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

How Much Should You Pay for Your Minneapolis House?

In this buyer’s market, you have decided that it’s time to buy a house. There are bargains out here, but many of the lower cost homes have been snapped up by others who got there first. So the question for a potential buyer still is: “How much house can I afford?”

The foreclosures of recent years resulted from many people not asking themselves this question. Up until now, most foreclosures occurred among people who overstated their income to get loans on homes they couldn’t afford or had adjustable mortgages that “adjusted “ their house payments into the stratosphere. Now, a growing number of foreclosures are among borrowers with fixed rates who have lost their jobs or found themselves unable to keep up with the mortgage.

Bottom line, the answer to the question about the right price bracket to aim for is partly about income, especially in relation to other debt you may have, but also about your lifestyle and your goals. Based on pre-approval, the bank might tell you qualify for a $400,000 loan. Based on an annual household income of about $117,000 and minimal other debts, your payment and taxes might be about $2,700 per month at an interest rate of 6%. Do you really want to pay this much for housing?

What if you have a lot of debt from a cars or credit cards acquired after you got the mortgage? What if your salary stays the same but your other expenses keep increasing? What if your partner is laid off? What if one spouse wants to stay home with the kids? Do you have resources to help you make it for awhile? Will you be able to handle increased energy costs if the home is bigger than your old residence? A mortgage you can technically afford can become a noose around your neck.

In a similar vein if you have expensive hobbies you like to pursue – golf, boating, skiing – will you really want to give these up to pay for a more costly mortgage? Will you want to close yourself off from new pursuits because you can’t afford them? If you have kids, will you have to forego better schools or tell them they can’t take dance lessons or take a class trip because your mortgage is so high? A mortgage that’s too high can affect your lifestyle.
Any discussion of how much house to buy should consider both the “what if’s” and the lifestyle trade offs you might have to make.

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 & Lori Ashworth
952-997-8899

Stricter Loan Requirements Make It Harder to Buy Your Minneapolis/St. Paul Home

With all you read in the papers these days about the buyer’s market, the first time homebuyer’s credit, and low interest rates, it may seem like all you need to do to get a house is find one you like and wait to close! Unfortunately, it’s not that simple. Many potential borrowers are finding that getting a loan is a major hurdle.

What has happened in the fall out from the avalanche of foreclosures these past two years, is that lenders have tightened credit requirements. Many lenders have become less tolerant of flaws in a potential borrower’s history as credit became less available and have also changed the rules of the game.

Access to credit is based on the FICO score from the Fair Issac Corporation, a number derived from a calculation made based on certain factors including payment history, the amount of debt a person has, the amount of current currently available to the person, and the type of credit it is. Scores range from 350(poor) to 850 (excellent.) In times past, those who scored above 750 were likely to have access to the best loans with the lowest interest rates. Even borrowers with scores in the high 500s could get a loan, at least through FHA. Now, lenders want scores of 800 or more for the best rates; even FHA usually requires 620.

In the current environment, many borrowers are finding that their scores have dropped without any bad financial behavior on their part. Oftentimes, lenders reduce the amount of credit previously available to a person, which makes any balance consume more of the credit limit. If someone has $50,000 in open credit lines and $10,000 in debt, they are using 20% of their credit. If their lines of credit are reduced to $20,000, then they appear to be using 50% – financial “no-no.” Financial experts recommend that using no more than 30% of open credit is ideal. In past days, pushing the envelope and using more may have been okay; now this type of situation – a result of bank policy, not frivolous spending – would lower the credit score to the point where getting a loan is difficult.

If you are a homeowner who hopes to buy a home soon, this state of affairs makes it necessary for you to prepare carefully to qualify for a loan. First, it is a good idea to pull a copy of your credit report from the three bureaus, Transunion, Equfax, and Expertian before you start shopping. Your scores are likely to vary among the three, as they may report different information and use different formulas to compute your score. Current law permits you to obtain a free copy of your report each year from each bureau at AnnualCreditReport.com. These scores at least give you a ball park view of the scores a lender will review about you. If there are errors on the reports, you have time to fix them.

Next, you should get pre-approval from one or more lenders to ascertain that you can get a mortgage. The lenders will check your credit and employment, and approve you for a loan up to a certain dollar value, assuming the property you chose appraises at the purchase price, there are no title issues, and your financial situation has not changed. Because lenders have different underwriting policies, you may be offered different loan maximums and different rates at different banks. When you go shopping for a home, you need to shop for homes in the price range the bank says you can afford for the bank to be willing to actually make the loan.

Finally, once you have the house under contract, you need to be careful in the time before closing to not disturb your debt-credit ratio. If you buy a car or new furniture, the bank could refuse to issue the loan. If you know you need appliances or carpeting before you move it, you’d be smart to defer the purchase until after closing and then shop prudently.
Banks are still in the business of making mortgage loans, but the higher credit requirements make loans harder to come by – and slower to process. For homeowners still hoping to take advantage of the $8,000 first time homebuyer credit, starting from scratch to find a loan that can be processed in time may be very challenging.

If you are thinking of buying a home in the Minneapolis / St. Paul area, give us a call. We would love to earn your business! We can even refer you to good lender.

Tony and Lori Ashworth
952-997-8899