It’s 118 degrees in Baghdad, but Peter Hudson is willing to sweat it out there, literally, for 18 more months. Why? So he can save up money to buy his first home back in the States. (more…)
Florida Today reports that U.S. Rep. Dave Weldon asked representatives of the local real estate industry to support proposed legislation that would give a tax break on cash gifts used for a down payment on a homes.
The intent of Weldon’s legislation - the Homeownership Affordability Act of 2007 - is to help people swing a deal for a home.
The median selling price of a home in Brevard County rose from $99,400 in 2001 to $219,400 in 2006, an increase of more than 120 percent, according to the Florida Association of Realtors.
The median price was $201,100 in February.
Weldon’s bill would allow a family member to provide another family member up to 20 percent of the price of a house or condo, for a down payment, without facing a tax consequence that gift - a potential boon to a Florida mortgage applicant.
Under his proposal, the home value could not exceed 110 percent of the FHA’s median-priced home for each metropolitan statistical area.
Currently, when a person gives more than $12,000 to another person in any given year, the giver must fill out a federal tax form outlining the tax gift.
Weldon, a Republican, said his the legislation, which he will introduce in the House of Representatives when he returns to Washington, is “not a cure-all.”
But it could provide critical help to the young professional looking to enter the Florida housing market for the first time.
Weldon spoke to about 75 people - mostly Realtors, but also some Florida mortgage lenders, during a luncheon symposium at the headquarters of the Melbourne Area Association of Realtors.
“If we can get Realtors all across the country embracing this,” Weldon said, “then we have a better likelihood of seeing it enacted into law.”
Home affordability emerged as a hot topic in Brevard and other Florida counties, as a spike in home prices from 2003-2006 left many potential buyers without any way to purchase property.
Also added to the mix of monthly Florida home mortgage bills are increased tax liabilities - based on higher property values - and rising property insurance costs.
The problem, Weldon and others noted, is that the costs are keeping many people - especially middle-class first-time home buyers such as teachers, law enforcement agents and medical personnel - from buying a home.
That encourages those individuals to look elsewhere because the pool of workforce housing for sale has shrunk so considerably, Weldon said.
“Middle-income families shouldn’t expect to be able to live anywhere. But they would like to be able to have abundant choices,” Weldon said. “They would like to be able to live in a variety of different communities.”
A number of people attending Weldon’s talk, while not embracing his bill outright, said it’s an idea worth pursuing.
SOURCE: Florida Today
Why is this the perfect time to start saving money for a down payment? Let’s review a few reasons:
- Right now, time is on your side. With home prices flat and falling in some regions there’s less danger of getting priced out of the market by appreciation while you take time to save. Some experts say Florida home prices are poised to run in place in 2007 and may not begin to warm up for another run until 2008.
- In the current market, getting talked into easy-money and high leverage, low- and zero-down payment Florida home loans to finance for as little out-of-pocket money as possible right now is getting risky. High leverage loans are much better suited for a fast appreciating market where your home quickly generates equity to compensate for your small or missing initial stake.
- Saving reduces costs. Save enough for the down payment and you can remove the need to pay back another bill, say a second mortgage, to cover the down payment, while you also struggle with the first mortgage. Saving also gives you the opportunity to lower financing costs, especially the cost of mortgage insurance, which you won’t have to pay if you have 20 percent or larger down payment.
- Even saving only enough for all closing costs, property insurance and other initial costs to finance your home is a worthy goal that takes some of the financial bite out of home ownership.
The more you save, the more lenders like you. That’s because the larger the personal stake you have in your home the more you lower your risk of Florida mortgage loan defaulting, risk-based studies reveal. Your stake is instant equity to burn should you need it down the road for emergencies and as some protection against flat and falling prices.
You’ve heard that investing in property can be quite profitable. This is especially true in the face of low Florida mortgage rates and great deals. Whether you plan to flip it or rent it out, real estate is a way to expand your investment portfolio and generate increased cash flow.
But even when you know what kind of property you want to buy and how you want to manage it, you have to find a way to finance the purchase. If you decide to put a down payment on the property, you have to know where to come up with the money. You also need some cash to close on the property, then you have to be able to make the monthly Florida home loan payments.
So where do you start?
You could start with your savings, but wisdom says your savings are better left where they are. Even if you use some of your savings, you never want to dip too deep into that pool, else you risk losing your financial cushion. So where else can you look?
One smart place to get the money would be to tap into your home equity. If you’ve built up some equity in your primary home, you can get a Florida home equity loan that will give you the cash to use as a down payment.
There are several advantages to home equity loans. The first being that where traditional first Florida mortgages can take weeks to close, a home equity loan may take only several days.
