April’s weather seemed to reflect the climate in the mortgage industry.
Within a matter of hours, we dodged pounding hail and basked in warm, sunny skies.
In like manner, more changes have come to lending guidelines while California has enacted new tax credits for homebuyers. Here is your “weather report.”
Federal Housing Administration loans with case numbers (ID numbers for appraisal requests) assigned after April 5 are subject to higher mortgage insurance premiums.
Prior to that date, a $200,000 mortgage had a surcharge of $3,500. After April 5, the amount became $4,500.
This expense is financed in the loan amount and translates to a mere $6 increase in the monthly payment.
The additional revenue to the federal government is designed to protect against default losses.
Conventional loans are experiencing further adjustments as well. Fannie Mae cautions homebuyers to avoid acquiring new debts prior to the acquisition of a home.
Lenders are expected to monitor and report any change in the obligations of prospective borrowers up to the date of closing.
Every seasoned loan officer has a horror story about the client who went out and bought a car while considering the purchase of a home.
With this added debt, the buyer could not qualify for a new mortgage and their hopes were dashed.
Now that Fannie Mae demands scrutiny of credit up to the day of closing, borrowers should consult with their loan officer before they go out shopping for that new dining room set.
May brings the advent of a new homebuyer tax credit, courtesy of the California legislature. For persons who have not owned a home for three years prior to the date of purchase, or those purchasing a home that has never been occupied, 5 percent of the sales price may be credited against their liability to the Franchise Tax Board.
This credit must be spread out equally over three years, and the maximum amount of the credit cannot exceed $10,000.
This credit only requires ownership and occupancy for two years from the date of purchase, but there are caveats.
The tax credit is only available for the purchase of a single family residence — attached housing qualifies, though condo financing can be problematic in the current environment.
The credit must be allocated to each owner, based on their percentage of ownership. As always, consult with a tax professional that is knowledgeable about these matters.
Purchases between family members are excluded. Mom and dad can’t sell their rental house so you can move in and claim the tax credit.
The total amount of credits is limited to $100 million for first-time buyers and $100 million for the purchase of brand new homes. From what I can interpret, no double-dipping is authorized. A first-time buyer purchasing a new home is not eligible for a $20,000 total credit.
Again, these matters should be discussed with a tax professional.
In summary, if you are an eligible first-time buyer who missed the cut-off for the federal tax credit — contracts had to be fully executed by April 30 — do not despair. Our frugal representatives in Sacramento are dipping in to the overflowing coffers of our state’s financial resources to bring you good cheer.
Drink hearty me lads, and don’t worry about the possibility of a hangover.
Or maybe you should.
David Ryland is the acknowledged dean of loan originators at Big Valley Mortgage in Roseville. He has 30 years of experience as a loan officer, manager, trainer and mentor. He can be reached at dryland@apmortgage.com.
