If you listen to the news, read the newspaper or keep in touch with what’s happening on the internet, you’ve undoubtedly heard of the “mortgage meltdown”.  Many people attribute this “meltdown” with triggering our current recession.  What really happened?

Banks relaxed lending standards and permitted borrowers with less than perfect credit to purchase homes.  Briefly, these borrowers didn’t qualify for the best loans with the best interest rates because they had poor credit.  But the banks let them borrow money anyhow.  The loans that these buyers received were loans in which the interest rate could go up substantially one or two years after purchasing the home.  After the interest rates went up, most of these borrowers were unable to keep up with the rising house payments and surrendered their homes to the bank instead. 

Today, these loans are illegal and were outlawed by congress as of May, 2007.  But they have done their damage.  Many banks and mortgage insurance companies suffered huge losses due to mortgage loan foreclosures.  These same banks and mortgage insurance companies have tightened credit standards so that YOU will have a much tougher time qualifying for the loans with the best interest rates.

Credit is EVERYTHING when applying for a mortgage.  If your credit is shaky or needs work, consult with a mortgage lender BEFORE looking for a home.  You may need to do some work to get those credit scores up.  Have the lender pull a copy of your three credit bureau merged credit report with 3 credit scores.  Be informed.  Knowledge is power.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

Now that the First-Time Homebuyer Tax Credit has expired, what will the real estate market do?  Buoyed by the tax credit, the sales for the last week in April of 2010 were 31% higher than in the same period in 2009.  For the month of April, sales were up 13% when compared to last year. This is according to the Minneapolis Area Association of Realtors.  We are all wondering “what happens next”?

For some First-Time HomeBuyers, the tax credit was a very important part of making their first home purchase possible.  The 10% credit (up to $8000) could be used to refurbish a battered home or even help repay relatives and friends who helped with the down payment on the home.

I like to remind all First-Time HomeBuyers that homes were being purchased BEFORE the credit and homes will be purchased AFTER the credit.

There are still zero down financing programs for eligible borrowers including USBank’s American Dream Program and the programs available through the Minnesota Housing Finance Agency.  You can get an FHA mortgage for only 3.5% of the purchase price so if you have been diligent about saving money for a down payment, AND you’ve been protecting  your credit rating by paying your consumer debts on time, you can still get a great deal.

Prices are still very low (I can’t believe how low they are when I take Buyers out to look at homes) and mortgage interest rates are at almost the lowest point they have been in the last 40 years.  Housing affordability is still great.  Don’t despair.  Bargains abound.  Come to our class and find out how to make a plan to own that great first home!!

For more answers to your detailed questions, sign up and attend one of our FREE HOMEBUYER CLASSES!!

This burning question is top of mind for the Buyers who attend our FREE class for first timer buyers.  We spend more than an hour teaching our students to think like a bank.  Banks want clients who will repay the loan.  They look at four risk factors concerning the Buyer and two risk factors concerning the home to be purchased.

First, you will have to give the bank information about your credit history and credit scores.  This is probably the single most important factor influencing your eligibility for a mortgage.  They look to see if you meet your debt obligations in a timely manner.  Our class goes into some detail about how to handle problems with low credit scores or no credit scores at all.

Second, you will show the bank how much money you make and how much is already obligated in monthly repayment of debt.  This is called your “debt to income ratio” and the bank has guidelines to assure you don’t take on too much debt.  In class, we review how much is o.k. and how much is too much.

Third, you will show the bank how you are going to make the down payment for your new home.  In most cases, you will need at least 3.5% of the purchase price of the home in your own money.  Some mortgages permit you to get a gift from a blood relative.

Fourth, you will tell the bank how much of the purchase price of the new home will be mortgage and how much will be down payment.  This is called “loan to value”.  The bigger your down payment, the lower the loan to value.  For example, if you make a 5% down payment, the loan to value is 95%.  If you make a 20% down payment, the loan to value is 80%.  Banks like low loan to value because you have more of your own money at risk.  You are less likely to default on the mortgage.

