Where to find extra money so you can pay off debt.
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We've written about this subject a couple of times before, but it bears repeating now. Repeat home buyers need to act fast to capitalize on the expanded tax credit.
This past November, Congress elected to expand the home buyer tax credit to repeat buyers after seeing the success the temporary financial incentive had on the housing market and overall economy. As a result, current homeowners who will have lived in their home for 5 consecutive years out of the last 8 may now be eligible to receive a $6,500 tax credit.
To qualify for the tax credit, the repeat buyer must have signed a binding contract by April 30, 2010 and close on the home by June 30, 2010. Tax credit eligibility is subject to income limits, $125,000 for single buyers and $225,000 for couples. In addition, the sale price of the home being purchased can not exceed $800,000.
Of course, there is no requirement that existing homeowners must have sold their home to be eligible for the $6,500 tax credit. However, existing homeowners who want to benefit from this incentive to move quickly, particularly those who prefer to first sell their current home before purchasing a new one, need to move quickly. In normal situations, it takes around 3 months or longer to sell a home, and these are not normal times. So acting now is critical, if you hope to secure a buyer for your existing home before purchasing your new home and still fall under the time frame allowed by the expanded tax credit.
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According to a report released by Trulia.com, 21 percent of the homes for sale as of January 1, 2010 have experienced at least one price cut. This makes the second consecutive month that price reduction levels have decreased and the lowest level since Trulia started tracking price reductions in April 2009.
The average discount for price-reduced homes continues to hold at 11 percent off of the original listing price. This was also the second straight month where inventory levels have dropped for single family homes and condos across the United States.
The South has the lowest overall level of price reductions, with 20 percent of current listings experiencing at least one price cut, while the Northeast saw the biggest decrease in price reductions compared to the previous month — 12 percent. (Regions according to the U.S. Census Bureau)
Luxury homes (those listed at $2 million and above) continue to be hit the hardest by price reductions with the average discount rising to 15 percent for the first time since Trulia started tracking in April 2009.
Additionally, luxury homes represent less than two percent of all current listings on Trulia, but are responsible for 24 percent of the $21.2 billion in home price reductions. The average discount for homes priced less than $2 million continues to hold at 10 percent.
The FHA is making proposals to change mortgage insurance premiums, FICO (credit score) and down payment combinations and seller concessions. The changes will be posted in the Federal Register next month and after a comment period would become effective early summer.
With these rule changes, an FHA loan could cost you 10% more to close. That's $25,000 on a $250,000 loan.
3.5% Down Payments and seller concessions of up to 6% will soon be a thing of the past for many. Mortgage insurance premiums will also increase by 1/2 point.
Here is a quick summary of the changes:
So, with a FICO score below 580, the amount of out-of-pocket money to close an FHA loan would increase by about $25,000 on a $250,000 mortgage ($1,250 MIP, $7,500 increase in seller’s concession, $16,250 increase in down payment). This would be added to the current total cost, an increase of 10%. A FICO score above 580 could still add about $8,750 or 3.5%.
The FHA is taking these actions to reduce troubled mortgages in the future. They will also be making changes to reduce fraud.
These actions will allow them to add to their reserves against bad loans. As a home buyer, these changes will increase your overall costs to borrow tremendously.
Stay tuned, we'll keep you updated on these FHA Loan changes as they become effective.
