To help more hard working people buy their first home and speed up the end of the recession, the $8,000 tax credit for first-time home buyers, scheduled to expire December 1, 2009, ought to be extended into 2010.
Since its inception as a vital component of President Obama’s American Recovery and Reinvestment Act of 2009, the tax credit has assisted nearly 1.5 million Americans, providing $10 billion for the purchase of a new home. The first time home buyer is someone who has been without a principal residence for a three-year period. It is available for homes purchased on or after January 1, 2009 and before December 1, 2009, but does not have to be repaid. Vacation homes and rentals properties are ineligible.
Single tax-payers with incomes up to $75,000 and married couples with incomes up to $150,000 are eligible for the full tax credit. The credit reduces the new homeowner’s tax bill or increases their refund–dollar for dollar. Unlike most tax credits, the first-time home buyer credit is fully refundable. This difference means that the credit will be paid to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed. (For additional information about the home buyer tax credit, visit www.federalhousingtaxcredit.com.)
Helping homebuyers to realize homeownership and life in a strong, healthy community is not only ShoreBank’s mission, but also the dream of millions of Americans. Previously we could rely on consumer spending to lead us through the recession and onto the road of economic recovery, but not now. Those days, I am afraid, are gone. I believe an extension of the tax credit is necessary in order to help stabilize our communities by encouraging consumer spend on home purchases, generating the additional revenues local government agencies need and encouraging the home improvement projects which create the badly-needed new jobs. In fact, unemployment is the number one cause of housing foreclosures, so an extension of the tax credit is essential and best of all, it has proven it works.
The tax credit is in a great position to continue being successful. While some have blamed the mortgage meltdown due to the ease by which many buyers obtained unaffordable loans, most of the irresponsible lenders are no longer in business. And now there are fewer institutions serving the areas hardest hit by the recession, and yet there are plenty of hard working individuals and families out there who need quality loans, and who qualify for them too.
Some naysayers will point to the tax credit not coming cheaply to American taxpayers. It is estimated to be costing taxpayers about $1 billion a month, but much of the tax credit will inevitably pay for itself. So now is the time for our government to invest in our housing market, our communities, and our taxpayers. Besides its proven record for speeding up the economic recovery, it is also a “tried and tested” formula for creating new jobs that will prevent future foreclosures and help stabilize entire communities.
Despite current economic conditions, low interest rates, upbeat economic reports, and government incentives are making this one of the best housing markets in decades. Whether you’re a first-time homeowner looking to take advantage of the available $8,000 tax credit before it expires at the end of Nov. 2009, or looking to downsize or to upgrade, now is a terrific time to buy a home.
One lesson many people have learned all too well lately is the importance of knowing how to buy a home responsibly to ensure successful, sustainable home ownership. To help you buy a new home and make the best use of your money, I am sharing with you some home buying information and advice.
Begin by having a plan.
Don’t act immediately. Think about what you want – the type of home and the neighborhood – and what you can manage at this point in your life. How will a mortgage figure into your retirement plans or payment for the children’s education? Think about how your cash flow may change in the future. Talk to a mortgage lending specialist very early in the process who is familiar with the community and who can help assess your needs, calculate costs and determine what you can afford.
Then choose a manageable “standard vanilla,” fixed-rate loan and payment schedule that fits your goals. And perhaps, most importantly, ask a lot of questions and be sure you fully understand the terms of your loan.
Be conservative. Equity is the difference between the appraised value of the home and the debt or current loan balance on the home. It is important to have realistic expectations of what the appraised dollar amount is when you are pricing your home for sale. You may qualify for a large loan and find you can’t easily handle the payments because the actual sale price of your home was much less than its appraised value. As I like to say, “Hope for the best, but don’t count on the best,” and borrow only what you need and can afford to repay.
Make a difference.
Maybe the house you have your eye has been vacant and needs some work—the paint is peeling, the floors and cabinets are dull or cracked, or the kitchen needs new appliances. Renovations on any scale are an opportunity to get exactly what you want and increase your home’s value, which in turn strengthens the neighborhood.