Once the bank checks you out, then they check out the home.  They order an appraisal to make sure the home is worth what you have offered for it.  They also have the title history on the home examined by an attorney to see who has an ownership interest in the home.  All these “owners” have to be paid off or removed from the title when you buy it.

THEN you get to buy the home.  It’s not simple.  Make sure you have good advisors when buying a home and GET INFORMED.

For more answers to your detailed questions, sign up and attend one of our FREE HOMEBUYER CLASSES!!

If you’ve been holding off buying that first great or second move-up home, hoping that the market would drop in price, now’s the time to act.  There is absolutely no activity on Capitol Hill that would lead me to believe this tax credit will be extended.  In addition, there are some other things happening that may affect the how much home you can afford.

As you know, the tax credit is a refundable credit of $8000 for first-time homebuyers and $6500 for move up buyers who have owned another primary residence for at least 5 years.  In order to qualify for the credit in 2010, you must write a purchase agreement on a home by April 30^th, 2010.  You must then close on that home by June 30, 2010.  Tick tock.  Tick tock.  The clock is running out.

And as if that isn’t bad news enough, at the end of March, a Federal program which has been purchasing mortgaged backed securities will end.  This program has put an artificial price on these securities, insuring lower mortgage rates.  Most analysts are expecting mortgage rates to rise at the end of this program.  In other words, when the government stops buying these securities, the analysts don’t expect that the private investor market will pick up the slack.

This will mean an increase in the monthly mortgage payment for the home buyer.  For example, a payment on a $200,000 mortgage, principal and interest fixed over 30 years at 5% interest is $1074.  At 6%, it is $1200 or roughly another $125 per month. 

So get out there and buy now.  With the Federal buying program in place , you can lock in a lower interest rate and you will avoid the price increases that always accompany the brisk spring market.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

Buying a home is not like buying a car.  It’s a lot more complicated and with many more risks for you, the prospective home buyer.  We recommend attending one or more first time home buyer classes or meeting with a Realtor or Mortgage Consultant who specializes in working with first time home buyers. 

Your first step then is to locate a class.  Sometimes you will find classes offered through your local community education resource.  Other classes may be offered by government agencies.  Other sources of classes are Realtors and Mortgage Lenders who sponsor them.  Sometimes they will be listed in the housing or home section of your local newspaper or information website.

Wherever you go, whatever you do, become educated on how to buy a home.  If you know about the risks ahead of time, you can avoid the most common mistakes made by home buyers.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

This answer may differ from state to state so I am talking about my experience in Minnesota in this response.  Condominiums or “condos” as they are called look a lot like an apartment.  The typical condo unit is in a building with a centralized entrance, often a security entrance.  Once you are admitted to the building, each floor of the building will have hallways with condo unit entrances off of the hallway.  A condo unit can be on the second or third or seventeenth floor of the building.  Thus, it has no land under it.  This is unusual in real estate and when condos were first introduced, it took awhile for people to accept the idea. 

When you buy a condo, you get two things.  You get private ownership interest in the condo unit and shared interest in the parts of the building and grounds that are shared with all the other homeowners.   The homeowners’ association, of which you are now a member, manages this shared property.   You can do whatever you want to your unit as long as it doesn’t impact any other homeowner and it follows association rules.  You can’t do anything you want to the shared space unless you obtain permission from the other homeowners.  For example, you can’t change the outside of your door which faces the shared hallway.  Most homeowner associations develop a list of rules and regulations to make sure that all owners respect each other’s rights.  Usually, the heat in a condo building is central and the costs of heat are included in your homeowner association dues.  Some other utilities might be centralized as well such as garbage removal or water and sewer services.

A townhome most typically will have its own front door.  Usually, that front door faces the outside rather than a hallway.  It will stand on a small piece of ground or on its own small lot.  The townhome will typically have its own furnace and hot water heater so you will pay these bills and replace these utilities when they wear out.  There still is a homeowners’ association and you still cannot make changes to the outside of the unit without association approval.   Many first-time homebuyers purchase a condo or a townhome first because they tend to be less expensive and less work than owning a single family home.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

Recently, I had two homebuyers come to our seminar for First-Time Home Buyers who plan to buy a home this year.  They want to take advantage of the record-breaking drop in home prices, the record-breaking low interest rates and the first time ever tax credit for first-time homebuyers.

