Monday, November 23, 2009

Tax Credit Confusion!

Tax credit confusion! We are hearing many agents tell their clients that the $6,500 federal income tax credit for people who have owned their primary residence for 5 of the past 8 years is only for move-up buyers (people buying a more expensive house). That is not true.

The tax credit can be claimed regardless of whether the buyers are moving up, moving down, or buying a house for exactly the same price as their current house.

Here's something to keep in mind, though. If someone buys a cheaper house than the one they currently occupy as their primary residence and they intend to keep their current primary as a rental, they may not be able to get a loan. The reason has nothing to do with the IRS tax credit. It has to do with the fact that so many people were cheating on their loan applications - saying they were buying a new primary residence when they were really buying a rental property - Fannie Mae, Freddie Mac, and FHA now enforce the rules. If someone is going to be moving from a big, expensive house into a smaller, cheaper house, they are going to have to document why they are doing what almost no one in America does. They will need to show an underwriter that they have a legitimate reason for moving into a smaller house. Cutting down on expenses is not a good reason because they will actually be increasing their expenses if they retain their current primary as a rental.

Sunday, November 22, 2009

Fannie Mae and Freddie Mac Loan Limits Stay the Same for 2010

Fannie Mae and Freddie Mac have announced that the maximum mortgage limits for conforming loans (loans that conform to their underwriting guidelines and are eligible for sale to Fannie and Freddie) will remain the same for 2010. That means most counties in the country will have a limit of $417,000 and some counties will have higher limits.

To see the limits for Fannie Mae, Freddie Mac, and FHA loans, go to this site:

https://entp.hud.gov/idapp/html/hicostlook.cfm

From the drop down menus, select the following (you can ignore the rest):

• Sorted By (select "County")
• State
• Limit Type ("FHA Forward" - for regular FHA loans, "HECM" - for FHA reverse mortgages, or "Fannie/Freddie" - for conventional loans)
• Limit Year (CY stands for Calendar Year)

Then hit "Send" and the loan limits will be displayed.

Thursday, November 12, 2009

Link to the Fannie Mae Underwriting Guidelines

Everyone knows there are guidelines for determining whether someone gets approved for a loan, but have you ever actually seen the underwriting guidelines?

Here's a link to the Fannie Mae underwriting guidelines:

http://www.allregs.com/tpl/public/fnma_freesiteconv_tll.aspx

When the Fannie Mae Single Family page opens, click on "2009 Selling Guide", then on "Part B, Origination Through Closing", and then on "Subpart B3, Underwriting Borrowers". From there, you can get to all the guidelines for income, assets, credit, etc.

Every time a lender says a borrower is pre-approved for a mortgage, they are supposed to have checked all of these guidelines. In addition to these, a mortgage broker needs to check the guidelines for the individual lender they intend to use, and then, if the loan will have mortgage insurance, they need to check the mortgage insurance underwriting guidelines.

Ever have a deal fall apart? Your lender didn't read the guidelines!

Monday, November 9, 2009

Public Records Web Site

Ever wonder how underwriters find out all the details about a buyer or a property? One of the greatest resources for an underwriter is the Public Records Online Directory. This web site is a portal to all the official Assessors', Recorders', and Treasurers' web sites.

Here are just a few of the things that can be found by using this site:
• assessed value
• taxes
• current owners' name and address
• sales history
• deed recording dates
• zoning information
• property type (end the confusion about whether a property is a condo or a townhouse)

Here's the link to the site:

http://publicrecords.netronline.com

When the web page opens, just click on the state, then the county, and then the link to the Assessor, Recorder, or Treasurer. If the link says "Go to Data Online" that means you will be able to access the information yourself. If the link says "Website Only" or "No Information Online", then you won't be able to get the information yourself, but you can call the phone number listed next to the link to get what you need.

We use this web site for every loan we originate, just so we'll know exactly what the underwriter is going to see when they start their research. It's much better to head off problems early in the game than to have a deal fall apart at the last minute.

Tuesday, November 3, 2009

Should You Close a Credit Card Account and Open Another One?

There was a financial advice column in the Denver Post on November 1 that incorrectly stated that closing a credit card with an annual fee and opening another one without an annual fee would have little effect on a person's credit score. That is simply not true. The length of time that an account is open has a great impact on credit scores. The longer an account is open, the higher the scores.

In addition, many lenders now require a minimum of three credit accounts to be open and active for a period of at least 12 months. Some lenders require one account to be open and active for a period of 24 months.

The most important thing to keep in mind when thinking about credit scoring is that the scores are meant to be an indication of a person's use of credit. If someone keeps closing accounts or only has one account, there is no way to tell whether that person is wisely or unwisely using the credit that is available to them. If someone has three or more credit cards and keeps a low balance on all of them, that is considered to be a wise use of credit and they will have a high score. If someone closes accounts because they can't trust themselves, or because they "don't believe in credit cards", or because they have received bad advice, that is considered to be an unwise use of credit and their scores will go down.