But be sure to look at more than just the “carpet and the fixtures” because there are other parts of the home whose repairs can be very expensive. It’s important to ask yourself: Can I afford repairs that may be needed in the first year—the next year? Therefore, I remind you, don’t be afraid to ask questions about the condition of the home while shopping for a home. To avoid “costly surprises,” here are some questions to ask:
Does the home have insulation in the walls, crawl space and attic? Losing heat and letting in the cold is inefficient;
How old is the roof? Asphalt and wood lasts about 20 years, and clay is the most expensive to replace and repair;
Has the heating, cooling, and hot water equipment been updated? Usually the older it is, the less efficient it is; look for the ENERGY STAR label for efficiency;
And what type of material was used for the exterior siding? Was it properly maintained? Can I afford to maintain it because each material, albeit, wood, vinyl and brick, require different maintenance needs, such as cleaning, painting or mortar re-pointing?
There are a wide-array of loans in the marketplace designed to help rehab and purchase a new home. Look for loans, like the ShoreBank Home Energy Conservation Loan, that offer a free energy audits.
The energy saving improvements can reduce your monthly utility bill by 25 to 45 percent while increasing the home’s appraised resale value, sometimes in the neighborhood of 15 percent. In addition, they reduce the amount of greenhouse gas emissions that harm the environment. In fact, our nation’s homes contribute one-third of all green house gas emissions, or roughly the same amount emitted by autos and commercial buildings.
My next blog will share with you some suggested low-cost, eco-friendly home improvements that will add value and comfort to any home. In the meantime, if you have any questions about responsibly buying a home and obtaining a quality, affordable mortgage, please send me an email.
With interest rates on 15- and 30-year mortgages, either near or at historic low levels, now might be the ideal time to explore refinancing your home’s mortgage. However, regardless of the interest-rate, the current mortgage crisis has taught homeowners that understanding their home loan and the process of obtaining a mortgage is vital for ensuring sustainable homeownership.
However, refinancing comes at a cost. For instance, closing fees on a new mortgage can average 3% of the total loan or $3,000 on a $100,000 loan. Closing costs include title policy, appraisal fees, and reestablishment of escrow accounts. So before you refinance, I suggest looking at some characteristics of homeowners to help you determine whether getting a new loan makes good economic sense, or are you better off with your current loan.
I suggest refinancing if you align with the following characteristics:
• Your mortgage’s interest rate is significantly higher than the market’s interest rates.
• You are planning to continue living in your current home for at least several years which will help recoup closing costs over the life of the loan.
• You have an adjustable rate mortgage that is due to reset, reaching a rate significantly higher than the market-rate.
• You have an adjustable rate due to reset and would like to lock-in, a secure and competitive fixed-rate.
• You have a decent amount of equity in your home, about 20% or more. You may be able to refinance even if your home is now worth about the same as your loan value or even a little less; check www.makinghomeaffordable.gov for details refinancing loans that are 105% or less of their property values.
• You have money to use for closing costs. Typically you can obtain a more favorable rate if you have money available up-front as opposed to bundling it into the new mortgage.
On the other side of the coin, it may not pay to refinance if you fall into one or more of the following groups:
• You already have a pretty low interest, 5% or lower, and recovering closing costs is nearly impossible.
• You are planning on moving which makes recovering closing costs nearly impossible too.
• You have an adjustable rate mortgage at a pretty good rate and you are planning to move in the next year or two.
• The reassessment of you property is part of the refinancing process and it may force you to pay private mortgage insurance (PMI). You will be charged PMI* when your loan is more than 80% of the current value of the home (*Fannie Mae and Freddie Mac sold loans are eligible under the new Refi Plus program)
• Keep in mind that you are reducing the principal balance on your mortgage, from the very first mortgage payment. Therefore when it’s affordable, consider refinancing for a shorter term. This will prevent you from extending the term of the loan.
• You don’t have the money for closing cost and the interest rate you have to settle for is too high.
And finally, too many homeowners have been struggling to pay not only the mortgage but also other bills, due to a loss of income or perhaps an unexpected expense. As a result, their credit quality has taken a good hit since they obtained their mortgage.
