Press Releases

Mortgage Insurance Premiums on FHA Loans will Increase on October 4th

Sep 2nd, 2010

The Federal Housing Administration has announced that monthly mortgage insurance premiums on FHA-insured mortgage loans will increase from the current rate of .50-.55%, to .85-.90% on October 4th. This premium is paid monthly by borrowers as part of their mortgage payment. The increase amounts to 63% hike in annual premiums. Homebuyers who go under contract and obtain FHA case numbers through their lender prior to October 4th will be grandfathered in at the lower rate.

The annual premium increase was originally scheduled to go into effect September 7th, but was delayed to afford lenders more time to adapt their systems.

To put this premium increase into perspective, a borrower purchasing a $200,000 home with the minimum required 3.5% down payment, would see a monthly payment that is $59.55 higher if their case number is assigned after October 4th. Over ten years this difference represents a total increased cost of $7,146 to the borrower. In addition to increasing overall borrowing costs, the hike has the potential to disqualify some buyers at the margin as this increase may push their debt ratios above the maximum allowable limits.

Ironically, some borrowers may benefit from this new structure if they plan to be in their home three years or less as the up-front mortgage insurance premium charged by FHA will be reduced from 2.25% to 1%. If they pay this premium in cash at closing, they would stand to gain a net financial benefit from the change. It is imperative that borrowers consult their mortgage planning professional in advance of their purchase in order to evaluate the cost or benefit of the new premium structure based upon their home financing plans.

Aug 6th, 2010

by Mike.

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Today, David Steven, the Assistant Secretary for Housing issued a statement regarding the upcoming changes to FHA mortgage insurance premiums. Assuming President Obama signs H.R. 5981 as expected, the up-front FHA mortgage insurance premium will be decreased by 1% and the annual mortgage insurance premium will be increased to .85-.90%, depending upon loan-to-value. This premium is paid as part of a borrowers monthly mortgage payment. The current up-front premium is 2.25% on most loans and the annual premium is .50% - .55%. Earlier this year, in response to dangerously low capital ratios, FHA increased the up-front mortgage insurance premium to 2.25% and announced plans to pursue a restructuring of the annual charges that were subject to congressional approval. With the passage of this bill the proposal appears complete.

While the proposal is a positive sign because it will likely shore up FHA’s capital reserves, it will also make it more difficult for some buyers with higher debt ratios to qualify for FHA loans. As an example, on a $200,000 purchase with the minimum required 3.5% down payment for an FHA loan, a principal and interest payment would amount to $995.01. The current monthly mortgage insurance would add $88.46 per month to that payment in addition to the borrower’s property tax and insurance escrows. With the proposed changes, the monthly mortgage insurance premium would increase to $144.75. To be fair, most borrowers also finance the up-front mortgage insurance premium, so the decrease from 2.25% to 1.25% would represent a savings of $1,929 plus any interest accrued over the life of the loan.

The sooner the better might be best if you are thinking about buying a home in the near future using an FHA loan.

Rural Housing Loan Program Extended

Jul 30th, 2010

by Mike.

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Yesterday, President Obama signed into law the Rural Housing Preservation and Stabilization Act which, among other things, extends the U.S. Department of Agriculture’s Rural Development loan guarantee program. This program provides loan guarantees to lenders in targeted rural areas on mortgage loans made to certain low to moderate income applicants. Earlier this year, the USDA’s Rural Housing Program’s funds were depleted, resulting in a lack of financing for home buyers in rural areas of Texas.

The legislation, sponsored by Sen. Michael Bennet (D-CO), extends the life of the program by changing the fee structure of the program to make it self-funding without any incremental costs to taxpayers. This allows the USDA Rural Housing Service to charge an up-front fee of 3.5% (up from 2%), and allows an annual fee of up to .5% on the balance of the loan. Some low income borrowers could see these fees waived. These changes mirror those implemented on FHA loans earlier this year. FHA was faced not with funding issues, but with a capital ration that was dangerously low due to mortgage defaults.

The USDA Rural Housing program, also known as the Section 502 loan program, is available to applicants in non-metro areas of Montgomery, Brazoria, Fort Bend, Liberty, San Jacinto, Chambers, and Waller counties in the Houston area. Borrowers must have an income at or below 115% of the median income for the area, which amounts to $74,900 for a 1-4 person family. Applicants must demonstrate solid credit histories, yet can purchase a home with no down payment.

Thought the Tax Breaks Were Over? Think Again!

May 4th, 2010

by Mike.

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Unfortunately, the First-Time and Repeat Homebuyer Tax Credits expired last week. However, even though this powerful tax incentive is now over, it doesn’t mean that you are out of luck. There are undoubtedly many prospective home buyers, like you or someone you know, who simply needed more down payment resources, had to work on a couple of credit issues, or could just not find the right home before the deadline expired.

All is not lost. One of the most underutilized resources available to most homebuyers in the Houston area is the Mortgage Credit Certificate (MCC). These programs allow many home buyers to obtain a tax credit every year they own the house and pay interest on their mortgage. Yes, you read that correctly. While the first time and repeat homebuyer tax credit was front-loaded with a value of $8,000 or $6,500, what if you could get a tax credit of up to $2,000 each and every year? This is far more valuable than the popular homebuyer credit.

