July 15th, 2011 was another big day for anyone in financial distress on their primary residence in California. Along with Senate Bill 931, signed in January, which prohibits a deficiency judgment against a homeowner after an approved short sale on their first mortgage, Governor Jerry Brown signed Senate Bill 458, which prohibits a deficiency after a short sale for one-to-four residential units, regardless of whether the lender is a senior or junior lien-holder. In short if you have an approved short sale on the first mortgage the lien holder cannot pursue you for any difference between the short sale price and that loan balance. The same goes for the second mortgage. This is for any short sale closing after July 15th 2011.
By now it is well documented that today’s affordable housing prices, historically low interest rates and federal home buyer tax credit have combined to create one of the most attractive first-time buyer markets in recent memory. What many Americans might not realize is that a recent expansion of the buyer tax credit has created an equally desirable opportunity for existing homeowners.
This past November, Congress elected to expand the home buyer tax credit to repeat buyers after seeing the success the temporary financial incentive had on the housing market and overall economy. As a result, current homeowners who will have lived in their home for 5 consecutive years out of the last 8 may now be eligible to receive a $6,500 tax credit.
“The expanded tax credit offers a great financial opportunity for existing homeowners, particularly those looking to trade up,” said James M. Weichert, president and founder of Weichert, Realtors, one of the nation’s largest independent real estate companies. “Not only can you receive a large sum of money from the government, you’ll also likely purchase your next home for less money and at a lower interest rate than you could have in years past or years to come.”
To qualify for the tax credit, the repeat buyer must have signed a binding contract by April 30, 2010 and close on the home by June 30, 2010. Tax credit eligibility is subject to income limits, $125,000 for single buyers and $225,000 for couples. In addition, the sale price of the home being purchased can not exceed $800,000.
There is no requirement that existing homeowners must have sold their home to be eligible for the $6,500 tax credit. However, Weichert encourages existing homeowners who want to benefit from this incentive to move quickly, particularly those who prefer to first sell their current home before purchasing a new one.
“Typically, it takes three months or longer to sell a home. That’s why it is critical repeat buyers put their home on the market right away. Otherwise they might not leave themselves enough time to both secure a buyer for their current house and find a new home by the April 30 deadline,” added Weichert.
The Federal Housing Administration won’t raise the 3.5 percent minimum downpayment requirement for mortgages it guarantees as long as borrowers have FICO scores of 580 or better.
Beginning early this summer, however, borrowers with credit scores below 580 will be required to make downpayments of at least 10 percent in order to participate in FHA’s mortgage insurance program.
This spring, the Obama administration also plans to raise the upfront mortgage insurance premiums paid by all FHA borrowers to 2.25 percent, up from 1.75 percent now.
Here are some tips to help improve your credit score.
1. Review your current credit report for accuracy. Everyone is entitled to one free credit report per year from each of the three credit bureaus—Experian, Equifax, and TransUnion. Get a copy of your credit report and look at it for accuracy. First, make sure that the information in your file is about you and only you, not someone who has a similar name or a similar Social Security number. It is very common for your credit reports to have mistakes or incorrect information. At a minimum, make sure that the information you are being evaluated on is current and correct.
2. Repair credit report mistakes. If you find something on your credit report that is incorrect or missing, you should dispute the mistake by contacting the credit bureaus directly. All credit bureaus have their dispute procedures on their website. They are also required by law to investigate any disputed items and these investigations will usually be done within 30 days of your request.
3. Pay your bills on time. Sounds like a no-brainer, right? Payment history accounts for roughly 35% of your credit score. Paying bills on time is the most important thing to do. If you’re struggling to catch up, contact your creditors to work out a payment schedule.
4. Increase the length of your credit history. This accounts for about 15% of your score. Don’t cancel your old card or get a lot of new ones in a short time span because this can hurt your score.
5. Keep credit card balances low. It’s a good idea to keep the balances below 25% of your available credit. Even if you pay off your credit cards every month, a high average balance will impact your score. This accounts for about 30% of your credit score.
6. Keep new credit requests to a minimum. This accounts for 10% of your score. Every time a lender runs your credit, an inquiry is recorded. If you are trying to get a loan, don’t apply for new credit cards first.
7. Be aware that paying off a collection account will not remove it from your credit report. It will stay on your report for seven years.
