Think you and your family don’t make enough to buy a home? Worried about your low credit score or lack of down payment? If these issues have prevented you from even beginning to look for a new home, let me assure you that help is on the way.
Most home buyers are not aware that many programs exist to help them purchase a home. Often, the lenders selected by the buyers or their agents prefer to avoid the extra paperwork and so do not inform their clients about these programs. Financial aid for home buyers in California comes from cities, counties and the state itself.
The assistance comes in many forms.Some allow zero down payment. Some are outright grants of money. Some come as “silent seconds” which are only repaid when the home is sold. Some eliminate mortgage insurance. Some are directed towards buyers with low credit scores. Future home buyers in pricey California would do well to find a lender who is conversant with these programs and start the process.
Here is a sampling of assistance available to first-time home buyers. Note that a “first-time” home buyer is one who has not owned a home in the last three years.
- California Housing Finance Authority [CalHFA] requires at least a 640 FICO score, well below average, and when combined with 3% CHDAP, 3% CalPLUS and $6500 Cal Extra allows for ZERO down payment. On a $300,000 property, for instance, $22,000 is available through these programs.
- Extra Credit Teacher’s Program [ECTP] allows teachers, administrators, employees and staff of high priority schools [ranks 1-5] a deferred loan of up to $15,000 in high-cost areas and $7500 in low-cost areas. If the recipient lives in the house for three years, the loan is forgiven.
- Southern California Home Finance Authority [SCHFA] requires at least a 640 FICO score and offers a grant, not a loan, of up to 4% of the purchase price to help with the down payment. This program applies to LA and Orange Counties only.
- CHF Platinum, again requiring 640 FICO, is a 3-5% down payment assistance grant with a slightly higher interest rate.
- Mortgage Credit Certificate [MCC] is a 20% tax credit through CalHFA and amounts to average savings of $200/month through the life of the loan and helps borrowers qualify.
- County of Orange Mortgage Assistance Program [MAP] provides up to $40,000 down payment assistance in 17 Orange County cities. The amount becomes a lien which must be paid back when the property is sold.
Most of these programs are for “low-income” individuals and families, but in Southern California that can mean up to $120,000 or higher family income. Each program is different and attempts to answer different borrower needs.
These are just SOME of the mortgage assistance programs available. Many cities in Southern California also offer some type of aid. It costs nothing to ask and may make the difference between buying and renting.
For further help either with home buying or selecting a lender, feel free to call me, Diane Butler, at 626-641-0346 or email me at firstname.lastname@example.org.
Real Estate Tax Provisos for 2013
Finally, “fiscal cliff” debate is over! For months now, it’s been impossible to turn on the TV or radio without getting an earful of breathless and mostly unwanted information. Even though most of us now regard Congress as on a par with cockroaches, what happens there does have an impact on our lives. All the more reason for members of Congress to act like grownups, but that’s another topic…
Real Estate Tax Deductions
Rushed through at the last minute, the “fiscal cliff” legislation contains a number of important provisions and none more important than those that relate to real estate. Here are a few of the most salient.
- Short sale taxation relief extended for another year until January 1, 2014
- Deduction of mortgage insurance premium is retroactive to 2012 and extended to 2013 for incomes under $110,000
- 10% tax credit [up to $500] for energy-saving home improvements retroactive to 2012 and through 2013.
- Capital gains tax stays at 15% except for those earning over $400,000 [single filer] or $450,000 [joint] and then it’s 20%.
- $250,000/$500,000 [single/married] exclusion on capital gain from sale of principal residence remains unchanged.
- Estate taxes on first $5 million for individual and $10 million for family estates are ZERO. Above those amounts, the rates are 35% and 40% respectively.
