Filed under: finance, home finance, loans, mortgage, real estate | Tags: mortgages, first time home buyer, tax credit, Housing and Economic Recovery Act
Home Buyer Tax Credit - Not just for First-Time Buyers
On July 30, 2008 President Bush signed into law H.R. 3221, the Housing and Economic Recovery Act of 2008. Part of this law includes a Tax Credit up to $7,500 for “first-time” home buyers. One of the many misunderstood benefits of this program is that a “first-time” home buyer is defined as one who has never owned a principal residence or one that has not owned a principal residence within the last three years of the purchase date. This second part of the definition is not widely known and if you or one of your clients has not owned a home for the past 3 years or longer they too may be eligible for this Tax Credit.
Of course there are certain limitations and I have highlighted just a few of them here:
- The closing must occur between April 9, 2008 and July 1, 2009
- The credit is equal to 10% of the purchase price up to a maximum of $7,500
- This is a credit that must be paid back over a 15 year period beginning after the second year of the deduction is claimed ($500/year or 6.5% of the credit)
Income phase out limitations of $75,000/individual and $150,000/couple - Even if you purchase the house in 2009 you may be able to claim the credit on your 2008 return
- If you sell the house at a loss you will owe nothing
To read a well drafted overview of the bill, please click on this link or this link for a break down of some income examples.
Filed under: home finance, loans, mortgage, real estate, refinance | Tags: bankruptcies, economy, foreclosures, loans, mortgages, real estate, refinance
The perfect Storm for Downward Pressure
October is always a scary month because of Halloween but this year has brought about an entire new meaning to scary. Today’s blog is long and it is a reprint of my October 14th Take ControlSM newsletter. It is direct and to the point of my thoughts on the markets and what you can do to take control of your financial future.
Please remember that I am neither an economist nor an analyst. I draw my opinions from working with and speaking to my clients, colleagues and other professionals that are on the front lines every day. As you can guess my outlook is not good. If you go back a year or so and review my newsletters, you will see that I have been warning about the recession we are in and steps to take to try and position yourself to weather the storm. Below I outline the downside as well as what to do to stay afloat.
Summer brought us the “eye” of the storm as I have been saying but September brought with it the second half of the storm and I see it persisting through much of 2009 before things start to steady. Often the second half of any storm is more destructive than the first half as the first half weakens structures and the second half blows them over. Hopefully I am dead wrong but it is better to prepare for the worst than hope and pray for the best.
As I see it, things that will contribute to harm the markets are:
- Unemployment will continue to rise.
- Retail sales this holiday season will not be good causing more bad news for corporate earnings and job security.
- Those in finance and real estate can expect another tough year draining what savings are left.
- Foreclosures will continue to increase which of course place downward pressure on the value of neighboring homes.
- Personal credit card debt continues to increase
- Many are finding that their credit card limits have been reduced and capped which in turn shuts off the last avenue for cash to pay bills.
- Many small businesses are finding that their credit limits (both bank lines of credits and credit cards) have been reduced and capped at a level that prohibits many owners from being able to order inventory which stymies growth. Some are even finding it difficult to make payroll.
- Bankruptcies are on the rise.
- Retirement accounts are decreasing.
- Tax revenues will be down due to the above which will increase deficits and possibly taxes.
All of these factors create a self feeding cycle for the perfect storm as each has a correlated affect on the other contributing to downward pressure of home sales and further evaporation of home equity. These factors are also why many would be buyers are sitting on the sidelines causing a greater supply than demand.
While the government bailout package (still being defined) should help the economy it will take several months or longer to work its way through the system. Furthermore, during this time I believe that several more large firms will fail requiring a bailout, file for bankruptcy or be acquired by a stronger suitor. One of the overlooked factors that will increase the severity of the storm is the defaults that are starting to occur on unsecured credit card debt. There are dozens of banks that have billions in exposure which will increase the downward pressure of their stock and of course further depress the markets. So what does all this mean to you? Keep reading for my 5 step plan to help you navigate the storm.
First, you should know that despite what you read and hear in the media there is still plenty of mortgage money to lend to homeowners. It is just a bit tougher to get and you need to know where to look. This is why it is imperative that you work with a local mortgage planner to guide you through the maze of regulatory changes and guidelines to get you the money you need. Conduct an annual mortgage and credit review today to see if you can improve your cash flow by consolidating debt and/or get a better mortgage program?
