IMPROVING HOUSING MARKET: Low inventory of homes available for sale and current low mortgage interest rates have created a Seller's Market in the Bay Area along with markets across the nation. Does this surprise you? It is difficult to sift through the grab bag of reports in the media but there are cues the housing market is recovering.
WATCH THE BUILDERS! Builders are a smart bunch and understand the trends in housing as well as anyone. Housing Starts surged 15% in September to its fastest pace in more than four years signaling the housing sector's recovery is gaining some momentum. Starts grew by 872,000 units on an annualized basis, well above the 768,000 expected. Building Permits, a sign of future construction, increased by more than 11% to 894,000 units annualized, above the 815,000 expected. (Source: The Commerce Department)
This is very positive new; low rates are clearly helping housing. If you think inflation will only go higher from here, buying a home at current interest rates really makes sense. Remember housing is a wonderful hedge against inflation behind commodities like Gold. If you are considering selling your home or are waiting to refinance when values come back, you may be close to your goal.
PREPLAN YOUR NEXT HOME LOAN. You may have heard that getting a mortgage is more challenging than any time in the past but every day borrowers are benefiting from the lowest interest rates in decades. If I am able to meet with prospective buyers when they first start thinking about buying a home, we can develop a game plan and avoid common financing challenges before they are a problem. Are you sitting with a mortgage well above the market and frustrated that you cannot refinance? Let's think outside the box and explore options you may not have considered.
Over the decades, mortgage companies have found that non-owner occupied (i.e., rentals, or second homes) are riskier than owner occupied homes: people need a roof over their heads, but not necessarily that 2nd home in Truckee. So the rate or price will be worse for a non-owner loan.
But what happens when a borrower has an owner-occupied loan and decides to rent it out later – does he or she need an entirely new loan? When a Landmark borrower signs loan documents for your primary residence there is a certification of occupancy form whereby you affirm that the property will be your primary residence. It includes language regarding loan fraud, loan may be called due and payable, etc., if you affirm your intention to occupy and do not occupy the property. The key is the "intent to occupy."
But circumstances change, as do housing needs. If you have lived in your home for several years then you have fulfilled the intent to occupy the home and yes, you can move out of your home at a later time and use it as a rental/income property and you do not need to obtain a new non-owner occupied loan.
If you are refinancing your current residence and fully intend to purchase a new home in the near term future then it is strongly advised that your refinance be with a non-owner occupied loan. Some borrowers make the mistake of finding another home when they're in the middle of refinancing the first home as an owner-occupied home! Obviously lenders, not only Landmark, cannot have two owner occupied loans going simultaneously, or one on top of the other, with the same client-obviously one is an investment property and must be declared as such. The only exception to this would be if it is evident and a case can be made the new home will be a second or vacation home.
To sum things up: must you live in your home for the duration of your owner-occupied mortgage? No. Must you intend and fulfill the intent to live in your home with an owner-occupied mortgage? Yes. But for how long? There is no exact answer to that question, as it may come down to your ability to argue your intent and/or show a change of circumstance, but plan on at least several months – ask your Landmark Advisor if you have questions.
There aren't too many scheduled market moving numbers this week in the United States. Rates are steady.
However watch in the months to come:
In "the old days," Fannie and Freddie would bring out the new limits on the weekend after Thanksgiving. But things became fuzzy when a temporary increase in the Conforming Loan Limits for high-cost areas of living was incorporated into the 2008 economic stimulus package to $729,750. Then it got lowered to $625,500. So at this point, the $417,000 limit applies across most of the country. But in areas with high home values (I believe 250 counties), the government increased those limits ($625,500).
So look for a change in November, although it will impact very few areas of the country, but what about us?
More FNMA underwriting changes coming Oct 20th. Yes things are still getting a bit tighter ... grrrrr.
One thing that really could have a big impact is Basel III. Many groups believe that Basel III's proposed changes to required capital by banks would be a big setback for the mortgage industry, and in turn real estate values. (Basel III mandates banks to shore up capital to meet tighter requirements, either by raising more capital or rationalizing their lending portfolios).
Last but not least. ELECTI0NS are less than 30 days away... I wonder what that has in store for us...
In 2007 Congress passed, and then President Bush signed, legislation that would exempt in certain circumstances homeowners who went through foreclosure, short-sale or loan modifications that resulted in unpaid principal balances to the lender from being tax liabilities to the homeowners. For example if you owe $400,000 on your loan and the lender agreed to modify your outstanding balance to $300,000 in some circumstances the amount written off by the lender, $100,000, would be subject to tax under the IRS guidelines for debt forgiveness. Essentially treating the forgiveness of the debt as income.
Why does Landmark Mortgage mention this? Because the law comes to an end at the end of this year, and given Congress' apparent inability to act, experts are asking, "What will happen if Congress does not extend the Mortgage Forgiveness Debt Relief Act?" My guess is that we will see fewer foreclosures and short sales due to homeowners thinking twice about incurring a large tax liability on a home they no longer own.
Many people are being told they need to have their home foreclosed upon, or complete a short-sale, before the end of the year to qualify for the Debt Relief Act. We believe that this is dangerous for many homeowners who may follow this advice because not everyone is exempt from taxes on forgiven debt and some homeowners who do proceed with a foreclosure proceeding or short sale may find themselves still subject to a tax.
Qualified mortgages for the Act are only those loans on primary residences that were used to purchase the home, refinance the original purchase mortgage, or any refinance in which equity was taken out of the property (i.e. "cash-out refinance") that can be proven to have been used to improve the property. If you purchased a home for $400,000 and obtained a $320,000 mortgage at the time of purchase and later refinanced for $500,000 and spent the $200,000 on a boat, car, paying off credit card debt and a trip to Australia, this loan per the IRS website is not eligible for a tax exemption under the Mortgage Forgiveness Debt Relief Act of 2007.
Before making any decision to undergo foreclosure proceedings, short-sale or principal modification on your mortgage, check with your Landmark Advisor, who may suggest that you professional advice from a CPA or tax professional. Making the wrong decision could put you in considerable debt to the IRS.
Landmark Mortgage Group is a division of Opes Advisors and licensed by the CA Dept. of Real Estate, Real Estate Broker license 01458652 and NMLS 235584. Equal Opportunity Lender.