However, for these homeowners who are saddled with a high interest rate, may still qualify for a loan modification or refinance at ShoreBank or other community banks who engage in character lending and rely on the borrower’s payment history, instead of the credit score, in qualifying for refinance loans. It’s worth the effort to obtain lower payments and build equity.
The Making Home Affordable modification program will provide payment relief and prevent foreclosures and is available through your current lender.
For most of us, weatherization is something we only think about as winter approaches and we head off to our local hardware store to buy caulk, weather-stripping and plastic for our windows. But this Earth Day, there are more reasons than ever to consider weatherizing your home this spring.
With funding for energy efficient improvements a key component to the President’s stimulus plan and a growing pot of funding from local utilities to incent homeowners to reduce energy usage, now couldn’t be a better time to save money on your utility bills and to reduce your carbon footprint.
The Department of Energy is set to soon award billions of dollars to state government agencies and local jurisdictions for energy projects – in my home state, Illinois, the State will receive over $100 million and the City of Chicago will receive tens of millions more. Moreover, our local utilities, ComEd and Peoples Gas, will spend more than $100 million collectively on energy conservation programs, including a significant boost in spend for homeowners’ efforts. In addition, Federal Energy Tax Credits are available for many types of energy saving upgrades.
The combined benefits can be huge. For example, in Chicago, if a homeowner decided to insulate their attic and seal around their window, doors, and vents, and switch to a high efficiency furnace, the combined costs likely would amount to $5,000 for a typical homeowner. The owner, however, would be eligible for $1,100 in rebates from the local gas utility and another $1,000 in federal tax credits. So, the net cost would be only $2,900 (even before receiving other rebates, likely from the stimulus funding); but the potential savings would be upwards of $400-500 annually on their utility bills.
If the homeowner was a participant in our Homeowners Energy Conservation Loan Program, we’d throw-in another $500 voucher towards a new ENERGY STAR rated refrigerator. In total, the rebates, tax credits and voucher would equal 50% or half of the cost of all the measures – while the homeowner gets to keep all of the savings and take satisfaction from knowing the environment is better-off and neighbors have been employed for a worthy cause.
With more than a million foreclosed and distressed properties expected to hit the market, buying a foreclosed home can be a good investment opportunity for the first-time home buyer and investors. While ShoreBank would rather make a Rescue Loan to help save a home, buying a foreclosed property helps stabilize home prices, strengthens a neighborhood and, at the same time, realizes the dream of homeownership for many.
However, potential buyers should not gamble when buying a foreclosed property. This is not a process for the faint of heart, but if one does their due diligence and goes about it in a responsible way, buying a foreclosed home can be a very good investment opportunity. To help home buyers purchase a foreclosed property and ensure sustainable ownership, I am sharing with you my 10 Steps for Buying a Foreclosed Home.
1. Search for foreclosure listings. Track foreclosures in your area to stay on top of the market so you are able to move quickly when they become available. Use an electronic tracking service like RealtyStore or look for listings in real estate magazines, newsletters, newspapers, and government agencies such as Fannie Mae.com; check public records at the county clerk’s office. 2. Find a real estate agent experienced in foreclosures. Some sellers will not accept offers from unrepresented buyers. 3. Find a real estate attorney. Proceedings and laws can be complex and difficult to understand. Do some homework on foreclosures laws and procedures. Start by using Google or another search engine to research foreclosure laws in your state as well as to contact an attorney. 4. Choose a foreclosed home to invest in. Some factors to consider include how to purchase a home while minimizing risk and determining the safest home to go after However, bank-owned properties carry the least risk for investors seeking foreclosed homes. When the bank takes ownership of the foreclosed property, you know there are not any taxes or liens to contend with and that the home is empty of homeowners. 5. Tour the property. And inspect it as closely as possible. It’s best to bring along a professional inspector to determine the property’s condition. Some foreclosures–unlike fixer-uppers–are in fairly good shape, while others may be way behind in maintenance from sitting empty for an extended period of time that could be quite costly to remedy. 6. Line up financing. To qualify for buying a foreclosed home you will need a good payment history with current creditors. If you need to improve your credit, sign up with an experienced credit counseling agency to help budget and to negotiate on your behalf while settling delinquent accounts. Smaller banks are usually more open to working with buyers who have tarnished credit histories. Check your credit report and correct any existing defaults or outdated information. Get pre-approved for a mortgage–speak with three potential lending institutions to obtain a responsible loan. Most sellers of foreclosed properties require a cash offer or pre-approved letter in order to make an offer. 7. MLS Search/Comps. Have your real estate agent check nearby or comparable homes to see if the asking price for a foreclosed home is, in fact, a bargain. 8. Do your homework. Check to see if a foreclosed home has any liens on it, such as unpaid property taxes. Find out who is liable for those costs. 9. Make an Offer. This step involves having your real estate agent or attorney prepare a contract offer to purchase the property with bank financing, bid at a foreclosure auction, or submit a sealed bid to the owner after the foreclosure sale. The key is to decide what the offer or bid price ought to be. You don’t want to pay more than the assessed value, based on the condition and location of the property. The goal in buying a foreclosed property is to buy at a low cost so that you can quickly begin building equity. Foreclosed homes are often sold at discounts of 30 percent or more. 10. Prepare paperwork. Be prepared to deal with more paperwork with a foreclosure than you would with a conventional purchase, particularly when a government agency is involved.