Effect of Real Estate Provisos of 2013
Given these provisos, it’s clear that real estate remains in a privileged position as far as federal taxes go. Not only do homeowners get a tax deduction for the interest in their mortgage payments, which is unheard of in other developed countries, such as Australia and Canada, but we can deduct mortgage insurance premiums which are only applied if the equity in the home is less than 20%. By extending this tax deduction, Congress is implicitly encouraging home ownership among those who do not have the traditional 20% down payment. Is this a good thing? Considering the recent mortgage meltdown, maybe not. It does help lenders and real estate professionals, though.
Homeowners also get to purchase equipment for their homes and then deduct some of the cost–just so long as it saves energy and fits the criteria. Naturally, no one can argue that energy-saving is bad, but here the government supports homeowners and no one else.
Additionally, estate taxes on the first $5 or $10 million, depending, amount to nothing. This also supports homeowners since a large proportion of most estates of this size is made up of real estate holdings, both principal residence and investment properties. Again, the tax code is supporting home ownership and investment in property.
Last, but not least, the tax code encourages home ownership by not taxing any capital gain up to $250,000 or $500,000 respectively. This means that home owners can sell their homes frequently, pocket the gain or purchase a more expensive home, without worrying at all about taxes. This has been part of the tax code several decades, though the amounts have increased, and does encourage home ownership. In fact, it encourages or at least does not discourage serial home ownership. Of course, this benefits those who change jobs and must change jobs, but it also benefits lenders and real estate professionals.
Extending the tax relief to those who short sale their homes is in a different category. So long as underwater homeowners face no tax penalties for short selling their homes, they will usually prefer it to the foreclosure alternative. At the same time, short sales are a much faster way of dealing with an inability or unwillingness to pay the mortgage in underwater homes. Short sales help to clear the vast inventory of underwater property which has been clogging the system for the past few years making it difficult for the real estate industry to recover.
Half the Country Has Bad Credit
It’s no secret that half the county’s credit has been trashed during the Great Recession. Due to short sales, foreclosures, bankruptcies, job loss and assorted maladies, a significant chunk of the population can no longer qualify for a mortgage loan. Add, too, the new, much more stringent, underwriting guidelines adopted by lenders in the wake of their irresponsible behavior during the “bubble” years and that creates a huge problem for many, many would-be home buyers and investors.
What to Do?
What to do? One thing buyers can do is search out seller-financed properties, though often such sellers, too, will check out the credit report and be unhappy with the result. Another, lesser-known, option is to assume an existing loan, saving thousands of dollars in closing costs to boot. Now, this, too, has its own problems since most fixed-rate loans of the past 10 or so years have a “non-assumable” clause. This means that if the property title is transferred, the new owner cannot take over the old mortgage. Most loans have a “due-on-sale clause”, meaning the lender can call in the entire amount of the loan in the event of a title transfer. Even the “assumable” loans usually require that the buyer qualify.
Some Ways To Assume a Non-Assumable Loan
Is there a work-around? Thankfully, in some cases, but certainly not all, it may be possible to assume a non-assumable loan. Here are some of the scenarios where that may just work.
- Make Sure There Is A Due-On-Sale Clause. Even if the lender insists that the mortgage is not assumable, here’s a tip: read the mortgage and promissory note to make sure that it has a due-on-sale clause. With all the confusion in the past few years, the lender may not even be able to produce the required documentation. Without it, no due-on-sale clause is legally enforceable. This is a check-with-a-real-estate attorney option.
- Death of a Joint Tenant. When the surviving joint tenant receives title after a death, federal law, the Garn-St. Germain Depository Institutions Act of 1982, prohibits the mortgage lender from enforcing a due-on-sale clause.
- A Related Owner-Occupant Inherits. When a related owner, such as a spouse, either occupies or continues to occupy the property, the lender cannot enforce a due-on-sale clause.
- A Junior Lien Is Placed On The Property. Here, too, the primary lender is enjoined from enforcing the due-on-sale clause. In reality, the primary is in a better position if the homeowner has a second mortgage or an equity line since now two parties are vitally interested in seeing that payments continue to flow in.