8. Pay off debt rather than moving it around. The most effective way to improve your credit score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.
9. Beware credit-repair scams. By all means, don’t pay someone to wipe away the negative items in your file. If they don’t follow through, the damaging items will reappear in two or three months.
You may also consider talking to your lender also for other options when your credit score is not were you would like it to be.
The following is an interesting article a friend sent me from the Chicago Tribune dated 10/11/09. I thought it might be helpful for anyone looking to buy or refinance a home.
With low mortgage rates and a federal incentive for first-time homebuyers, you might be enticed to buy a place or refinance the one you’re in.
But new regulations on brokers, appraisers and mortgage lenders have changed the rules for getting or refinancing a mortgage. Some rules went into effect this month, and others will kick in soon.
“Over the past year, getting a mortgage as a buyer or when refinancing has become more arduous and more expensive,” said Dale Robyn Siegel, author of “The New Rules for Mortgages.”
Here are a few tips, some accounting for fallout from the credit crisis.
Don’t use a mortgage broker unless you need hand holding. In the past, brokers typically shopped your loan to multiple lenders, which was a big help. But new regulations have hamstrung their ability to efficiently shop for the best deal. Among them is a rule that lenders can’t accept home appraisals commissioned by brokers. So, you’ll have to pay for new appraisals with each lender, which costs time and money.
In the end, you’re probably better off shopping for a mortgage by yourself, said Siegel, who owns a mortgage brokerage in White Plains, N.Y.
However, if you’re very busy or need hand holding, it could be worth using a broker, she said. Just realize you’ll pay a slightly higher interest rate because that’s how the broker gets paid.
Shape up your credit. You barely needed to fog a mirror to get a mortgage or refi a few years ago. Today, it’s different.
“Qualifying for a mortgage is the most difficult it has been in decades,” said Dale Vermillion, author of “Navigating the Mortgage Maze.”
Starting Nov. 1 or Dec. 12, depending on the type of loan, anybody with a credit score of less than 620 will have a very difficult time getting a mortgage. That’s because government-backed mortgage financier Fannie Mae is tightening lending standards to the 620 benchmark, even for loans backed by a federal agency such as the Federal Housing Administration or Veterans Affairs.
To get the best rates — and save money on monthly payments — you’ll need a score of about 720 and have a verifiable, steady income, Vermillion said.
So, take steps to raise your credit score. The scoring formula is complicated, and specifics are secret. But the best ways to raise your score are: pay bills on time and pay off debt. Less known are to never close an old credit card account and try to use a very small percentage of your available credit, regardless of whether you pay off your card balance every month. And check reports at Annualcreditreport.com.
Get a fixed-rate mortgage. The vast majority of buyers and refinancers are better off with a rate that won’t change, Siegel and Vermillion agree.
“Why are you taking out an adjustable-rate mortgage that’s going to change in five years when you can take out a 30-year fixed and never think about it again?” Siegel said.
With a primary residence, it’s usually best to think long term, and that means a fixed-rate mortgage.
Gregory Karp is a personal finance writer for The Morning Call, Allentown, Pa., and author of “Living Rich by Spending Smart.”
Short sales can occur if a lender (or multiple lenders) agrees to accept an amount less than what is currently owed against a home. The more lenders there are on a home the harder it is to conduct a short sale. It is often best if your real estate agent or lawyer contacts the lenders loss mitigation department to help in the process. One common misconception is that when you proceed with a short sale there is not a “ding” on your credit record. This is not true. There is a hit to the credit score often 200 to 300 points. Although unlike a foreclosure you may be able to buy another house in a little a 2 years.
A foreclosure usually starts when a homeowner stops making payments for whatever reason. This ends with the mortgage holder selling the home at auction. If there are not any bids high enough the bank will bid and take control of the property. Many times the homeowner can stay in the house for up to a year before being forced to move. Like the short sale this can be a hit of 200-300 points on ones credit score. It takes much longer (in some cases 7 years) before you can buy another home.
Neither of these options should be taken lightly. If, as a homeowner, you are considering one of these options please consult an attorney, tax professional, and a real estate professional before signing any paperwork. One reason you should contact a professional is because many times (not always) you are still obligated to pay the difference between what your mortgage company gets for your property and what your loan amount was.