Roger Howell

With all the recent changes in financing and the new laws that have been past, its easy to get misinformation or confusion on whats new in home financing.

This year, our congress and president approved a first time home buyer tax credit of $7500. Its only available for a short time, so now is the time to get those clients who are sitting on the fence off it and into a home of their own.

Rather than go into detail here, I have found a pretty good website that explains the provisions of the new credit. It is http://www.federalhousingtaxcredit.com/resources.html

See item 13. The tax credit is not available if the borrower uses a tax exempt bond program ,such as the IHFA first time home buyer program.

It used to be that Hard Money Lenders would do a loan with very little or no documentation of Income, Assets, or Employment. Instead, they relyed on the properties equity to protect them. You could get a hard money loan done in a few days to a couple of weeks.

Now days, with values declining and foreclosures increasing, they are taking additional steps to ensure a successful loan. Besides the usual appraisal review, they are asking for documentation of income, assets, and even looking at tax returns for self employed borrowers. They are underwriting with the ability of the borrower to repay the loan. That cuts out a lot of the real estate investors who don't show any income on their tax returns.

Who can benefit from hard money loans these days?

The borrower who has a short term need for financing, but their credit score is less the bank's guidelines.

The commercial owner who wants a cash out refinance without having to prove to the bank why they need the cash.

The borrower who cannot accept a prepayment penalty, ie a fixer upper or turn around project. Prepayment penalties are common on commercial deals and can be very steep and long term.

If you have a loan scenario that falls into the above, call me. I would be happy to provide an alternative to restrictive bank terms or outright denials.

Effective today, September 25th, the following pricing increases take effect:

New Adjustments:

• Investor Occupancy, <= 75% LTV: add 1.75% to Discount
• Investor Occupancy, >75% and <=80% LTV : add 3.00% to Discount
• Investor Occupancy, >80% and <=85% LTV: add 3.75% to Discount

Previous Adjustments:

• Investor Occupancy, <= 75% LTV: add 1.50% to Discount
• Investor Occupancy, >75% and <=80% LTV : add 2.00% to Discount
• Investor Occupancy, >80% and <=85% LTV: add 2.50% to Discount

What this equals is approx. 1/8th of a point increase in rate on the under 75% loan to value,

approx. 3/8th of a point rate increase for the 75-80% loan to value, and finally,

approx. .5% higher rate on the 80-85% loan to value.

this makes it very important that your investor clients purchase wisely, and have good rental comps. Their payment is going to be higher because of this.

Since the majority of my business these days is FHA, I have been following this very closely. It appears that Chairman of the House Financial Services Committee Barney Frank has negotiated an agreement with HUD Secretary Steve Preston that will allow the continuation of the privately funded down payment assistance programs. It allows HUD to use risk-based pricing on the down payment assistance transactions.

The agreement still needs to be approved by Congress and the President. It is covered by HR 6694.

Allow down payment assistance where the mortgagor has a credit score of 680 or greater.

Allows down payment assistance where the mortgagor has a credit score of 620 to 679, with an increase in the mortgage insurance premium.

I have said all along that this should be an option, but with the extra risk off set with increased pricing or insurance premiums. For many first time borrowers, the 3% down payment might as well be a million dollars.

It unlikely that congress will act on this before Oct. 1st, the current deadline for seller funded down payment assistance. In the meantime, I have located and implemented other strategies in my business to accommodate the low to zero down home buyer.

I've been waiting on the sidelines to comment on the recent Federal receivership of Fannie Mae and Freddie Mac. I'm always leery of our government getting involved in the market and causing more harm than good. I am also suspect of the real motive of our politicians, many times they aren't taking action to fix the problems, but to score political points.

That being said, the effects of this action has been that rates have dropped dramatically in the last two weeks and now you can get that 30 yr fixed rate in the 5's. The market has reacted positively and the public is benefiting for now.

What I worry about is the next administration screwing up a system that has worked most of the time and has allowed home ownership to grow to its highest level in our history. I can easily see a congress with power to write laws changing down payments to 20% or something high enough to stop most new home purchases. This would shift the burden to FHA, but they have already changed their guidelines and are shutting out some groups of buyers.

If you're waiting on the sidelines trying to decide if now is the time to buy, it is! You may not have the opportunity to buy with low rates and low down payments after the new administration and congress is sworn in.