Second, don’t panic but don’t ignore the situation either. Sit with your financial advisor to review your goals, where you are, and develop a plan how to navigate out of this mess to preserve your assets and ensure you will still achieve your long term goals. Third, control your spending. During the boom years we all seemed to forget something called a budget. Now that money is tight across all economic levels people are again beginning to curb their expenses. Start with the simple things such as making your own morning coffee, bringing lunch to work, set the thermostat lower in the winter, review your cell phone plan and rent a movie rather than going to the theater. We just scratched the surface but by Implementing these simple steps you can save you hundreds of dollars each month if you stay focused. One simple step to help you really gain control of your spending is to convert to cash and stop using your credit cards. This move alone will help you realize just how much you are spending and it will also stop the increase to your credit card balances.
Once you have begun to control your spending, the next step involves building up your cash reserves. In my book I detail that you should strive to have a minimum of 3 months of all your monthly expenses in a liquid account to draw from if emergencies pop up. But in tough economic times it is more important than ever to build this account to six or even twelve months of reserves just in case.
The fifth step is to get a second job or see if you can work overtime? We are all working harder than ever but if you can fit a part time job into your life (or a stay at home spouse gets a part time job) and then you place these earnings in your reserve account, you will start to see progress. If a traditional part time job is not something you can do, then consider implementing what I call Plan B. Start a home based business so you can work during the evenings while the kids are sleeping. This can provide the extra income you need and if the unforeseen happens and you find yourself out of a job you will have something to fall back on? There are countless things you can do and if you are not sure where to look just ask your friends or drop me an email for some ideas. You may be surprised to learn just how many are actually doing this to create an extra couple of hundred and even thousands of dollars a month.
I know that it sounds like I am painting a dismal picture but better safe than sorry. By taking the necessary steps to cut your expenses and shore up your savings you will get back on the path to a more prosperous future. Be proactive and Make Life Happen, you’ll be happy you did.
Filed under: finance, home finance, loans, mortgage, real estate, refinance | Tags: mortgage advice, mortgage consulting, mortgage professional, mortgage review, mortgages
You are probably thinking, not another made up “day” to highlight some obscure thing or sell greeting cards but think about it, your mortgage and credit report are the two things that have the biggest impact on your monthly expenses and your cash flow and you probably don’t review or monitor them. Being proactive with your finances is how you can make life happen. Most people drift through life and let things happen to them. In essence they are in a “reactionary mode” but based upon my experience those that take a “proactive approach” to life are usually better off.
Okay, perhaps you are starting to think that maybe this is something to consider but you are not sure of the benefits from reviewing your mortgage and credit report? Each year a lot can happen in your life and you need to ensure that the program you and your mortgage planner selected at your closing still makes sense. Here are several reasons why we are making this push to have everyone review their situation each year:
- To promote financial literacy.
- To confirm you are still happy with your mortgage program.
- That there have been no major life changes such as the loss of a job, credit card debt, divorce, a spouse went back to work, college expenses, major illness, disability and a host of other concerns.
- Review the value of your home to see if there has been a major change which could lower your LTV opening up better mortgage programs.
- The terms of your mortgage to forecast payment changes if an adjustment is coming up.
- Your credit scores may have improved allowing for better mortgage rates or to see if there are any mistakes on it?
- Your credit scores have sunk which may call for a strategy to improve them.
These are just a few reasons for reviewing your mortgage and credit. Many other advantages may arise during your review such as tax or retirement planning. Some of you reading this are thinking you don’t have to worry about a bad credit score because you have never missed a payment and you have excellent credit. But how can you be so sure? 79% of all credit reports contain some type of error. Doesn’t it make sense to ensure yours does not! By counseling with a mortgage planner on an annual basis you can help protect yourself against mistakes which can lead to high credit card fees and even uncover identity theft by identifying any unauthorized charges.
The Greek Philosopher Socrates advised to regard your good name as the richest jewel you can possibly be possessed of — for credit is like fire; when once you have kindled it you may easily preserve it, but if you once extinguish it, you will find it an arduous task to rekindle it again. Today that is truer than ever.
