KMG Blog

Idaho Business Review call on little 'ole me!

Yesterday I received a call from Dani Grigg, Staff Writer and Reporter for the Idaho Business Review.  She was asking my opinion on the $8000 tax credit that is now available to first-time home buyers with the recent passage of the "American Recovery and Reinvestment Act."

I was happy to oblige.  But, first, some background:

In 2008, the Bush Administration passed the "Housing and Economic Recovery Act of 2008" which included, among other things, a $7500 tax credit for first-time home buyers.  However, the $7500 was not a tax credit in the true sense of the word, but a no-interest loan to be paid back to the Federal government.  When word got out about how this "loan" was to work, excitement about it fizzled almost over night.

This week, however, President Obama has signed the "American Recovery and Reinvestment Act" which includes an $8000 (or 10% of home value, which ever is LESS) tax credit for first-time home buyers.  All of my research regarding the issue gives me every reason to believe that this is a tax credit in the true sense of the word.

How?

According to CnnMoney.com:

"I will qualify as a first-time home buyer, and I am currently set to get a small tax refund for 2008. Does that mean if I purchased now that I would get an extra $8,000 added on top of my current refund?"

The short answer? Yes, Billings would get back the $8,000 plus what he'd overpaid. The long answer? It depends. Here are three scenarios:

Scenario 1:
Your final tax liability is normally $6,000. You've had taxes withheld from every paycheck and at the end of the year you've paid Uncle Sam $6,000. Since you've already paid him all you owe, you get the entire $8,000 tax credit as a refund check.

Scenario 2:
Your final tax liability is $6,000, but you've overpaid by $1,000 through your payroll withholding. Normally you would get a $1,000 refund check. In this scenario, you get $9,000, the $8,000 credit plus the $1,000 you overpaid.

Scenario 3:
Your final tax liability is $6,000, but you've underpaid through your payroll withholding by $1,000. Normally, you would have to write the IRS a $1,000 check. This time, the first $1,000 of the tax credit pays your bill, and you get the remaining $7,000 as a refund.

To read full article, CLICK HERE.

How do you qualify for this new tax credit?

• Purchase a home any time between Jan 1, 2009 and November 30, 2009.
• Have not owned a home in the previous 3 years.
• Income limitations: $75,000 per year for Single filer, $150,000 per year for Married filers.  (Even though partial credits may be given for individuals and married couples with higher income).
• File it on your tax return.

So, what's my opinion?

I am glad to see that, unlike the previous measure passed, this is REAL money into the pockets of home buyers.  They can choose to do with it what they want: make improvements to their home, re-invest, spend, pay bills, you name it.

And, even though the measure is supposed to make buying a home more attractive, I feel it's impact will be delayed, at best.

1 - Home buyers won't see this money until AFTER they have purchased a home.

2 - It does NOTHING to assist those individuals with down payment or closing costs.

3 - And, with underwriting guidelines getting more strict, 0% down loans are becoming a thing of the past - with the rare exception of USDA and VA loans, and maybe FHA loans with down payment grants.  And, with several states tightening their purse strings, even down payment grants (though not impossible) are tougher to get.

So, my regard toward this measure is luke-warm at best.  I hope that it will create a catalyst of interest in buying a home for those who show interest, but I'll have to wait and see.

Best regards!

Keep Your Goals in Mind When Refinancing!
Don't be taken advantage of by an "Eager Beaver" Loan Officer.

I attended a Wine, Women and Wealth meeting last Tuesday night and the topic was mortgages.  My friend and colleague, Erin Zasada (Financial Advisor at Wachovia/Wells Fargo) gave me the floor.  Yikes!

Normally I would be all over the topic and ready and willing to give pointers and help in any way I can, but with the current economic climate, people are filled with worry and doubt.  To my pleasant surprise, the ladies had a mountain of questions and it was a great time to re-enforce the positive, dispel the negative, reflect on the what's happening in today's market and, of course, drink some wine ;)

One question, which I love to get, was "How can I pay down my mortgage?  I have a 30 year and want to pay it off in 15 years."

