Spokane Real Estate and Mortgage Info

One of the most popular first time home buyer programs is the HUD FHA loan. The best part is you don't have to be a first time home buyer - anyone that qualifies can use this program.

The only limitation is that the base loan amount can’t exceed $271,050 (at least in the Spokane area – higher limits apply in higher cost areas like Seattle and the Western part of our state) which equate to a home price of about $280,000. That does not mean you can’t use the program to purchase a more expensive home, it just means you will need to make a larger down payment if you do.

Highlights of the FHA loan are:

• 3.5% down payment – that’s only $6,125 on a $175,000 home. You can come up with that!
• ALL of the down payment can come from a gift from a family member.
• Do not need to be a first time home buyer.
• No limit on how much money you make.
• Family members can help you qualify by co-signing on the loan.

The FHA loan can be a great program for "out of the box" situatioons that don't fit the cookie cutter mold a Conventional loan program requires.  I recently helped a college student who had completed his AA but is still working on his 4 year degree at Eastern Washington University. He had some part time work experience, but nothing you could use to qualify for a home loan.

His mother was willing to co-sign his loan but two different lenders said the son needed to have a history of working before he could qualify. I knew that was not HUD's requirement so I spoke to a couple of our other wholesale partners and found one who was willing to accept the loan with just the mother's income - even though she wasn't going to live in the home. Now this young man is a home owner years earlier than if he’d had to wait until he graduated and obtained full-time employment.

WARNING ON FHA LENDING - When talking to a lender about an FHA loan be wary. In 2007 only 4.12% of all homes sold were financed with an FHA loan (Source: FHA Single Family Activity in the Home-Purchase Market Through January 2009). In 2008 that number had jumped to almost 13% and it’s running close to 30% year to date in 2009.

Why the dramatic increase in FHA loan business?

Well, FHA is the “new” loan program of choice for all the lenders who used to peddle subprime and alt-A loans. HUD’s new Secretary, Shaun Donovan, testified before the US Senate on April 2, 2009 that the number of FHA approved lenders had increased by 525% since 2006!! I’m not a math genius but I think that means that only 20% of the current FHA approved lenders have been involved in this specialized lending product for more than 2 years. The other 80% have just jumped on the bandwagon. If you talk to a lender about an FHA loan, your first question should be “how long have you personally been approved to offer this loan program?”

Home loans are my passion - if you have any questions about how an FHA loan can help someone finance their first home just give me a call at 509-252-9151 or send an email to mmullin@theloanconsultant.com

If you, or anyone you know, have not owned a principal residence in the last 36 months your opportunity to get a free $8,000 gift from Uncle Sam is quickly disappearing. To qualify for the tax credit you must close escrow on a home on or before Monday, November 30, 2009. That gives you about 60 days to find a home and get into contract so you can comfortably beat the deadline.

The Housing and Economic Recovery Act of 2008 makes it possible to get a “refundable tax credit” of 10% of the purchase price of the new house up to maximum of $8000. Thus in order to get a full tax credit of $8000 your purchased property must be above $80,000 in price. While “refundable” sounds like you have to pay it back the term “refundable” really means you get the full credit even if you owe no taxes. The credit will reduce your taxes owed or increase the amount of your refund dollar for dollar.

While the deadline to close escrow on a home is November 30, eligibility for one of the two tax credits (remember this started as a $7,500 repayable tax credit) extends back to homes closed on or after April 9, 2008. Keep in mind the “purchase date” to you and I would normally mean the day you signed the contract but the IRS defines it as the day you closed escrow and the property was recorded in your name. That will become a critical distinction; I’m sure, as this program expires. We’ll see a rush to close home transactions in the last weeks of November.

One of the biggest misunderstandings of the program is over the term “first time home buyer.” To the IRS that means an individual who has not owned a principal residence within the last three years. If you own a home but do not reside in said home, but rent it out instead, you would qualify as a “first time home buyer.”

The full credit is only available to individuals with a modified gross annual income (MGAI) of $75,000 or less and for married taxpayers with MGAI of $150,000 or less. The tax credit is gradually reduced to zero for individuals with MAGI between $75,000 to $95,000 and for married taxpayers with MAGI between $150,000 to $170,000. Your adjusted income for tax purposes is often times, but not always, less than your gross wages as reported on your W2.

A frequent question we get is how can you apply this tax credit to your down payment so you don’t need as much money to close escrow? The answer is there isn’t a way – at least in the state of Washington. Some states have made funds available as sort of a short term loan, repayable when you get your tax credit, but the Washington Housing Finance Commission was not able to develop a program. The best suggestion I have to limit your cash out of pocket is to make sure your real estate agent and lender structure your transaction to minimize your out of pocket expenses. There are just a few little known ways to accomplish this.

While there are lots of details that can’t be covered in the space of this post, two important ones are that you will not qualify for the credit if you purchase a home from a direct relative and you will have to repay the credit in full if you rent out the home within 36 months of purchase.

An important distinction is that this is an IRS program – it has nothing to do with loan programs or lending guidelines. I strongly recommend you speak with a tax professional if you have specific qualifying questions as they are the only ones with the expertise to do so.

If you have already purchased your first home, and it closed escrow anytime after April 8,, 2008 don’t forget to file for the credit when you complete your 2009 tax returns!

The IRS provides a remarkably great web page with all  the pertinent details of the $8,000 Tax Credit for First Time Home Owners.

If there is any inside info about lending or real estate you’ve been curious about, please send an email to MMullin@TheLoanConsultant.com, or give me a call at 509-252-9151. I’m passionate about real estate and mortgage lending, and would be happy to share my knowledge with you!