks. That’s why big companies made big mistakes and they were obvious but no one would stand up against their former and future employers.