After corresponding via e-mail over the last few days, this is what I was able to outline for her:

Current rate on 30 year fixed:	6.250%
Current Principal and Interest Payment:	$1,650.13
Additional Principal Needed to cut loan to 15 years:	$647.76 per month!
TOTAL payment needed to cut loan to 15 year: (excluding taxes & insurance)	$2,297.89
Savings, if she were able to make additional payment each and EVERY month:	$297,023.40

Now, in interest of full disclosure, I am in the mortgage business.  I wanted to see if I was able, at all, to assist her in achieving her goals and earn a paycheck at the same time.  I was able to come up with the following (it's a 2 step plan, only one involving me):

* * * * * * *

The Action Plan - Refinance into new 30 year, Fixed rate (Step 1):

New Interest Rate:	5.125%
New Principal Balance:	$270,000.00
New Principal & Interest Payment:	$1,470.12

* * * * * * *

The Action Plan - Increase her monthly payment (Step 2):

Payment she will make:	$1,650.13 (what she pays now)	$1,700.13 (what she pays now + $50)
Term reduced by:	78 months	93 months
Total savings over life of loan:	$128,710.14	$153,462.09

* * * * * * *

Now, if she wanted to take this new loan and pay it off in 15 years, the payment she would need to make would be just shy of the payment she would need to make with the loan she has now.  So, it would be a waste of her time and resources to refinance.  So, I called her and asked what her "real" goal was:

1. to pay the loan down in 15 years?
2. to save some money in the long run (albeit not as much as the chart above clearly shows), but leave her payment where it is now?

She agreed that, although it would be nice pay her house off in 15 years, making an additional $647.76 each and every month is out of the question.  She was happy with the options I laid out for her and we are closing her loan in a couple of weeks.

So, remember that when you are refinancing, you need to keep your REAL goal(s) in mind.  It may not be possible to do everything you want, but by using a professional who has the same goals in mind, you are ahead of the game.

If you want an honest assessment of whether refinancing is a good option for you, please give us a call at KMG Mortgage Group.  We will be happy to assist you, even if it means we don't close on a loan for you.

Best regards!

Avoiding Frustration!
How to Read a Good Faith Estimate:
It's more than just a list of fees!

Welcome to "Part 2" in this series.  If you have not had the chance to read the first installment, I would encourage you to do so - CLICK HERE (opens new window).  It is a short entry and shouldn't take you long at all, but may add to your knowledge and help you tremendously.

As I have stated numerous times, the Good Faith Estimate (or G.F.E., for short) is an important document that comes at the beginning of the loan application process.  By law, once you make loan application, your Mortgage Professional has up to 3 days (excluding Sundays and Nationally recognized Bank holidays) to provide you with a GFE.  They can do this by giving it to you in person (preferably at the time you make application - KMG Mortgage Group's preferred method), by mail, by fax, or by e-mail.

* Note: Even though there is nothing in the laws of Idaho or Washington that prevent a Mortgage Broker from sending the GFE via e-mail, I caution against it due to its "less than" reliability and security.

* * * * * * *

In this installment, we will address the following sections:

• Section 1100: TITLE CHARGES
• Section 1200: GOVERNMENT RECORDING & TRANSFER CHARGES
• Section 1300: ADDITIONAL SETTLEMENT CHARGES.

All these sections are third party fees and DO NOT depend on the Mortgage Broker you have chosen.
  

* * Let me reiterate this point! * * If you are shopping a loan, and the fees in this section are different between Mortgage Broker "A" and Mortgage Broker "B" - it is not because they will make money off these fees. The fees might be different simply because Mortgage Broker "A" knows what the fees are and Mortgage Broker "B" is guessing - though they would NEVER admit it.

* * * * * * *

If, at any point, you find yourself wanting to know the definition of a particular word, please feel free to visit our Real Estate Glossary.

Okay, let's get started...  But first, here's another look at the GFE (the sections we are addressing in this post are identified in the red box below):

Section 1100: TITLE CHARGES

1101: Closing or Escrow Fee - In Idaho and Washington loans are typically closed by a third party - either a Title Company or Escrow Company (could be the same entity).  This is the fee they charge to close your loan transaction and sign your loan documents.

1105: Document Preparation Fee - Some closing agents will charge a fee to prepare your loan documents.  I don't typically see this fee in Idaho or Washington.

1106: Notary Fees - Some of your loan documents will require that a Notary witness your signature.  Some Notaries charge a fee, some do not.  I only see this fee when a borrower, for one reason or another, cannot make it to the closing agent and the closing agent has to go to the borrower.

1107: Attorney Fees - Some jurisdictions require that an attorney be present at the closing table, some others require that an attorney oversee the closing process.  This varies on city/county/state.  I don't usually see this fee in Idaho or Washington.

1108 - Title Insurance - Title insurance is to make certain that the title to the land/property in question is clear.

• Lender Policy:  In a purchase transaction, what the borrower (buyer) pays to protect the lender.
• Owner's Policy:  In a purchase transaction, what the seller pays to protect the buyer.
• In a refinance transaction, the homeowner pays for both policies.