The second is that the mortgage interest is tax-deductible. (You should always check with your tax advisor.) And third, home equity loans offer flexibility - some are even available with interest-only payment options where you can choose, when you want to pay only the interest due for that month; though you can still pay as much principal as you want.
Now that you’ve found a way to finance the down payment, how do you finance the rest of the investment property? Some Florida home loans allow you to state your income, meaning that you don’t have to document your income. It makes the Florida mortgage process easier because there is less paperwork, but you need to have a good credit score to do so.
Then, there are option ARMs that allow a significantly lower monthly payment. In fact, option ARMs give you just that: options. You can choose a 30-year traditional mortgage payment, a 15-year payment, an interest-only payment or a minimum payment, where you pay less than the interest due for that month.
This kind of payment becomes very handy when you’re juggling a Florida mortgage loan for your own home as well as an investment home. Just be careful which option ARM you choose - many have rates that can adjust very quickly and very often. Look for an option ARM that offers a fixed interest rate, that doesn’t allow you to defer too much interest and doesn’t have prepayment penalties.
Purchasing a home is not as difficult as it used to be. One reason for this would be the ease with which you could be pre-approved for a Florida home mortgage.
Another is the fact that lenders have relaxed certain requirements. For example, the status quo of shelling out at least 20 percent of the purchase price on a down payment doesn’t hold true anymore. Moreover, the standards on where the money you use for this payment are far looser than ever before.
Take a look at the following examples of where these funds may originate from:
Checking, Savings, or Money Market Account
If you already have the cash available in your checking, savings or money market account, lenders will deem you a less risky borrower. The money is considered liquid funds: easily and quickly accessible. It demonstrates that you are financially stable enough to handle paying back the Florida mortgage loan.
Stocks, Bonds, or Mutual Funds
You will need to show all documentation relating to the sale of these stocks, bonds and/or mutual funds. Also keep a deposit receipt if you deposited the funds into your checking or savings account.
Gifts
You may receive a monetary gift from family members to make the down payment on a new house. This would include your parents, siblings, grandparents, and aunts and uncles. You will need to fill out a “gift letter” provided by your Florida home loan lender that states how you are related to the person giving you the down payment gift, the amount of the gift, and possibly the source where the person got the money for the gift and is signed by you and the gift-giver.
Retirement Accounts
Having a retirement account such as a 401k is another way to prove your financial stability and that you have the ability to save money. If you borrow against your 401k for a down payment, it may be counted by the lender as an additional debt and be added into debt-to-income ratio. This may affect how much of a loan you qualify for.
Also, if you cash out part of your 401k, you may have to pay tax penalties. Be sure you’re aware of everything involved in using your retirement account for a down payment.
Sale of Personal Property
You can use the profits from the sale of personal property (such as a car or other valuable items) toward a down payment. You need to have a paper trail to prove ownership, sale and transfer of ownership of the item. Ask your Florida mortgage banker what type of documentation you’ll need for whatever you’ll be selling. Make sure you are paid with something other than cash. A check might be wisest.
Employer Assistance
Some employers will provide assistance to employees when looking for housing because if fosters loyalty toward the company and because employees with a house are less likely to jump around from job to job. Make sure you have copies of all the paperwork to show your lender.
Secured Loans
Usually, you aren’t allowed to borrow money for a down payment. But it is acceptable in a few cases, but it must be secured by an asset, such as another property or even a car (as long as you owned the car free and clear). For instance, you might get a home equity line of credit if you’re planning on renting your old house or if you haven’t yet put your current home on the market and want to start looking for a new home.
You want the best house you can afford, right? Therefore, it’s important to have a clear idea of how to gather around 15-20 percent for a down payment. Complete the FREE form above and talk with our brokers about the process.
In the meantime, here are a few tips for those looking to wish to pull together enough funds so they’re Florida mortgage loan isn’t too high:
Bank extra money. Any time you get a tax refund, bonus, commission or birthday check, put it into a separate savings account that you never touch.
Live on one income. If you’re in a couple, try living on one partner’s income while saving the other’s.
Get rid of your second car. Or your cell phone. Or your cable service. Pare down your lifestyle so that you can add to your savings each month, a reasonable Florida mortgage always in mind.
Get a roommate. Change your lifestyle from solo to shared living. This will reduce your rent and allow you to save more for monthly payments.
Pay off your debt. Get rid of debts with high interest rates, such as outstanding credit card balances. This will ease the strain on your wallet and improve your credit rating.
Take a second (piggyback) mortgage. If you can’t get five percent or more together for your down payment, you may be able to get a piggyback Florida home loan to cover what your first mortgage doesn’t.
