Obama’s Plan: Help for Small Investors

Sign for Barney's Loans, corner of Second Ave ...
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Yes you read that right. Obama’s plan will also help you refinance if you have rental properties. Last week Fannie Mae and Freddie Mac announced they would refinance rental and second homes as part of the Obama administration’s housing relief effort.  That is a relief! It seems that finally these lending giants have realized that helping small investors will also help renters and if nothing else provide homes for the foreclosed upon.

Here’s the skinny. First, the loans must be owned by Fannie or Freddie. If you don’t know, call your servicer to find out or go to Fannie and Freddie websites. If your loan is with another entity or a private lender, you will not be eligible.

Just as with owner-occupied properties, the loan to value ratio cannot exceed 105% and that is up to $729,750 loan amount.  Let’s say you bought a duplex or a fourplex a few years back for $500,000 with a first mortgage of $400,000 at 7.5% and that loan has now been acquired by Fannie Mae. You may well be able to refinance into todays 5% and 6% rates, thereby greatly increasing your cash flow. Even if the value of your property has dropped in the intervening few years, as long as the current market value is at least $420,000, you can do it.

Of course, you do have to be a good prospect for a refi. Your payment history on the loan should be close to perfect–no 30 day lates in the past 12 months. Even if you’ve had other financial woes which may have tanked your credit score, it’s still possible because Fannie and Freddie have agreed to waive their usual minimum score requirement and you won’t have to pay for new mortgage insurance [pmi].

You will have to show income to qualify–often investment income from the building is enough–and there will be the usual closing costs which will increase your loan balance.

All in all, though, this is a great deal!

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Buyer Stimulus

Early reports about the massive Stimulus Bill due to be passed today indicate that home buyers will get a bit of a boost.

FIRST-TIME HOME BUYER CREDIT First-time home buyers are eligible for a refundable tax credit equal to 10 percent of the purchase price of their home, up to $8,000, if they made the purchase after Jan. 1, 2009, but before Dec. 1, 2009.  A first-time home buyer is traditionally defined as someone who has not owned a home in the past 3 years, no matter how many homes owned before that date.

first-time-home-buyer

Unlike a similar credit that Congress provided last year, buyers  don’t have to pay this one back over 15 years. The new credit, however, does phase out for individuals with incomes over $75,000. Also, you forfeit the credit if you sell the house within three years.  In other words, no home flippers, please.   Of course, this credit is for owner-occupied homes only.

Coupled with the now-permanent rise in the cap rate of FHA loans to $625,000, this does propel buyers into the market.  FHA loans offer a variety of options for the home buyer, and,  prime among them is that 3.9% down payment.  Some of the savor there is reduced by the high mortgage insurance amounts necessary for these federally-backed loans, but  FHA allows  sellers  to  contribute up to 6% of the loan amount for these and other costs.

Today, mortgage rates for 30-year fixed, are hovering around 5%, among the lowest in 50 years, and home prices are still declining, albeit more slowly.

If all this doesn’t point qualified buyers in the right direction–what will? Today’s buyer, especially in Southern California, is  unlikely to get a better deal in his or her lifetime.

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