Rent Versus Buy Debate Revisited

Buy a house now! Keep renting - Wait out the market!


How many times have you read a similar article about the pros and cons of buying a home versus renting. Of course, there are many points on each side of the debate that are very valid. Each point must also be evaluated by the audience on the merits to their own particular circumstances. 


The attached document shows graphically where the numbers fall. It is based on the following variables: FHA 30 year fixed rate purchase loan, credit score of 640 minimum, normal property taxes and homeowners' insurance, property appreciation & rent increases of 2% per year. Most people stay in their homes 5 years but the longer term benefits after 12 years are also illustrated. 


Even though the monthly payment of $919 is more than the expense of renting at $800, the amount of monthly expense is lower when buying when factoring in the tax deductibility of mortgage interest, mortgage insurance, and real estate taxes. Further, since the principal amount of your payment is actually going toward your equity, the net amount of your monthly housing expense is even less.


The home price used in the example of $125,000 would actually rent in a range of $1000 to $1200 per month. See? You can buy more house than you are renting now and do it for less money!


Most home prices in Oklahoma have remained very stable throughout the burst of the bubble in most of the rest of the country. There are some bargains out there and you should engage a REALTOR® to help you find those bargains.


But before seeking help finding a home, you need to find out how much you can afford. This leads to the best bargain in housing today. Rates continue to be at historic lows, and I will write in an upcoming post about the potential cost of waiting out the real estate market for the lowest home price possible.


Every person's situation is unique. As much as we would like things to be cut-and-dried, I can't recommend anything to any prospective buyer without first having some conversation about your needs, your goals and your circumstances.


Call today to get your self on the Path2Buy your new home.


Tim Epps
Sr. Loan Officer
Fairway Independent Mortgage Corp
918-528-4010
tim@myfairway.net

$8000 First Time Home Buyer Tax Credit for FHA Down Payment? NO (and maybe)

Much has been written and Tweeted about the US Department of Housing and Urban Development allowing the use of the $8000 First Time Home Buyer Tax Credit as down payment on a new home. First, HUD said yes. Then, HUD said no. Now, HUD says maybe. Mortgagee Letter 09-15 which was released and then rescinded has now been revised & re-released. Despite fairly clear language in ML 09-15 (below - emphasis mine) there are still many that mis-understand and mis-report.

• Pursuant to 12 U.S.C. 1709(b)(9), the homebuyer’s downpayment required for eligibility for FHA insurance may not consist of any funds (including funds derived from a sale of the homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity). Accordingly, the proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs.

IF a buyer is eligible for the credit, and IF there is a lender (or agency) available to do so, buyers can use their tax credit as collateral on an additional loan over and above their FHA mortgage to pay some of their closing costs, pre-paids, points for lowering rate, or down payment IF they are putting down the minimum required 3.5% down payment without those funds. Bottom Line - you MUST still have the 3.5% down payment from funds outside of the tax credit.

Your 3.5% down payment can come from savings, gift from relative or employer, your 401k/IRA, etc. Any use of the tax credit at the time of closing can go toward down payment over the 3.5% minimum ONLY.

The use of the tax credit at closing is as collateral on a loan to help you with costs. However, just because HUD has allowed this on FHA loans does not mean that you will be able to find a lender or agency in your area that will assist with this. As of now, there are precious few opportunities to accomplish this. No one in Oklahoma has announced their participation to date. Also, the major national lenders have yet to release their guidelines for underwriting FHA loans with these secondary liens included.

How then can a First Time Homebuyer use this credit to their advantage? There are many ways - savings, emergency fund, home repairs/renovations, etc. For most buyers, the last resort should be using it in getting an additional loan to help with closing.

Speak to a Mortgage Professional about your specific conditions, needs and goals. Have a conversation - do not be sold. Get the RIGHT loan for YOU.

Tim Epps

918-528-4010

Tim@MyFairway.Net

Broken News! Call a Mortgage Professional to Discuss Your Down Payment Options

Yesterday, Shaun Donovan, the Secretary of Housing & Urban Development (HUD) announced at the morning session of a meeting of the National Association of Realtors (NAR) that HUD intended to allow the use of the First-Time Homebuyer Tax Credit as collateral on a bridge loan to assist borrowers with the 3.5% down payment required for an FHA loan and any closing costs. This was also posted on HUD's website Monday night in Mortgagee Letter 09-15. That posting has since been rescinded and pulled.

Why was this pulled? Because HUD had not fully prepared for this. Thank goodness they did not allow you to print coupons for it. Think if this had been announced on Oprah, and she had said to go to www.unthinkFHA.com? Well, this has happened to an extent.

Many Realtors, home builders, (and even some Mortgage Professionals) who have an active blog or Twitter account, have been shouting from their virtual rooftops that this is now available to First Time Home Buyers. IT IS NOT!!!!! It never was! I waited to post or tweet about this because it is too easy to get expectations built too high without the facts to support them. Secretary Donovan delivered the announcement in a prepared statement so it cannot be said that it was an idle comment by the Secretary. And, the Mortgagee Letter 09-15 was posted for awhile on the HUD website exhibiting that they had full intention of carrying this out. However, many things were not yet in place to allow this to happen at this time. Who would underwrite and fund the bridge loans? Will the IRS allow assignment of the tax credit to a third party?

The moral of this story? Be wary of "Breaking News" in real estate. Seek advice on property matters from your Realtor. A proper Mortgage Professional will always refer you to your Real Estate Professional for advice on selection, pricing, negotiation, etc. But, at the risk of upsetting my Realtor friends, partners and future partners, please seek advice on real estate financing from your Mortgage Professional. There is a vast array of programs and terms to suit prospective homeowners. These programs and guidelines change every day. Rate sheets have a life span of less than 6 hours in today's market. There are many down payment options from no-down and low-down to all you care to put down. This never-even-official program was not the only way to go. Allow your Mortgage Professional to prepare for you the best package of rate and term to meet your situation and desires. Allow your Realtor to find you the best home at the best price to you meet your situation and desires.

My role is to work as a teammate in the purchase of your home. I may post here about home values in our market. I do so, not as an appraiser or Realtor, but as an active participant in the real estate profession and to help Oklahomans understand that much of the national news about home values does not affect us here. National news affects lending guidelines for local buyers but not local values. I will NOT advise a client on the proper price to pay for a home (or to sell it for). I WILL advise them on the amount they can be approved for and how to pay for it. I will NOT advise a client on where to buy a home. I WILL advise them on what loan programs may be available in certain areas. Additionally, although I am knowledgeable on the First Time Home Buyer tax credit and other tax advantages of home ownership, I will NOT attempt to replace their current trusted tax professional or give specific advice on my clients' situation. I WILL link to IRS Form 5405 for reference and convenience.

If I can help you (buyers, Realtors, sellers - you will need approval for a new home), please let me know. It would be my pleasure to serve you with sound advice and not hype.

Tim Epps

918-528-4010

Tim@MyFairway.Net