New Tax Credit Offers Needed Incentive to Homes in Higher Price Ranges

In the Minneapolis-St. Paul area, the first time home buyer’s credit in effect for much of 2009 effectively stimulated home buying in this year, even though only 6% of first time buyers said the credit was the definitive thing that encouraged them to purchase. According to a recent National Association of Realtors (NAR) survey, housing prices and interest rates were cited as more powerful factors, but along with the credit, the combination was irresistible to many buyers. What happened in many areas was that the stimulus to housing was uneven, so lower priced homes have depleted inventories, while more costly ones sit unsold.

The Minneapolis Area Association of Realtors colorfully described this in the recent edition of the Monthly Skinny: “Lower priced home sold like hotcakes, while higher priced ones moved like popsicles in January.”

The actual numbers match the flair of the Skinny:

Homes under $120,000 up 114.%
$120,000-150,000 up 52.9%
$150 ,000 – 190,000 up 10%
$190,000 – 250,000 down 7.5%
$250,000 – 300,000 down 10.4%
$300,000 – 500,000 down 14.9%
$500,000 – 1 million down 26.1%
$1 million – above down 36.7%

This situation reflects the basic economics of first time buyers who are often just starting out in their careers: they tend to buy homes priced under $200,000. In Minneapolis-St. Paul, local housing experts agree that sales increase over last year were due to first time buyer activity. For example, in October, the 4,500 signed agreement were up 34% since this time last year – the 16th month of year-over-year rising sales. The result is that inventories of lower priced homes are depleted.

Given those dynamics, a credit just for first timers wouldn’t have done much more to jumpstart housing had not repeat buyers been put in the equation this time around. Typically, people outgrow their starter homes and they want to move up. The $6,500 incentive for repeat buyers who are likely to buy homes at higher price points is expected to create a new pool of homes priced for first time buyers and start moving housing at higher price points.

The credit does not require repeat buyers to purchase a more expensive home, so theoretically, some repeat buyers might be in competition for some of the same houses as first time buyers. A smaller home appropriate for empty nesters will not necessarily be cheaper though, so hopefully most repeat buyers will be shopping at higher price points and finding great deals on homes that are still priced lower than a few years ago. The credit does not require an owner to sell his home; he could turn it into a rental and buy a new permanent residence. Since many first time buyers already took advantage of the credit last time, the new credit will still work to reduce inventories of higher priced homes and stabilize that part of the market.

First time buyer who still want to buy may be faced with dilemma. Unless the stock of homes for first time increases, would-be buyers will be faced with several choices:

• Buy a more costly home. This is not a workable option for most new buyers, as it could put their payment into the unaffordable range. Some buyers have bought homes with friends or family members to increase their buying power, but most people prefer to house their nuclear family
• Wait for an appropriate home to become available – and possibly become entangled in a bidding war for it.
• Settle for a home that is not really what they want
• Wait for the newest round of bank owned homes to hit the market. These homes tend to be priced at market value or below, but the ones with most attractive prices either need a lot of costly work or are snapped up by investors.
• Put off buying and miss the credit.

The best thing a buyer can do right now is hook up with an experienced real estate agent, such as one from the Ashworth Team. The agent can’t pull the perfect house out of a hat, but a good agent who knows the market can be a useful ally in finding a workable house in an area the buyer hadn’t considered or in being on the lookout for a newly-available house the buyer would like. The agent can also be a sounding board for a buyer considering a distressed property or one that might be a step above their normal affordability.

If you are thinking of buying a home in the Minneapolis / St. Paul area, give us a call. We can help you figure out what is affordable and then help you find a great house in line with your budget and your lifestyle as well as familiarize you with the fine points of the credit for first time homebuyers and repeat homebuyers.. We would love to earn your business!

Tony and Lori Ashworth952-997-8899

HAMP Can Help If Your Mortgage Payments Are Too High

Has the mortgage on your Minneapolis/ St. Paul home become too high for your income due to interest rate adjustments? Have your circumstances changed since you took it out? If so, you may find help with the government’s Home Affordable Modification Program. HAMP originated in February, 2009 when President Obama announced his Making Home Affordable program. HAMP, created by the U.S. Treasury Trouble Assessed Relief Program (TARP), aims to facilitate working with your lender to make the payments affordable if you are either who are either delinquent or on course to be.

To qualify for HAMP, you must have a mortgage payment (including principle, interest, taxes, and insurance )which is currently more than 31 % of the household’s monthly income. If approved, the program will lower the payment to 31% for at least five years. At that point, the interest will increase to a current market rate capped so it won’t exceed a certain level. The process, which starts with you contacting your lender, stating your case, and compiling required documents, ultimately ends with a reduced payment. To arrive at a 31% payment, the lender might reduce the interest rate to as low as 2%, extend the repayment term to up to 40 years, and possibly reduce some principle.