Improving your credit score is kind of like getting ready to run a marathon. You can’t just sign up today and expect to run tomorrow. If you have a poor credit history or if there is inaccurate information on your report it can take months to repair and correct and this will impact your monthly expenses.
Whether renting a new apartment, applying for a credit card, a mortgage or even homeowner’s insurance (yes, homeowner’s insurance!), your credit score will determine the interest rate or premium you are quoted. In essence your credit score has become the filter many industries use to decide whether they want to do business with you and at what price so it is very important you stay on top of your score.
As the saying goes, most people don’t plan to fail, they simply fail to plan. It happens all too often in our business. But if clients regularly monitored their credit scores we would be able to save them thousands of dollars on their mortgages. This is essential: if you are planning to buy a home, don’t just go and look at houses, make an offer and then get a mortgage. You may not like what you are offered as a result of your credit score. My suggestion is to plan ahead for this event. The same holds true if you are thinking about refinancing; start with a mortgage and credit review before you begin the process. If you would like more information take control of your finances, go to www.mortgageswhatyouneedtoknow.com/resources.html for free tools to help you better understand your credit scores and for systems to help you monitor your score.
Why not begin your annual review right now! I know it is probably not the anniversary of your mortgage, but why not look today to see if you can improve your situation. Not sure where to start, use this Mortgage Check-Up form for a self analysis or better yet fax it in to your mortgage planner for a professional consultation. Have them run your credit after they have opted you out of the trigger lists and really start to make changes in your financial outlook. Make Life Happen! Review your mortgage and credit report every year to Take ControlSM of your financial future and ensure you are in the best position possible.
Filed under: finance, home finance, loans, mortgage, refinance | Tags: divorce attorney, divorce mortgage, finance, home equity, mortgage advice, mortgage planner, mortgage questions
Divorce and Mortgages: My client wants to remain in her house but I am not sure it is the best move financially. How can I explain this to her as she is holding fast to her position?
Many people going though a divorce want to remain in the home for sentimental reasons. Other times it is out of spite that they want to keep the house the soon to be “ex” worked so hard to get or was proud to have. But staying in a house they cannot afford because they are emotionally attached to it is the Number 1 mistake most make when a divorce is involved. Often the client does not want to hear it but you know that they will not be able to keep the house even if they do get it in the property settlement.
Forming a relationship with a mortgage planner to work with your clients you will find an ally in communicating difficult financial matters to your client. Then when your client speak with a mortgage planner months in advance they can provide them with a dose of reality of what a mortgage payment will be “after” the divorce is final. This part of the conversation is often a rude awakening for many because they have not been a part of the process in the past and many times due to their circumstances they cannot provide full documentation for their mortgage.
Coming from an expert in the financial field your client may actually listen to reason. I have found that by sitting with the client and reviewing their proposed finances (as they will be post settlement) and the programs that we have available they are able to draw their own conclusions that they cannot afford to stay in the house.
This in time will save you time and your client money allowing you to focus on the legal issues at hand. In the end your client will have less financial stress which makes them a happier client resulting in more referred business for you making it a win-win.
About the Author: Dave Muti, JD, RMA is the author of Mortgages: What You Need to Know and a Senior Mortgage Planner with Millenium Home Mortgage, LLC located in Parsippany, New Jersey.
Filed under: divorce mortgage, finance, mortgage, real estate | Tags: credit history, divorce mortgage, finance, home equity, mortgage, mortgage planner, real estate
Divorce and Mortgages: My client’s property settlement agreement provides that the mortgage remain in place and that the house will not get sold until the children graduate high school in three years; do you still recommend seeking counsel of a mortgage planner to review the situation?
Yes because the issue that often pops up here is we will find out that the mortgage is up for an adjustment before the triggering event for the sale takes place. In most instances people do not know what type of mortgage they have let alone the financial impact it makes. By having a mortgage planner review the copy of the note and mortgage in advance of settlement negotiations you can ensure that the mortgage financing will not dramatically change mid-course. Often times the client is mistaken about what type of mortgage they have and as a result your Case Information Statement (CIS) will not be accurate. Many times clients think that they have a 30-year fixed when in fact it is a balloon mortgage or an adjustable. Many attorneys will rely on the CIS or even the tax returns but they can both reflect things (through no fault of you or the client) that are in fact not accurate.