Additional valuable information:
• Find out how foreclosure works in your state. Procedures and legal requirements differ, so get a sense of how soon you can go after a home that appeals to you.
• Be particularly aggressive in negotiating with a bank. Banks are very interested in selling a foreclosed home fast when it’s just sitting on their books doing nothing.
• HUD and other agencies often auction foreclosed homes. However, buyers are frequently unable to inspect any property before making an offer. With so little information, the higher the bid for the property, the higher the risk that you may end up with a money pit.
And finally, it’s important to remember to look for an experienced agent, suitable properties, and outstanding lien issues and be prepared to review a mountain of paperwork.
If you are considering buying a house, one of the first decisions you need to make is whether buying a house instead of renting one is right for you. Many people think that buying a home is one of the smartest financial decisions they will ever make. According to the Federal Reserve’s Survey of Consumer Finances, there is a significant gap between the wealth accumulated by homeowners and that accumulated by renters. But in this topsy-turvy marketplace, does this piece of conventional wisdom still hold true? Let’s take a look at some of the issues you should consider when making this decision.
There are distinct advantages to buying if the following are true:
1. You plan to stay put at least three years and preferably more. It can take three to six years for a home to appreciate enough to offset the costs of selling and moving. If you know your job or other circumstances will force you to relocate in less time, it’s probably better to rent.
2. You’re psychologically prepared. Home ownership means dealing with whatever comes up — from noisy neighbors to leaky plumbing. You can’t just call the landlord for help or pack up and move as easily as when you were renting.
3. You have some extra savings. Home buyers who spend every dime they have buying a house can be blindsided by repairs, maintenance and all the other costs of owning a home. It’s important to have some savings after your purchase to be able to meet these expenses. 4. You manage your money well. Home ownership builds wealth through the forced savings of paying down a mortgage, and through appreciation — the rise in the home’s value over time. That forced savings aspect only works if you leave the equity in your home alone, and only tap it for important things or emergencies. Otherwise, it’s too easy to drain away your wealth with home equity loans and lines of credit.
If you answered yes to all four questions, then homeownership could be right for you. Despite the downturn in the real estate market, homeownership is still the way most people start building their personal wealth. In addition to providing shelter, homeownership also gives families a sense of security and is the foundation for vibrant, stable neighborhoods. First-time homebuyers have a particular advantage right now with home prices at their most affordable level in years. In my next blog, I’ll write about the issues all first-time homebuyers should know before they buy a home.
Over the next few blogs, I’d like to address the issues related to responsible lending that can help people accomplish their goals of successful homeownership. The headlines are filled with stories of families caught in “bad mortgages.” Many have already lost their homes or are on the verge of losing their homes. Some people blame irresponsible homeowners for the high rate of foreclosure, and feel that these borrowers should have known better, or that the homeowners were not credit-worthy in the first place. The answers are complicated and there is blame that can be shared by lenders, borrowers and regulators. However, despite the current economic situation, homeownership is still the best way to accumulate wealth. Homeownership provides a sense of security and forms the cornerstone of healthy communities.