HAMP strives to streamline the process but the process itself is lengthy. Any changes to the terms of your mortgage is a complex process that involves a ton of documentation from you and a ton of tedious paperwork that must be filled out accurately. After you provide all the documentation, your case is reviewed. If you receive preliminary approval, you will be set up for a three month trial with your new payment while the bank reviews and processes your documents. If the bank cannot process your documents in time, you can get a two month extension. Once all the paperwork is processed, you will receive all the documentation in the mail.

Meg Reilly from the Treasury Department claims that over 25,000 applicants are processed through HAMP each week. To date, over 500,000 loan modifications are in process. The program got off to a slow start as servicers got up to speed; in July, President Obama strongly urged the lenders to hire more staff to meet the needs of troubled home owners. This year, Wells Fargo, a major loan servicer, claims to have hired over 5,800 people to meet the need, while many other banks have followed suit. Many necessary documents are now online.

So, does all this mean that HAMP will help you? The answer is “maybe.” You must prove to the lender than you have a good reason to have the loan modified. More importantly, you must have the income to devote 31% to housing costs. If you are unemployed without prospects for a job, the program will probably not work for you.

Will HAMP help you quickly? Here, the answer is “Probably not.” Though HAMP has even put many documents online, the process can be tedious – but obviously worth it if your loan modification comes through.

Is the HAMP process easy to navigate? Once again, the answer is “probably not.” Many who have gone through the process claim that it is hard to reach servicers. When they do get through, they complain they get a run around about their eligibility, often have to submit their documents several times, and then be told they do not qualify after starting the process. Paperwork gets clogged in the system, as people are on trials for much longer than three months with a two month extension.

Is HAMP worth the trouble? Yes. The Federal Government is committed to making this program work. Some critic say lenders are slow because they are overwhelmed; other take a more calloused view that it is more profitable for banks to do foreclosures than do workouts. Since the government wants the program to work, they will also continue to help smooth out the process, as well as put pressure on the lenders to step up their processing time and increase the number of people they accept.

If you fear you are on the course to foreclose, do not despair. HAMP is a great place to start to try to work out your situation. You can take the first step by contacting your mortgage company or by visiting the Making Home Affordable site.

If you are thinking of buying a home in the Minneapolis / St. Paul area, give us a call. We can help you figure out what is affordable and then help you find a great house in line with your budget and your lifestyle. We would love to earn your business!

Tony and Lori Ashworth
952-997-8899

Another Chance to Buy Your Minneapolis/St. Paul Home

You may have heard that Congress was considering extending and expanding the first time home buyer’s credit, but until today, nothing was certain. Now, the House has actually passed a version that will extend the credit until April 30, 2010 PLUS give current homeowners the chance to realize a $6,500 credit if they buy a new home. The President needs to sign the bill yet, but based on the encouraging date about the success of the credit thus far, he is expected to do so. According National Association of Realtors, two million people will take advantage of the credit by year’s end. The credit has contributed $22 billion to the economy and credited with stabilizing the housing industry. Throughout the country, housing prices are increasing and housing inventories are decreasing.

If you are a first time home buyer, this is particularly great news is you’ve been looking and homes and maybe even found one, only to realize that you won’t get the deal done by November 30, the old deadline. Now, that worry is gone. If you’ve been toying with the idea of buying but have been trying to do some last minute credit repair, been trying to build your down payment, or been unsure of whether to take the plunge, you have another chance.

If you are a current homeowner who’s been in your home (as a primary residence) for at least 5 of the last years, now is your chance to move to a bigger home with a little government assistance. You can now receive up to $6,500 on any home up to$800,000. In response to rising cases of fraud by non-qualifying home buyers who tried to use the credit without buying a home, the new bill requires the purchaser to attached documentation of their purchase to their tax return.

The new law allows you to claim the credit with higher income levels than in the past. Now, you can earn the full credit if your income is $125,000 if you are single or $225,000 if you are married. If you make slightly more than that, the credit phases out up to $20,000.

The credit expires April 30, 2010 but this time, the credit has a contingency that offers a few extra months to close. As long as you have a binding contract in place by April 30, 010, you have until July 1, 2010 for all the details to be completed. This is a great provision that will allow buyers to make offers on home until the last minute – although doing could backfire if another buyer snaps up your dream home while you are thinking. It even gives you an opportunity to buy a new home that might not be ready by the end of April but will be ready by July 1.

If you are thinking of buying a home in the Minneapolis / St. Paul area, give us a call. We can help you figure out what is affordable and then help you find a great house in line with your budget and your lifestyle. We would love to earn your business!

Tony and Lori Ashworth
952-997-8899