September 2009

FHA Changes Rules On Condo Financing

September 8, 2009 by admin · Leave a Comment 

In a move designed to shift risk from the US Department of Housing and Urban Development (HUD) to lenders, the Federal Housing Administration (FHA) is changing the way condominiums are financed. FHA has issued new guidelines for lenders underwriting loans secured by any unit located in a condominium project. Effective October 1st, lenders will be required to review project documentation and determine if the project meets eligibility requirements. (See HUD Mortgage Letter 2009-19 for more details.) Previously, HUD maintained a list of approved condo projects, which streamlined the underwriting process for lenders. However, the struggling condo market led HUD to suspend the use of an approved project list, thereby forcing lenders to perform due diligence on each condo project that is presented for approval. Preliminary response from lenders has been guarded. The mortgage industry has transformed into a risk-averse operation, with lenders abandoning potentially hazardous loans in favor of safe, high-performing products that can be sold to Fannie Mae, Freddie Mac, or FHA. Erroneously approving a condo project can expose a lender to significant financial penalties. As a result, lenders are opting to manage this risk by electing not to accept FHA loan applications for condominiums. As the October 1st deadline approaches, expect to see a flurry of announcements by lenders as to their position on this matter. FHA financing has long been the loan of choice for many first-time home buyers due to its relaxed underwriting guidelines (compared to those of Fannie Mae or Freddie Mac, the two main sources for conventional financing). Since much of the current home sale activity is attributed to the first-time home buyer, this announcement by HUD comes at a precarious time as the housing sector struggles to recover. However, HUD must take steps to mitigate their growing losses, and curbing the risks associated with condo financing is a start.

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5 Things to Know About the First-Time Home Buyer Tax Credit

September 2, 2009 by admin · Leave a Comment 

The $787 billion stimulus bill that President Barack Obama signed into law includes a measure designed to help revive the real estate market. Here are five things you should know about the recently enacted $8,000 first-time home buyer tax credit.

1. $8,000 for new buyers: This tax credit is equivalent to 10 percent of the purchase price of the home with a maximum credit of $8,000.  This credit applies only to first time home buyers and principal residences.  Unlike the $7,500 home buyer tax credit from 2008, this one does not have to be repaid.

2. Definition of a first time buyer: For the purpose of this legislation, a “first-time home buyer” is someone who hasn’t owned a principal residence for three years before buying a house. (The date of purchase is considered the day that the title is transferred.) That means if you’ve owned a vacation home, but not a principal residence, within the last 3 years, you would still qualify for the credit.

3. 2009 buyers only: Only those who purchase on or after January 1,2009 and before December 1, 2009 are eligible for this credit. Anyone who bought a home in 2008 will not be able to take advantage of it.

4. Income limits: The tax credit is subject to income limitations. Single buyers need a modified adjusted gross income of $75,000 or less to qualify for the full credit.  For married couples, it is $150,000 or less. Those earning more than these thresholds may be eligible for reduced credits.

5. Recapture: Buyers have to own the home for at least three years in order to capitalize on the credit. If they sell the home before then, they will have to return the credit to the government. (Exceptions will be made in certain cases, such as death or divorce.)

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