They asked me if they could split the tax credit.  Well, at the time, I didn’t know the answer to that question but God Bless America.  The IRS website at IRS.gov had an answer for their question.  Of course, you know the IRS!! The answer WAS NOT short but basically it said this.

Of course you can split the one-time $8000 tax credit.  But you should be sensible about it.  For example, if you and a fiancé bought your first home together, and you each paid ½ of the down payment, you could split the tax credit 50/50 each taking ½ of the credit.  Or let’s say you paid cash for a home and you contributed $25,000 and your partner contributed $75,000 towards a $100,000 home.  You could split the credit taking 25% or $2000 for yourself and giving 75% or $6000 for your partner.

Or let’s say that your partner has been out of work for a year and thus doesn’t owe any taxes but you are self-employed and will owe $6000 at the end of the year.  In this case, it may make sense for you to take the whole tax credit to offset your taxes.  You would still get a check for the difference of $2000.  You can make the credit work for you…just have some sensible explanation to give the IRS.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

If you bought or are buying your first home between January 1, 2008 and June 30, 2010, you will qualify for a refundable credit from the IRS.  There are two types of tax credit.  The non-refundable credits reduce your tax but only can reduce your tax to zero.  Refundable credits mean that once your tax is at zero, the rest of the credit will be mailed to you as a check.

For example, let’s say your taxes are $5000 this year and you have already paid $4500 towards those taxes in withholding from your paychecks.  So you would owe $500 to the IRS.  However, you bought your first home this year (2009) so when you file your taxes in 2010 for 2009, you claim the first time homebuyer credit.  The IRS would send you a refund check for $7500.  They would take $500 from the credit to pay the balance of the taxes you owed to them.  The rest would be refunded to you.

Now there are some differences in the tax credits available for first-time homebuyers.   If you bought between January 1, 2008 and December 31, 2008, the credit is $7500 and must be repaid over 15 years starting the second year after receiving the credit at $500 per year.  If you bought between January 1, 2009 and June 30, 2010, the credit is $8000 and doesn’t have to be repaid if you live in that home you bought for 3 or more years.  If you bought between January 1, 2009 and November 6, 2009, the credit is $8000 and you can e-file to claim the credit.  If you bought your first home after November 7, 2009 but before June 30, 2010, you cannot e-file your return to claim the $8000 credit as the IRS now requires you to attach proof of home purchase to your return.

If you have filed taxes for 2008 but bought your first home after you filed, you can file an amended return this year to claim the credit.  You don’t have to wait to file your tax return for 2009.  This is a great benefit for first time buyers, defined by the IRS as folks who haven’t owned a home for the three years prior to closing on their new home.  Good luck in buying that first great home!!

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

On November 6, 2009, President Obama signed into law an extension and expansion of the First Time HomeBuyer Tax Credit which has been in effect since January 1, 2009.  Briefly, the law extends the $8000 tax credit which was due to expire on November 30, 2009.  The new law extends the credit into 2010.  The rules state that the home purchase agreement must be written and signed by April 30, 2010 and closed by June 30, 2010.  The former requirement that the buyers not have owned a home in the past three years is still in effect.  The credit is limited to 10% of the purchase price of the home or $8000, whichever is less.  Income requirements have been increased.  The law is effective immediately.

The law is also expanded to include homeowners who have owned their home at least five years of the last eight years.  If these homeowners sell their current home and buy a new home before April 30, 2010 and close both transactions by June 30, 2010, they can take a tax credit of $6500.  This law goes into effect immediately and will affect any closings occurring between November 6, 2009 and the end of the program on June 30 of 2010.

Both first-timers and repeat buyers will have a price ceiling for the new home of $800,000.  The real estate lobby worked hard and long to encourage lawmakers to sign this program extension.  There was concern that if the program ended in November, 2009, the housing market would take a nose dive.  Timing the program ending for next April is better because the real estate market is typically the strongest over the spring and summer months.

If you have questions, come to our homebuyers class where we have the answers as well as  special handouts covering program rules and your questions.