For example, let’s say a single person or married couple purchases a home priced at $130,000, puts $5,000 down and thus finances $125,000. Under the First Time Homebuyer Tax Credit, this borrower would receive a tax credit valued at $8,000 that could be claimed on their 2010, or retroactively on their 2009 tax return. Instead, we will assume they missed the deadline, and their combined income is less than $76,560 per year ($89,320 if they have children or other dependents). If these borrowers qualified for a Mortgage Credit Certificate, they would receive a tax credit each year they own their home. The annual tax credit would be 30% of the interest paid each year. Using our example above, the value of these annual tax credits over ten years amounts to $17,159.96. In addition, most MCC programs are transferable to the new owners if the buyers ever sell their home. Most importantly, there is currently no first-time homebuyer requirement!

If you are interested in finding out more details about these programs and how you might qualify, give us a call at (832) 286-1600 and we will walk you through it!

Where’s the Beef? USDA Home Loan Program Funding Soon to be Gone

Mar 22nd, 2010

by Mike.

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If purchasing a home in a rural area using the USDA Guaranteed Rural Housing mortgage program is in your future, you might want to shift your plans into high gear. The Rural Development national office in Washington, D.C., recently issued a letter to participating lenders stating that funding for the Guaranteed Rural Housing program would most likely be used up by the end of April 2010.

The Guaranteed Rural Housing Program provides 100% mortgage financing to home buyers purchasing homes in designated rural areas. This program is designed to spur housing, and in turn spurring growth, in rural parts of the United States. Much of Texas falls under this program, including parts of Montgomery, Fort Bend, Brazoria, Liberty, and Waller counties.

For more information on the program, you can visit this site: USDA Rural Development Site

It looks as though the program will be continued, but it is not clear when funding will actually be provided. The last thing the government needs is another obstacle to recovering housing markets. In the interim, borrowers will likely have to consider other financing options which may not be as flexible. Most home buyers can choose to utilize FHA loans that will require a 3.5% down payment.

Stay tuned – we will keep you posted on any updates!

March 5, 2010 Houston Mortgage Rate Update

Mar 5th, 2010

by Mike.

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Mortgage rates in Houston and throughout the country eased this week as the Freddie Mac benchmark 30-year fixed rate mortgage fell to 4.97% from 5.05%. The 15-year fixed rate fell to 4.33% from 4.40% last week. Rates were even lower in our area, averaging 4.90% and 4.30% respectively. Despite the recent easing in rates, I feel like we have reason for longer term concern.

Even though mortgage rates have fallen, the one-, two-, and three-year Treasury rates have risen. In addition, the Federal Reserve’s program to buy back mortgage securities is coming to an end very soon. The Fed purchased $10 billion in mortgages over the past week. There are now only four weeks left in the program and $34 Billion left to purchase mortgages. Unless investors step up to the table, we will inevitably see rates rise. Even Fannie Mae’s economists see rates moving up to at least 5.6% by the end of the year.

The chart below shows the prices of Fannie Mae 4.5% bonds and it is easy to see how rates dropped (notice bond prices rose) when the Fed’s purchase program was implemented in the Fall of 2008. At that time, 30-year rates were around 6%. Therfore, there is no reason to expect why rates would not rise back to the 6% range without the Fed’s subsidy.

As we have said many times before, there is nothing wrong with a 5% mortgage! Couple these low rates with government tax incentives and distressed home prices and you have a unique home purchase opportunity in the Houston market.

Making the Best of the $6,500 Current Homeowner Tax Credit

Feb 11th, 2010

by Mike.

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In previous posts we have referenced the “existing” homebuyer tax credit that was created with the expansion of the First Time Homebuyer Tax Credit late in 2009. We thought we would provide some additional details on how move up buyers can properly utilize this credit when using mortgage loans for their home purchase.

Current homeowners who have lived in the same home for five of the past eight years may be able to claim the credit upon the purchase of another home to be used as a primary residence. The amount of the tax credit is equal to 10% of the purchase price of the new home, with a cap of $6,500. The purchase contract on the new home must be dated between November 7, 2009 and April 30, 2010, and you must close by June 30th.Here are some details you may not know about the new credit:

Purchasers are not required to sell their existing home to qualify for the credit, though they must show that the new home will be their primary residence. Declaring this new property as their homestead should do the trick.
The maximum purchase price on homes eligible for the credit is $800,000.
To claim the credit, buyers should complete the revised IRS Form 5405 available on the IRS web site http://irs.gov. They should also be prepared to provide a signed copy of their HUD-1 Settlement Statement, evidence of ownership of their current home for the required five-year period.
The tax credit can be maximized as long as your Modified Adjustable Gross Income is less than $125,000 if you are single, and $225,000 if you are married filing jointly. The tax credit is phased out completely at $145,000 and $245,000 respectively.
If you sell the new property within 36 months of purchase, convert it to rental property, or lose the house to foreclosure, you will have to repay the tax credit received.

With low mortgage rates still hanging around, just 10 weeks left to sign a contract, and four months to close on the home, get your sneakers on and start searching!