Request to Extend Affordable Mortgage Access

The Mortgage Bankers Association (MBA) has officially requested that the Federal Housing Finance Agency (FHFA) expand income eligibility for certain low down payment loan programs. FHFA regulates mortgage giants Fannie Mae and Freddie Mac. The MBA sent a letter to FHFA specifically requesting changes to the Home Ready and Home Possible loan programs.

Home Ready and Home Possible currently provide interest rate pricing discounts and mortgage insurance premium discounts for borrowers whose incomes are less than 80% of the Area Median Income (AMI) where the subject property is located. These discounts apply to home buyers whose credit scores are 680+ and who complete a free online home ownership course. Lender pricing typically adjusts interest rates higher for borrowers with lower credit scores and those who are financing condos using loan amounts greater than 75% of the condo’s value. For Home Ready and Home Possible borrowers, these credit score and condo pricing adjustments are eliminated. Making these programs even more powerful is the fact that the discounts apply to borrowers who can make only a 3% down payment.

Saving enough cash for a down payment is one of the greatest challenges that homebuyers can face. Providing these interest rate and mortgage insurance discounts for loans with only a 3% down payment is a powerful tool for homebuyers without alot of available cash.

In the letter to FHFA, MBA requested that the agency expand Home Ready / Home Possible eligibility to borrowers with incomes up to 100% of the subject property’s AMI. MBA also requested that the income threshold be eliminated completely in low-income census tracts. This change would encourage homebuyers to seek properties in low-income areas. MBA president and CEO Robert Broeksmit stated, “Raising the AMI limits to expand access to these programs would still be beneficial as there are key features of Home Ready and Home Possible loans, such as a 3% down payment, that make homeownership attainable for historically underserved borrowers.”

I think an increase is warranted. When you look at 80% of the average income in an area versus the average home price, it eliminates many borrowers from qualifying for these programs. For example, in DeKalb County, the Home Ready / Home Possible annual income limit is $76,560. Some first-time buyers may qualify to buy an average-priced home, if they have no additional debt, but it is tight. By allowing the amount to go to 100%, more borrowers would qualify to purchase the average home price in the market with some additional debt. This is important as most first-time home buyers are in the Millennial/Gen Z demographic. These generations have additional student loan debt that previous generations didn’t have. Raising the income threshold to 100% AGI isn’t about buying more home. It is allowing first-time home buyers to purchase the average home in their area while having some additional debt obligations. If these programs are intended to help first-time home buyers, then let’s help them.

For reasons covered in a recent Mortgage Blog post, now is a great time to buy a home. If you want to buy a home in Georgia, give me a call and we can quickly determine which discounts you can obtain, and then set you on a path to home ownership.

Home Prices Keep Rising

I have great news for current homeowners, the S&P CoreLogic Case-Shiller index showed that US home values increased at a 13.2% annual rate on average.  So homeowners continue building their wealth rapidly.  This was up from 12.0% in February. The biggest winners are in Phoenix, San Diego, and Seattle, where home price rose at 20.0%, 19.1%, and 18.3% respectively. Homeowners in the Atlanta realized increases of 11.2% annualized.  That ranks #17 out of the top 20 US metro areas.

While this news is great for current homeowners, it poses a challenge for homebuyers.  With prices rising and the intense competition for available homes, it’s even more difficult for homebuyers to win a contract.

Recent Mortgage Blog posts have covered techniques home buyers can use to win.  The strongest technique for buyers who need mortgage financing is to make offers without a financing contingency.

A Realtor recently explained to me that he now coaches his clients to make smaller down payments to keep more cash in reserve to cover potential appraisal shortfalls. Most houses Atlanta are now selling at prices higher than originally listed. But a high offer price, by itself, may not be attractive to sellers when mortgage financing is involved.

(Yes, I have used this cartoon recently, but I love the smiles on the sellers’ and their Realtor’s faces, so here it is again!!)

Here’s why, the mortgage LTV is calculated based on the lower of the contract purchase price or the appraised value.  If a home appraises for lower than the contract price, the mortgage amount will be based on the LTV using the lower appraised value, not the contract price.  An offer above the list price is not really convincing unless the buyer commits to cover any appraisal shortfall. And, in this rapidly appreciating market, it can be challenging for appraisal values to keep pace. The appraisers must look back in time to find comparable homes that have already closed. So appraisal values can lag market prices.

My Realtor friend has seen lower cash offers beat out higher financed offers when the financed offers did not include a commitment to cover an appraisal shortfall. So homebuyers with cash available to make larger (say 20%) down payments may want to plan to make 5% to 10% down payments and hold the remaining cash in reserve to cover a possible low appraisal. 

This type of environment is VERY challenging for homebuyers who can only afford a small down payment. Buyers with only enough cash to make 5% (or less) down payments have little room to cover appraisal shortfalls. My recommendation is this, talk with parents, grandparents, and in-laws about their ability and willingness to make cash gifts in the event of a low appraisal. Blood relatives can give home buyers cash for closing. This can be a great way to help young adults with little available cash actually win in this environment.

Do you know someone who wants to buy a home in Georgia? Are they uptight thinking about this crazy market? Please refer them to me. I’ll work carefully with them and do everything a lender can do to help them win the contract.

New homebuyer tax credit?

In an interesting development (more on that later), President-Elect Biden floated the idea of a $15,000 homebuyer tax credit. In theory, this would work similarly to the tax credits started during the Bush administration and continued into the Obama administration.

I say “in theory” because as of now, no one has any idea exactly how it would work.

• Will this need to be paid back (like with Bush’s) over a set number of years?
• Will the debt be forgiven (like with Obama’s)?
• When will the homebuyer receive it? For Bush/Obama, it was when federal income taxes were filed. Biden wants the credit to be made available at the time of closing.

Biden’s proposal, as explained on his website, is to: “Help families buy their first homes and build wealth by creating a new refundable, advanceable tax credit of up to $15,000. Biden’s new First Downpayment Tax Credit will help families offset the costs of home buying and help millions of families lay down roots for the first time.”

As firmer details emerge, The Mortgage Blog will cover them!

Now back to the “interesting development” comment from earlier. When Bush/Obama pushed forth the tax credit plans, it was to get the housing market going again. Coming off of the 2008 crash, the housing market was lackluster (and that is putting it mildly). Today, the housing market is booming. Throwing a home buyer tax credit on top of a heated market could make things even hotter and push housing prices even higher.

On the flip side, the down payment is one of the major factors preventing home ownership. Depending on how the credit is structured, this could be a way, as Biden says on his website, to help families offset some of the cost of home buying.

It will be exciting to see all of the details AND to see how things progress as the plan moves through Congress and the Senate. 2021 is going to be an interesting year for many, many reasons. Hopefully, more to come!

Here today…

The deadline for the tax credit is fast approaching.  If you haven’t started the process, don’t worry, there is still time!

Unlike the first go around, you do not have to be closed by the deadline — you only have to be under a binding contract by the end of April.  You then have 60 days (end of June) to complete the purchase.

Some quick points:

• First time home buyer (or not owned a home in 3+ years) tax credit of $8,000 extends through April 30, 2010.  Home must be under contract by that date and closed on or before June 30, 2010.
• A “moving up” tax credit of $6,500 is available for current home owners buying a new primary residence.  To qualify, home owners moving up must have lived in their current residence for 5+ years as of the date of the binding contract to buy the new home.

If you have ever thought about buying a home (and are interested in $8,000 of free money from the U.S. Government), it isn’t too late to get started.

The tax credits are here today, but won’t be for much longer.