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What the Rate will be after the Fed Stop Buying MBS?

March 3, 2010 by

I mentioned a few times in my newsletter that the Fed will stop buying mortgage backed Securities (MBS) after their last committed buying in March. 

The Fed is right now the biggest investor in this market and this is the main reason that the mortgage rates are kept low. The big question is what the mortgage rate will look like after the Fed pulling back on buying MBS and how high the rate will go without the Fed support. Will private capital comes in to support this market?

In the National Association of Mortgage Broker conference held earlier this week in Washington D.C., the FHA Commissioner David Stevens shed lights on this issue. 

The Commissioner said it will be the first test of just how sick the market actually is. If private capital comes in, it is obviously a good sign. If prices rose by .25 to .375, it would indicate some market viability and would be tolerable in his mind. More than that and the government would need to step back in which he said it would. “We need to instill confidence in global investors. Cleaning up our industry, and demonstrating quality is how we do that.”

So be prepared for a rise in interest rate by 0.25 to 0.375. On the positive side, even with this rise, the 30 year fixed rate should still be around 5.5% level, which remains a good rate historically speaking.

If you want to lock in a lower rate before it goes up, call me immediately.

Filed Under: Mortgage Rate Tagged With: ,

Three Key IRS Requirements Buyers Need to Know to Receive Federal Housing Tax Credits

February 24, 2010 by
You bought the house. You passed eligibility test for Federal tax credit for either first-time buyers or repeated buyers. Now you are asking, how can I get the money from IRS? Below are the top three things you need to know:
  • To receive the tax credit, home buyers must comply with the IRS’s documentation requirements, including a fully executed IRS Form 5405.  On the form, which is available on the IRS’s Web site, taxpayers provide information supporting their claim of eligibility, such as income and home purchase date.
  • The IRS also requires home buyers to submit a copy of the closing or settlement statement that proves the transaction took place.  The IRS previously said that the statement should show “all parties’ names and signatures, property address, sales price, and date of purchase.”  However, since closing or settlement statements vary by state, and in some cases the form does not include both the seller’s and buyer’s signatures, the IRS has revised this requirement.  As long as the closing or settlement statement conforms to prevailing local practices, the IRS will accept it.
  • One stipulation for repeat buyers is they must provide documentation they lived in their former property for a consecutive five years out of the previous eight years.  Accepted documentation may includeproperty tax records, hazard insurance records, or copies of annual mortgage interest statements filed with their federal taxes.
Filed Under: Real Estate Knowledge Tagged With:

Impact to Buyer When the Appraisal Aalue is Lower Than the Purchase Price

February 14, 2010 by
What will be the impact if the appraisal value is lower than the purchase price I offered?
Whent the market is in an upward direction or you are competing with other bids for a house, it happens from time to time that the appraisal value ends up lower than the purchase price you offered. It’s also because appraisaer are more conservative nowadays while they are facing much more scutiny from the lenders.
 
In this case, if your down payment is high, you do not need to add more money to your down payment. The impact is mainly the paper loss of your equity. However, if your down payment is 20% of the purchase price, you will need to add more money to your down payment.
 
For example, your accepted offer price is 600,000. The appraisal value came out at 580,000. 
 
Scenario one: You pay 30% down payment of the offer price with a loan amount of 420,000. With an appraisal value of 580,000, your paper equity percentage became 28% (1-420,000/580,000=28%). Your lost 2% equity in paper. However, it does not impact you to get the same interest rate for your loan and no additional funds is needed.
 
Scenario two. You pay 20% down payment of the offer price. In this case, your loan amount will be 480000. With an appraisal value of 580,000,  your paper equity percentage became 17% (1-480,000/580,000=17%). You lost 3% equity in paper. In addition, it will impact your loan. You will either add addtional 16,000 dollars to bring the equity percentage to 20% or you will need to pay a mortgage insurnce given that your equity is now 17%.
Filed Under: Real Estate Knowledge Tagged With: , ,
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