The Clock is Ticking...

For prospective homebuyers who are on the fence about making a home purchase, the next few months represent a countdown of sorts as
huge tax credits are about to expire. Here are important details for you to know:
Tax Credit for First-Time Homebuyers (FTHBs)
FTHBs (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10%
of the purchase price of the home, with a maximum available credit of $8,000. Single taxpayers and married couples filing a joint return may
qualify for the full tax credit amount.
Tax Credit for Current Homeowners
The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes
in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five
consecutive years during the last eight years. Single taxpayers and married couples filing a joint return may qualify for the full tax credit
amount.
What Are the New Deadlines?
In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010. Those in
the military do have some special extensions on the timelines available.
What's So Great About a "Tax Credit"?
The benefit of a tax credit is that it's a dollar-for-dollar benefit, rather than a "tax deduction", or reduction in a tax liability that would only save
you $1,000 to $1,500 when all was said and done. So, if a first-time homebuyer who qualified for the entire benefit were to owe $8,000 in
income taxes and would qualify for a tax credit of $8,000, she would owe nothing.
Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little or no income tax
liability. For example, if a first-time homebuyer is eligible for a tax credit of $8,000 but is liable for $4,000 in income tax, she can still receive a
check for the remaining $4,000!
Higher Income Caps
The amount of income someone can earn and qualify for the full amount of the credit has been increased. Single tax filers who earn up to
$125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who
earn $145,000 and above are ineligible. Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more
than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.
Maximum Purchase Price
Qualifying buyers may purchase a property with a maximum sales price of $800,000.
It's also important to note another upcoming deadline as the Federal Reserve winds down a program that has been keeping home loan rates
artificially low. The fact is that the lowest rates of 2009 were driven down to their attractive levels because of the Fed's Mortgage Backed
Securities (MBS) purchase program, which the Fed once again emphasized in its January 27, 2010 Rate and Policy Statement will end on
March 31, 2010. As the Fed's program winds down and ends, rates could rise over time since MBS will have less support from the Fed.
If you have any questions regarding the tax credit, pick up the phone and call me. I'm here to help you take advantage of one of the greatest
opportunities homebuyers may ever have.

Rate and Term Refinances are up

Freddie Mac said Thursday that record low numbers of homeowners Cash Out the equity for their home. Most homeowners who are refinancing now are taking advantage of the record low rates and are using Rate and Term refinances. A Rate and Term refinance allows homeowners to lower their interest rate and or terms on their mortgage without taking out any cash. A Cash Out refinance is one where the homeowner uses the equity in their home to pay off debt and or take the cash out for other uses. There are several reasons for the record low numbers including lower home values, tighter lending guidelines, and homeowners who are trying to make more financially sound decisions. Reuters reported on Jan 28, 2010, Freddie Mac Chief Economist Frank Nothaft said that "in aggregate, the lower interest rates translates into about $2 billion in payment savings for these homeowners over the first 12 months of the new loan". They did not report, however, how long the average homeowner extended out the term of their loan by doing this rate and term refinance. Most homeowners believe that the they have to save 1% in interest rate to make a rate and terms refinance worth doing. This is really not true since the rate is only one part of the puzzle.

The best way to look at what you need to save is to first determine how long you plan to be in the home. Then, determine the costs of the refinance. You need to only look at the lender, title/escrow and appraisal/inspections costs. Prepaid taxes and insurances are not a costs, these are your funds. Then figure out what is the monthly savings you are receiving from the refinance. Next figure the number of payments you have left on your current mortgage payments and multiply that by your principle and interest payments. Then figure the total of payments on the new loan. If you are planning to be in your home for long term, then do not close on the new loan if its total payments are greater than your current loans total of payments. If you're not sure how long you are going to be in the home, the best way to find out if the new loan is going to help you is to take the monthly saving on the principal and interest for the old and new loan. Divide that into the costs of the refinance. This number will represent the number of months you will need to be in the home before you start seeing actual savings. Please see the examples below.


Example 1. Current loan balance $150,000. Current rate 6.5% 29 years left. Payments $960.74
Proposed New loan 5.% interest rate 30 year mortgage $2354 in cost for home loan. New Payment $817.87
Savings $142.87 monthly / costs of $2354 = 16.48 months to start having true savings.
Using the total of payments method the new loan with the lower interest and including the costs of the loan the savings in payments would be $49,079.
Since this home owners is planning to be in the home for more that 17 months this would be a smart refinance to do.

Example 2. Current loan balance $398,000, current rate is 6.00% with 28.5 years left, and payments of $2356.23.
Proposed new loan 5.125% interest, 30 year mortgage and $5232 in closing costs. New payment is $2195.55 monthly.
This saves the borrower $160.68 monthly / costs of $5232 = 32.56 months to start having true savings.
If this home owner plans to be in the home for more than 33 months then this loan would a smart refinance to do.
The total of payments savings are $52,612.80

Example 3. Current loan was a 30 year fixed with 20 years left to pay. Current balance is $160,981 rate is 6.25% and payments of $1176.67. Total of payments are $432,601. Borrowers has paid $141,200.40 in payments so far.
Proposed new loan is $164,081 at a 30 year rate of 5.125%. New Payments are $893.40 saving the customer $283.27 monthly. Closing costs were $3100.00
If this home owner just pays the minimum payment on the new loan the total of payments will be $321,623 but the customer has already paid $141,200 in payments. The total cost of this home would be $462,823 adding $30,000 to the total. The customer should not do this refinance unless they have to save the $283. monthly but fully understand the total of cost of this savings.
If the customer was to put the $283.27 in savings back into the new mortgage just pay the old payment amount of $1176.76 the new loan would be paid off in 17.7 years saving the clients 28 months in payments from their current loan or $31,770 in total of payments. It would make sense for the borrower to refinance in this scenario.

It is important to talk to a mortgage professional about all of your options. I recommend talking to your lender on the phone once a year. There are so many different loan programs available that you should explore all of your options. You might be surprised to find you could save money with a better loan.