“Subprime” has now taken on a very unsavory connotation. The difference between a subprime loan and a conventional loan is quite simple.
• Subprime lending was originally designed as a financing alternative for people with challenged credit or other high risk characteristics.
• Conventional loans were designed for lower-risk borrowers.
Borrowers usually are offered better rates on conventional loans with less flexibility in underwriting. Subprime loans were purported to allow greater flexibility. During the last few years, many families got caught up in sub-prime or “designer” loans, with low teaser adjustable rates and interest-only features. These are not necessarily bad mortgages, but not well suited to the borrowers.
What makes a mortgage a bad fit? A bad fit is when the mortgage doesn’t match the borrower’s financial profile and/or isn’t structured for their long term success. What are the signs of a poor fit? Look for:
• Mortgage payments that are too high for the borrower’s income and expenses
• Adjustments that do not limit future increases in payments
• Lack of security on the borrowers’ ability to make timely payments in the future
• Mortgages in which one is not paying any principal, or little principal, so that there is little or even negative equity
• Mortgage agreements that do not include taxes or insurance. These lump sum payments are hard for working class families to make.
Many banks don’t take the time to tailor a mortgage to meet the needs of the borrower. They simply sign them up for the biggest loan the bank thinks they can handle. When someone comes to ShoreBank for a mortgage, we make every effort to help them. Sometimes that may mean that they don’t walk out with a mortgage approval. However, we’ll work with our customers, even if they’ve had credit difficulties. We will provide an honest assessment of their current situation and offer tips on what will get them ready to accomplish their goals. If someone doesn’t have the credit to purchase a home now, we tell them what they need to do to be able to purchase a home in the future. We’re committed to ensuring that our borrowers fully understand the commitment and responsibility of homeownership, including paying property taxes, insurance, and maintenance. In fact, despite these difficult times, our mortgage default rates are well below the industry average, even in neighborhoods where other lenders have high delinquency and default rates. Our Rescue Loan Program is designed to help unsuspecting borrowers, who are caught up in sub-prime loans. This program is also able to help first time borrowers avoid these unscrupulous lending practices. We are committed to helping more families keep their homes. I’ll be talking more about rescue loans in future blogs.
ShoreBank’s capacity to help families stay in their homes and to keep neighborhoods vibrant is a result of the deposits our socially responsible investors place with us. As our deposit base grows, we continue to reach out to struggling families to help them achieve and keep their piece of the American dream.
To help more hard working people buy their first home and speed up the end of the recession, the $8,000 tax credit for first-time home buyers, scheduled to expire December 1, 2009, ought to be extended into 2010.
Helping homebuyers to realize homeownership and life in a strong, healthy community is not only ShoreBank’s mission, but also the dream of millions of Americans. Previously we could rely on consumer spending to lead us through the recession and onto the road of economic recovery, but not now. Those days, I am afraid, are gone. I believe an extension of the tax credit is necessary in order to help stabilize our communities by encouraging consumer spend on home purchases, generating the additional revenues local government agencies need and encouraging the home improvement projects which create the badly-needed new jobs. In fact, unemployment is the number one cause of housing foreclosures, so an extension of the tax credit is essential and best of all, it has proven it works.
You have an adjustable rate mortgage at a pretty good rate and you are planning to move in the next year or two.
The Department of Energy is set to soon award billions of dollars to state government agencies and local jurisdictions for energy projects – in my home state, Illinois, the State will receive over $100 million and the City of Chicago will receive tens of millions more. Moreover, our local utilities, ComEd and Peoples Gas, will spend more than $100 million collectively on energy conservation programs, including a significant boost in spend for homeowners’ efforts. In addition, Federal Energy Tax Credits are available for many types of energy saving upgrades.
4. You manage your money well. Home ownership builds wealth through the forced savings of paying down a mortgage, and through appreciation — the rise in the home’s value over time. That forced savings aspect only works if you leave the equity in your home alone, and only tap it for important things or emergencies. Otherwise, it’s too easy to drain away your wealth with home equity loans and lines of credit.