Try Fannie Mae or Freddie Mac. Both of these Congress-chartered companies have programs that allow you to buy a home with down payments of three percent.
Find out about loan assistance programs. Government organizations such as Veteran Affairs and the Federal Housing Administration offer programs that help people who don’t have large down payments obtain Florida mortgage financing. Also, check with your state and local housing authorities to find out what they can offer.
As the IRS threatens to existence of no down payment Florida home loans, buyers are wondering whether or not it’s a good idea to withdraw money from their 401(K) to spend on a primary residence.
June Fletcher, a staff reporter at The Wall Street Journal, has the answer:
According to the IRS, buyers can withdraw from company-sponsored 401(k) plans, but it depends on your plan’s regulations. However, if you are under the age of 59½, you cannot withdraw funds from your 401(k) plan to purchase your primary, new home without being subject to a 10% additional tax.
Depending on the rules for your 401(k), however, you may be able to use some of it on a Florida home loan purchase up front. Your plan administrator can tell you how your particular plan works, and explain when and how you can borrow the funds, as well as other rules.
Other down payment options
If your 401(k) doesn’t allow you to withdraw funds without paying a penalty, there may be another option. You may be able to roll the money from the 401(k) distribution into an Individual Retirement Arrangement (IRA). Once in a lifetime, you can withdraw up to $10,000 from an IRA to afford a primary, Florida home mortgage loan for yourself or a family member. You won’t have to pay the 10% early withdrawal penalty on the IRA, but you will have to pay ordinary income taxes on the amount that you withdraw.
You must complete the rollover within 60 days of receiving the funds. Your plan administrator can tell you if the 401(k) distribution is eligible to be rolled over into an IRA.
Although there are some advantages to borrowing against your 401(k) — there’s no credit check, and interest rates for borrowing from a 401(k) are generally low - bear in mind that when you do so, you’re keeping that money from working in other ways to fund your retirement. So make sure you’ve looked into other private and government programs - FHA home loans, for example - designed to help home buyers come up with a down payment.
A good Florida home loan officer will be able to help you find them.
For years, it had been possible for buyers to acquire a Florida home loan without a down payment. This made it easier for many in the middle or lower classes to afford a new house - but those days may be coming to an end.
The Internal Revenue Service (IRS) wants to close a loophole that has allowed hundreds of thousands of families to follow the aforementioned course of action. Could no money down Florida home loans be extinct in the near future?
The IRS ruled this month that nonprofit down-payment-assistance programs don’t qualify for tax exemptions if they transfer money from the seller to the buyer. In the last decade, these nonprofits have helped about 600,000 families buy homes without saving the three percent down payment that the Federal Housing Administration (FHA) requires.
Effect of this ruling on unique Florida home loans
Such a ruling could lead to the destruction or disruption of the down-payment-assistance industry. IRS examiners will use the ruling to decide whether to strip organizations of their tax-exemption statuses. Thus far, none have lost that status.
“I think it would have a huge effect on consumers, because this has been such a great tool for FHA home buyers,” says David Ahrens, president of Buyers Fund, a major nonprofit down-payment-assistance program.
As a result of this decision, Ahrens adds, the average first-time home buyer could be pushed into other Florida home loans, such as 80-20 products or interest-only loans, neither of which would be as advantageous.
Lenders require mortgage insurance on Florida home mortgage loans in which the buyer makes a down payment of less than 20 percent. Some borrowers avoid mortgage insurance by getting two loans (aka a “piggyback Florida home loan“) - one for 80 percent of the purchase price, and a second mortgage for up to 20 percent of the price.
The role of down payments with charities
Some companies will insure a mortgage for 100 percent of the home’s value - in other words, without a down payment. But the FHA requires a down payment of at least 3 percent. FHA Florida home loan borrowers tend to have flawed credit, and a lot of them have trouble saving the minimum down payment. That’s where nonprofit down-payment-assistance programs come in.
Unlike private mortgage insurers, the FHA allows borrowers to receive some or all of their down payment money in the form of gifts from family, government, employers or nonprofit organizations. The down payment can’t come directly from the seller. On the other hand, until recently, nothing prevented a nonprofit from giving a down payment to the buyer, and then immediately collecting the money from the seller.
The down-payment-assistance industry was born in the 1990s to exploit the loophole. The buyer and seller would agree to use a down payment program as a conduit for the money. Everyone won: The real estate agents got their commissions, the nonprofit got an administrative fee, the lender got a Florida home loan, the seller got the proceeds from the sale and the buyer got a house. In the last year, about 40 percent of FHA-insured loans included down-payment assistance.