The best way to ensure the client has what they “think” they have regarding their mortgage is to have them provide you with a copy of their Note and Mortgage. If you are not familiar with how to read these you can send them to your mortgage planner for an analysis but basically paragraphs 2, 3 and 4 of their note will detail what they have. Highlight the terms and ensure they match the CIS.
Recently we were working on a case with an attorney and her client thought she had a regular adjustable rate mortgage as she indicated on the CIS. We obtained a copy of the note and mortgage and it turned out that it was a private note from the father-in-law which was a 3 year balloon at a rate of only 3%. She was going to remain in the home and figured that her soon to be ex-father-in-law would simply extend the note. He did not want to and we discovered that she could not afford to remain in the house. This of course changed the settlement strategy.
This example is clearly an easy one to drill down on but not all examples are clear cut. The important thing is to “know” the financial impact to your client before you begin settlement discussions. Life as an attorney is complicated enough. Why not make it easier and form a relationship with a mortgage planner to help you do a better job for your client while making it easier on you.
About the Author: Dave Muti, JD, RMA is the author of Mortgages: What You Need to Know and a Senior Mortgage Planner with Millenium Home Mortgage, LLC located in Parsippany, New Jersey. Dave can be reached at info@mortgageswhatyouneedtoknow.com.
Filed under: divorce mortgage, loans, mortgage, real estate, refinance | Tags: real estate, credit history, mortgage planner, mortgage book, financial literacy, divorce mortgage
Divorce and Mortgages: How can mortgage planning affect a property settlement agreement?
By having your client sit with a mortgage planner during the formation stages of the settlement strategy you can get an accurate picture of what your client will be able to afford, be it for refinancing the current residence or to purchase a new one. This will have a big impact on the direction of your settlement strategy.
Unfortunately many attorneys do not get involved with the mortgage process because they see it as a matter of course and it is what it is. However, if the divorce attorney takes an active roll in their client’s mortgage and takes the time to understand how it impacts their client’s cash flow and overall net worth they can and will do a better job negotiating a property settlement agreement for their client.
For instance, what if they negotiate a settlement wherein their client retains the house and then they discover that their client can’t afford to keep the house. Selling it changes the dichotomy of the finances which may have tax implications and the settlement that took so long to reach may have to be re-opened? This wastes time and money.
Many times a mortgage planner will discover that the client cannot afford to remain in the current residence and that of course will impact your approach to settlement discussions. A mortgage planner will analyze the income and assets (as you think they might be post divorce) and come up with what your client can afford. Once you know the answer to this you will be in a better position to negotiate for keeping the home or selling it.
There are two other big benefits in starting with a mortgage planner months in advance of the settlement discussions. One benefit is that you can use the information on affordability as a red herring to get something else during the negotiations. The important thing is to “know” the financial impact to your client before you begin settlement discussions. Of course there also may be a big emotional tie to this issue so the sooner you ferret out this issue the better for you and your client.
Another big benefit is to begin with a credit review. The majority of people going through a divorce have their credit destroyed either out of spite or ignorance. By having a mortgage planner run a tri-merged report they will be able to find out if there are any issues with your client’s credit which could dramatically impact the ability to get a new mortgage and of course it will also have an affect on the monthly payments. In addition, by running a credit report you can see if the other spouse has run up any of the credit cards unbeknownst to your client. You will not be able to see if they opened any new cards in their name but any cards with your name attached to them will show up on your report.
As you can see there is a lot to gain in having your client consult with a mortgage planner at the onset of your discussions with your new client. Additional benefits are having an ally to help deliver bad news to your client when they can’t afford to stay in the house that they want to keep for emotional reasons. In summary, form a relationship with a quality mortgage planner you know and trust and use their services to do a better job for your client and make your life easier.
About the Author: Dave Muti, JD, RMA is the author of Mortgages: What You Need to Know and a Senior Mortgage Planner with Millenium Home Mortgage, LLC located in Parsippany, New Jersey. Dave can be reached at info@mortgageswhatyouneedtoknow.com.