- An Owner-Beneficiary Trust Takes Title. These days, trusts and, especially inter vivos trusts, are used to avoid probate costs. Although the lender cannot enforce a due-on-sale clause under this scenario, the mortgage-holder does have a right to a copy of the trust.
- Transfer After Divorce. After a divorce the lender cannot enforce a due-on-sale clause if either children or a former spouse occupy or continue to occupy the property. They must occupy though.
- Ask About an Assumption Fee. Even if the situation is not one of the above, it always pays to ask the lender if an assumption is possible despite the presence of a due-on-sale clause. Especially if the loan is in default, the lender may be exceedingly happy to have the loan brought up to date often with no fee whatsoever. Lenders today have plenty of foreclosures and short sales already and so may be quite willing to make a mutually-beneficial deal.
Housing Is On The Upswing
The Good News
The worst of housing times may be slowly working its way into a dim memory as home buyers are returning to the marketplace. The national housing stats are suggesting that the terrible pain of the last six years may, at last, be coming to an end. According to the National Association of Realtors [NAR], national home sales rose 3.4% in April for a total of 4.6 million homes sold and the median home price for the nation rose to $177,400, a full 10% over last year. Of course, the NAR has a vested interest in the health of the housing sector and its stats may be on the rosy side, as many commentators have pointed out. Still, 10% increase in value, even 5%, is terrific news.
For more good news, purchases of new homes rose almost 10% over last year. At the same time the purchase price of these new homes rose almost 5% to a national median of $235,700. Housing starts are up over 50% from their 2009 low. So, it does seem as if there is some ground for optimism. Finally, the combination of incredibly low mortgage rates and low home prices has begun to attract the public, still stunned from the worst economic downturn in decades.
Why Is This Happening?
For the millions still underwater and behind in outrageous payments, even thinking that the housing crisis may be on its way out is a cruel joke. Nevertheless, there are some solid reasons for an eventual and actual end to the housing crisis of the last few years. Our U.S, labor market has been improving over the last two years ever so gradually, diminishing the ranks of the unemployed slightly month by month. Add to that enticing mortgage rates which remain at historic lows and it makes sense that home buyers with the wherewithal would begin to have enough confidence in their future prospects to make that big home purchase.
Rent vs. Buy
Rental rates have been rising throughout the country and renting has many advantages over owning a home. Nevertheless, rental rates are still much higher than the cost of owning a home in great swaths of the country. This is based on purchasing a home with 20% down and owning the same home for at least 5 years Additionally,these stats take into consideration only the purchase price of the home, not the ongoing costs of maintaining it.
Though for the most part in Southern California rental rates are still cheaper than owning a home, the allure of home ownership is still a strong pull both for the younger, first-time buyers as well as older, more experienced ones. The many young people who have returned to live with Mom and Dad or those who have rented with roommates for several years are now yearning to live free–in their own homes.
Is The Crisis Finally Over?
Millions of homes are still underwater. Millions of homeowners are still faced with foreclosure or the prospect of short sale. With that in mind, the housing crisis is certainly not over. Despite the modest recovery in the U.S., now our global trading partners are starting to slow down or even crash themselves, especially the EU and the BRIC countries [Brazil, Russia, India, China], which had been keeping the economic engine stoked. This country is recovering and we may manage to keep up the trend going mainly by satisfying pent-up internal demand, especially in housing.
Should I Buy Or Sell Now?
It seems clear that now and for the rest of this year, it’s a good time to buy a home. Prices are still very low and mortgage rates are very low. Both of these factors are likely to extend through the end of the year and into 2013.
For those thinking of selling, it’s a more mixed picture. For those deeply underwater, home prices are unlikely to spike in the next few years, so better to bite the bullet and sell now. For those who want to move up, this seems to be the ideal time to make the move. And, of course, many have little choice in the matter: whether it’s through marriage, divorce, new babies or new jobs, selling is really the only option.