* Note: You may ask, "Why do I need title insurance?"  That is a good question, one I will address in a later blog entry.  Beside the fact that if you are obtaining financing, your lender will require that you obtain title insurance.  For now, however, please read what my friends at North Idaho Title have to say on the matter.

Blank Lines:   There may be other fees associated to closing your loan.  If there are items listed on these lines, ask your Mortgage Professional what they are for.  But, please remember, these are 3rd party fees and may not be negotiable.

Section 1200: GOVERNMENT RECORDING & TRANSFER CHARGES

1201: Recording Fees - Every Deed of Trust is public record and, as such, must be recorded with the local jurisdiction.  In Kootenai County, this is $3.00 per page.

1202: City/County Tax/Stamps - Some cities and counties may charge for these fees.

1203: State Tax/Stamps - Some states may charge for these fees.

Blank Lines:  Again, there may be other fees associated to closing your loan.  If there are items listed on these lines, ask your Mortgage Professional what they are for.  But, please remember, these are 3rd party fees and may not be negotiable.

Section 1300: ADDITIONAL SETTLEMENT CHARGES

1302: Pest Inspection - Some jurisdictions require a pest inspection which may include (but is certainly not limited to) a termite inspection.  I don't typically see this fee in Idaho or Washington.

Blank Lines:  Again, there may be other fees associated to closing your loan.  If there are items listed on these lines, ask your Mortgage Professional what they are for.  But, please remember, these are 3rd party fees and may not be negotiable.

To learn more, please stay tuned for future installments of this series.

Avoiding Frustration!
How to Read a Good Faith Estimate:
It's more than just a list of fees!

You would think that, with such an important document, that there would be better instructions on how to read (and understand) a Good Faith Estimate.  And, though it seems rather up-front and self-explanatory, you can get yourself into a lot of hot water if you are shopping lenders and don't know what you're looking at.

Not understanding it fully could cost you hundreds, if not thousands, of dollars.

But, before we begin, it is worth mentioning that interest rates change daily - sometimes several times in one day.  If you really want to do yourself justice and shop for the best rate and fees, you need to do it on the same day.

Otherwise, you could be comparing apples to oranges.

** NOTE: If you pressed for time and have to shop lenders on different days, please give the other mortgage professionals a courtesy call.  Rates might have changed for the better and they can now match or BEAT that "great rate" you found. **

In this installment, we will address Section 800: ITEMS PAYABLE IN CONNECTION WITH LOAN.  This section, truly, is the only section your Mortgage Professional has any control over.  If you want to know why your Mortgage Professional doesn't have control over the other sections, you'll just have to come back for my future installments.

Let's break it down:

Section 800: ITEMS PAYABLE IN CONNECTION WITH LOAN

801: Loan Origination Fee - What your Mortgage Professional is charging you to do the loan.

802: Loan Discount - What you are being charged for your interest rate (should ONLY be present if you are getting a rate LOWER than what is being offered by the market).  Read this blog entry (opens new window) to determine if you should pay points.

803: Appraisal Fee - Third party fee to assess the value of the property

804: Credit Report -The charge associated to pulling your credit report.  Contrary to popular belief, this is a third party fee.

805: Lender's Inspection Fee - What a lender will charge you if they must physically go to the property to inspect it.

808: Mortgage Broker Fee - If you are working with a Mortgage Broker, this is where their "Origination" fee should be.  In the states of Idaho and Washington, it is ILLEGAL for a Mortgage Broker to put their fee on line 801.  They MUST put it on line 808.  Why?  Politics.

* Note: you should NEVER see a fee on line 801 and 808 at the same time!!!!

809: Tax Related Service Fee - I have seen this line debated and debated.  I have found two main reasons for this fee: 

1 - Your lender is charging you a fee in order to pay your taxes;

2 - Your lender is paying a 3rd party company to monitor the taxes on your property to make certain the amount and, in the event you decide to pay your taxes yourself, to make certain they are being paid in order to avoid a tax lien (one of the very few items which will take a lender out of first position).

810: Processing Fee - In some cases, your Mortgage Professional might use a 3rd party Loan Processor to process your loan and paperwork.

811: Underwriting Fee - Usually this fee is reserved for 3rd party underwriters.  For example, your loan requires Private Mortgage Insurance and your lender sends it to the PMI company to underwrite your loan.

812: Wire Transfer Fee - Some lenders charge a fee to wire the loan funds to the title company or attorney office where you close your loan.

Blank lines:  There are other miscellaneous fees that can be associated to getting a loan.  If there is something typed on these lines, ask your Mortgage Professional what they are for and if they are negotiable.

To learn more, please stay tuned for future installments of this series.