Filed under: finance, home finance, loans, mortgage, real estate, refinance | Tags: credit cards, financial education, mortgage plan, mortgage planner, real estate, refinance
FINANCIAL MISTAKES TO AVOID WHEN BUYING A HOME
By Dave Muti, author of Mortgages: What You Need to Know
If you are looking to buy a home in the coming months you will be faced with a ton of decisions. We all know that the “process” can sometimes be dizzying so I will try and clear the cobwebs by pointing out some basic logic and common sense pitfalls that you may not realize until it is too late. Of course all of the advice below applies for purchase transactions but if you are thinking of refinancing your current mortgage please follow these same recommendations.
Credit check
The day that you think you want to buy a house you should contact your mortgage planner to have them review your credit. You don’t want to be caught off guard with a below average credit report and of course the better your credit is the more options you will have available. By reviewing your credit months in advance with your mortgage planner you will have time to repair any issues before you actually have to apply for a loan. Of course, before you permit them to run your credit make sure you have opted out of the trigger lists so your personal information and credit score does not get sold.
Incur debt
Today it is easier than ever to make purchases with your credit cards. This is usually done out of necessity and the ease of their use but often just to keep up with the Joneses when you don’t have the cash to pay in full. If you are contemplating purchasing a new home within the next few months try to avoid any items that you will not be able to pay off in full when the statement arrives. While this is always the ideal way to pay for things, ensure that your credit cards have a zero balance before you begin to search for a new home.
Cars
The advice above holds true for car leases and loans. If you can avoid it do not make any new purchases or upgrades until after you close on your new home. If you have to finance a new car because your current lease is due to expire please counsel with your mortgage planner before incurring this new loan as it could knock your debt-to-income ratios out of the park; unlike baseball this not a good thing.
Maintaining reserves
This is a big issue that has become even more important as lending requirements have gotten tougher over the past year. You want to build your reserves (aka savings and investments) to have at least three months of your total expenses and preferably six months of expenses AFTER your down payment and all of your closing costs are paid. Having less than this will cause most lenders to deny you a loan and of course this will put you in a shaky situation should you lose your job or become disabled. While most lenders will permit this amount to be held in retirement accounts my recommendation is for this to be help in non-qualified liquid accounts that you can access without incurring any penalties.
Move money around
It is tempting to change bank accounts or investment accounts for better online services and/or interest rates but here again you should wait until after you close on your new house. Lenders like to see a history of at least two months worth of bank statements. If you move money around it will make it harder for the underwriters to track and you don’t want to raise any undo scrutiny with them. If you absolutely must change banks before a closing then ensure that you make copies of all checks and deposit slips in order to trace and source the funds. Of course the lender will require copies of statements from your old bank and the new one to cross reference your story so set these aside.
Change jobs
Lenders like to see a steady employment history. If you are going to change jobs before you buy your next home ensure that it is a move up in pay and/or responsibility. Lateral moves are okay but they should be in the same industry. If you are going to be making a move please advise your mortgage planner about this during your first meeting or as soon as you begin to contemplate the change so she can plan accordingly and help direct the information to the underwriter.
Wait until last minute to apply
Like everything else in life, if you wait until the last minute to apply for a mortgage, you will not give yourself enough time to research and ensure that you get the best program for your family. When purchasing a home, you should start the process with your mortgage planner―not the realtor. After you and your mortgage planner have analyzed your goals, dreams and finances you then enlist a realtor with a mortgage plan in hand to help you find your home.
Your realtor will also appreciate this; she will know that you are qualified to be looking at the price point you requested. By doing it the other way around (as most do), you will be rushed into a home-buying decision and act out of impulse or emotion, and not from sound thinking. On refinance transactions most people wait until they can no longer pay their bills or late notices start to pile up.
Straddling two houses
This is becoming a big downfall for many people across the country as they bought their new home thinking they would sell their current home. The problem for most is that they do not have the cash to carry two homes. My advice is that if you are thinking of buying a new home you should sell your existing one first. Now this may mean that you might have to rent for a while if you don’t have a house lined up but that is much better than losing one or both in foreclosure because you could not afford to make the mortgage payments. That in turn will destroy your credit and you know how important good credit is.