Critics of these Florida home loan programs
Critics had concerns from the beginning. Those from the Department of Housing and Urban Development and the Government Accountability Office concluded that borrowers were more likely to end up falling behind on their monthly payments if they had accepted down payment money from sellers through nonprofits. They said some buyers ended up paying more than market value for their houses.
On May 4, the IRS stepped in with Revenue Ruling 2006-27, which says that a nonprofit which transfers down payment money from seller to buyer “is not operated exclusively for charitable purposes, and, consequently, does not qualify for exemption from federal income tax.”
The ruling sets forth guidelines that pin a target on nonprofit down-payment-assistance programs. Anticipating the ruling, a small player, Houston-based United American Housing and Education Foundation, announced that it was terminating its down payment program to take “a new direction.” Most nonprofits continue to operate because they still have tax-exempt status while the IRS examines them. Therefore, FHA mortgages do still exist at the moment.
If the IRS does revoke an organization’s tax-exempt status, the nonprofit may appeal administratively and in federal courts.
Ahrens says rhetoric that labels assistance programs as “scams” surprises him, because the Bush administration has placed so much importance on housing. The president wants 5.5 million minority households to become homeowners this decade. “And I think we’ve played a huge role in that,” Ahrens says. “They wanted the private sector to step up and provide some solutions, and I think we’ve done that.”
None of this bodes too well for those seeking affordable Florida home loans. The housing market will continue to favor the upper class if government assistance is terminated.
As you look to take out your first Florida home loan, you want to buy the best home you can afford. However, gathering the usual 15 to 20 percent of your purchase for a down payment can be challenging.
Here are a few tips from Lendingtree.com for pulling together the cash:
Take all of this advice into consideration. A Florida home loan is a significant investment, but it’s one you can afford if you follow the right steps.
A study released Tuesday says that 43 percent of first-time homebuyers purchased their homes with no down payments in 2005, which could spell serious trouble for some homebuyers. As the market cools, and mortgage rates rise, these no-money-down buyers could end up owing more than their homes are worth, according to the National Association of Realtors.
While the fate of real estate bubble varies, depending who’s doing the speculating, there may be ample risk on the horizon for this segment of new buyers. According to the latest U.S. Market Risk Index, released by PMI Mortgage Insurance, Inc., there’s at least a 50 percent risk that prices will decline 11 major metro areas — including the booming markets of Boston, San Diego, Long Island, N.Y., Los Angeles, and San Francisco — within the next two years.
“If we do get a spike in mortgage rates, and a modest decline (in the housing market) turns into a rout, there’s almost no bottom to that,” said Dean Baker of the Center for Economic and Policy Research. “If housing prices fall at least 10 percent, it could be even more damaging than the collapse of the high-tech stock bubble in 2000.”
For now, the National Association of Realtors remains calm, expressing little concern that so many first-time buyers put no money down. The group has said, on more than one occasion, that it expects the housing market to “return to a more normal rate of price growth” in 2006, and that while home sales may slip, they will not do so enough to damage the market. The group calls it “balance.” Homebuyers and sellers, though, may call it a deflating market.
GOING THE NO-MONEY-DOWN ROUTE
It’s hardly newsworthy that the biggest challenge for most first-time home buyers is saving up enough money for a down payment. In places like Manhattan and even portions of the South Florida real estate market, it’s darn near impossible. As housing prices easily run into the mid-six figures and beyond for even modest dwellings, non-traditional mortgages that cover 97 percent of a home’s value have grown immensely in popularity.
The Mortgage Bankers Association reports at least one-third of homeowners choose higher risk loans, which include no money down, interest only or minimum payment options. It is notable, however, that the standard, 30-year fixed rate mortgage remains the most popular choice of home buyers by a considerable margin.
Although they sound like a good deal for cash-strapped buyers, a low- or no-money-down mortgage can end up being expensive. Not only will your payments be higher than if you put at least some money down (based on the simple logic that you are borrowing more money), you will likely receive a higher interest rate on a loan with a tiny down payment. Rates vary, but may run half of a percentage point higher than a conventional loan, lenders say.
Lenders figure the odds are higher that you’ll walk away from the loan if you have almost no equity in your home, so you’ll also have to buy additional mortgage insurance. That usually adds between 0.5 percent and 0.75 percent on top of your interest rate, according to the Mortgage Insurance Companies of America. Bottom line? You want to think twice before going this route, especially if you are not even getting a fixed-rate loan. It sounds obvious, but the more of your own money you use as a down payment, the less you will actually have to borrow from a lender. Also, the more you put down, the lower the Florida home loan rates you receive are likely to be.