Hopefully the above advice is not a shock to you but unless you
s l o w d o w n and analyze what you are doing you may unknowingly create a negative situation on your goals. If you are just beginning to think about buying a new home or refinancing your current mortgage, pick up the phone and call your mortgage planner today.
Make life happen and Take Control of your financial future;
you will be glad you did.
Filed under: finance, home finance, loans, mortgage, real estate, refinance | Tags: home equity, home refinance, mortgage book, mortgage planner, negative amortization mortgage
If you have not yet seen the news and you are the holder of a negative amortization mortgage that has multiple payment options and you are stuck because of a Pre Payment penalty you may be in luck. These loans have many names such as Option ARMs, Pick-A-Payment and Cash Flow mortgages to name a few. Wachovia Bank just announced that they will no longer require a Pre Payment penalty for new mortgages and if you have an existing mortgage with a Pre Payment penalty they will not enforce it so you can look to refinance into a better loan for your needs. Wachovia has issued their own mortgages with these limitations as well as acquired them when they took over World Savings and other financial institutions.
My advice is that if you have one of these loans and you would like to get out of it to call the customer service number on your statement and ask if it applies to you. If it does then contact a local mortgage planner and look to get into a better loan for your circumstances. Once you do you may find this mortgage check-up form and the right questions to ask useful forms to ensure you know what you will be signing.
While other lenders have not yet hopped on the band wagon in releasing these penalties with the right pressure from their clients as well as action groups they just might. Make Life Happen and don’t sit back and wait for it to happen to you. Make a call and Take Control of your financial future.
Filed under: finance, home finance, loans, mortgage, real estate, refinance | Tags: business loans, home equity, home loans, mortgages, real estate
Using Home Equity for Business Loans
It goes against the grain but sometimes using your home equity for your business makes sense. If you are a small business owner and you need financing to help your business grow, start a new business, your SBA loan is up for refinancing or maybe you need to buy out a partner? Most small business owners look to get a loan from the SBA or another commercial bank for this purpose but very few think to use their home equity for such a purpose. The reasoning by most is that they want to keep their home separate from their business or their spouse does not want to “risk” their home for the business.
Point of fact is that the majority of small business loans have a personal guarantee associated with them and therefore the house is still at risk. A strategy we suggest with many of our clients is to use the home equity (via a cash out refinance transaction) to satisfy the needs for the business. The main reason for doing it this way is that you can usually borrow the money out of your house for two and sometimes up to four percentage points cheaper than a traditional business loan. In a recent case study a client was buying out their business partner and needed to remove the partner from the current $400,000 business loan.
Traditional banks were offering a commercial loan around 8.75% and we were able to provide the client with a 30-year fixed rate mortgage for only 5.75%. We then instructed their CPA to draft a private note from the clients as individuals to their business in order to claim this deductable expense that the commercial loan would have provided. Now there is some leeway on how you can structure this private note but their CPA left the rate the same so it was a wash.
End result: The client was able to buy out their partner much quicker than going the traditional route and at a much lower cost than their CPA originally thought. The client was able to save $812/month or nearly $10,000 per year in cash flow resulting in close to $300,000 in savings if they carry the loan to term. While this is not always an option, you should investigate if this strategy may be right for you? Ask your mortgage planner to run a scenario and if it looks like it makes sense then call your CPA to discuss.
Take Control of your Finances and Make Life Happen!
Dave Muti Author of Mortgages: What You Need to Know
Filed under: finance, home finance, mortgage, real estate, refinance | Tags: mortgages, real estate, refinance
Interest Rates Rising
It turns out that the fears of inflation are starting to come true. We have been advising clients for some time now that this summer rates would begin to inch up due to inflationary concerns. In fact this has been the subject matter of our last three newsletters as well as some of my blog posts and other online commentary. So if you have been thinking about refinancing or buying that home, my recommendation is for you to contact your local mortgage planner now to see what your options look like. If you are waiting until the “bottom” of the interest rate market to do something you missed it. The bottom of any market always reveals itself after the fact and sorry to say but it happened several months ago and we do not see it getting much lower any time soon. Take control of your financial future and review your options today.
Dave Muti Author of Mortgaes: What You Need to Know
