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Texas Mortgage & Real Estate Thoughts

Why Are You Not More Involved With Your Credit?

March 23rd, 2009 12:44 AM

http://personalmoneystore.com/moneyblog/2009/01/07/credit-part-iii-your-payday-loan-source-shows-how-to-obtain-and-review-your-credit-report/

It’s no secret that your credit score plays a major role in being approved or denied for a loan. Over the past 2 weeks, I have spoken with about 6 customers that are looking to purchase or refinance due to the great mortgage rates available today. In most of the cases, the customer has no clue what I’ll find when I pull their credit report. I tend to ask a LOT of questions to get an idea of someone’s score without pulling the credit (helps with the number of inquiries on your report). If the customer has no clue and has not purchased anything in quite some time, it makes it harder for someone like me to guestimate the scores and provide an accurate Good Faith Estimate.

Don’t get me wrong, I understand when someone does not know the exact score. I am referring to anyone who has never looked or taken an interest until the day they decide to refinance or purchase a home. Not just a home, but any major purchase where financing may be needed. Back in October, I wrote a few posts about Credit Scores, what to look for, and how to improve them. Within those posts, I talked about what to look for and how to address issues, but I never really talked about who you could contact for a free credit report. Below should help with your research.

Ultimately, if you are thinking about making a large purchase, you may need to be eligible for a loan. The Fair Credit Reporting Act (FCRA) was amended to require each credit reporting agency (Equifax, Experian, and TransUnion) to provide a credit report to you each year, at your request, completely free of charge.

How do you get the free credit report? The three credit reporting agencies have set up one central website, toll-free telephone number, and mailing address through which you can order your free annual report.

One the web: www.annualcreditreport.com

Telephone: 877-322-8228

Mail in the Annual Credit Report Request Form to:

Annual Credit Report Request Service

P.O. Box 105281

Atlanta, GA 30348-5281

Once you receive your report, call a local Credit Counselor to review it with you and offer assistance. You may also be able to have a local Loan Officer review the report with you and offer suggestions. Please note that Loan Officers review credit reports in detail and can offer suggestions, but they are not the experts. For serious delinquencies, contact a Professional Credit Counselor because they are familiar with credit laws & guidelines. Somethings can be removed where as others need specific attention.

I hope that you have found this information useful. Have a question or concern about your credit? Feel free to contact me and I’ll be happy to assist and/or direct you to a Professional Credit Counselor in your area.

Posted by John Cannata on March 23rd, 2009 12:44 AMPost a Comment (0)

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Save Over $22,000 - In Interest!

March 23rd, 2009 12:43 AM

That’s right, you can save THOUSANDS of dollars. I know, sounds impossible and you are waiting for the punchline or for me to tell you to invest in something that will have huge gains. Nope! That’s not my job, but I am sure there are plenty of posts and/or infomercials that will take care of that for me.

This post was sparked from phone calls I received from new and previous customers. Yes it is true that rates are still at an all time low. But does that mean you need to refinance? Well, that is not always the case. What?? A mortgage consultant telling you it may not make sense for you to refinance? Yes and No. When I am talking with someone about refinancing, I look at many different aspects. Obviously we are going to talk about credit so we can assess your current situation. This post is not about Credit though. If you need to review your credit though, take a look at my previous post which talks about getting a free credit report.

When I consider someone for a refinance, I look at their current loan balance, the term they want compared to how much time they have left, and their credit score. Right now, more than ever, your credit score is a major driver of what interest rate you will receive. So, let’s look at a scenario where you can save yourself some thousands of dollars without refinancing.

It may not be possible for you to increase your monthly mortgage payment due to current cash-flow, but if you can that will obviously help. Most mortgages permit you to make additional payments to your principal at anytime. Perhaps you receive a larger than expected tax return, or an inheritance, or a non-taxable cash gift. You could apply this money towards your loan’s principal, resulting in significant savings and a shorter loan life.

Let’s use the following example:

Loan Balance $100,000
30 year fixed rate
Current rate 6.5%

In this scenario, the borrower would pay a total of $227,542.98. This is the total of all payments made over the next 30 years. That equals $127,542.98 in interest payments. I know that is a crazy number (for reference, this number can be found on your Truth In Lending Statement).

If the same borrower makes a one-time $5,000 payment the first day of year 6, he/she will pay a total of $204,710.75 and pay off the loan in 27 years (324 months). This shaves off 36 months of payments with a savings of $22,832.23 in interest. Paying a principal reduction in year 6 means nothing, except it worked into my scenario nicely. You may make a principal reduction in year 2 or year 12. The point is to make the principal reduction and you are guaranteed to save on interest.

So… what are you going to do with YOUR tax return this year?

If your principal balance is over $150,000 and you are paying over 6% on your mortgage, you should call your local mortgage consultant. It costs nothing to find out what options are available to you (in most cases) and could save you a ton of money.

You are also welcome to visit my website www.TXMortgageConsultant.com and use the mortgage and budget calculators to see your own savings scenario. No sign-up required and no one will follow-up with a phone call. It is set up for your use only.

If you live in Frisco Texas or the surrounding areas, give me a call and I’ll be happy to do some comparisons for you.

Posted by John Cannata on March 23rd, 2009 12:43 AMPost a Comment (0)

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BEWARE - There could be dangerous twins - Fear and Greed

March 23rd, 2009 12:39 AM

Although these twins do not always hang out together, you will often hear about how they destroy one thing or another. It’s not their fault. They were left on their own as children and had to learn about the tough world. Unfortunately, they keep listening to the wrong people. Their idols are different than yours and mine. Most recently, they have had a lot of focus on Real Estate. I know you are wondering how can you tell them apart and what should you do if you find them?

Well, Fear is the younger twin. He is unsure of many things in the world and is easily influenced by the articles he reads and hears about. Plain and simple, he is just afraid of what ‘could’ happen. This feeling may have been caused when he was younger, tried to be like his brother, Greed, and was unsuccessful. Perhaps it did happened because he watched too many movies or maybe he went to Vegas and watched too many people lose their money. No one really knows why and no one has taken the time to show/tell him differently. You may have run into him in your area without even knowing.

Here are some things that Fear may say or talk about, as well as some helpful tips for you:

Fear - “I don’t want to buy a house that will decline in value. I heard all markets are down 18%.”
Tip - Show/tell them stats in your area. True that the overall average price decline is 18.2% but that is because some areas are down over 30% and others are down 2%. For example, DFW is down 3% on average and maybe less, depending on your specific market (Frisco Texas is up 1%). If you are a Realtor in North Dallas, I may have listed your city numbers in this post.

Fear - ”I’m not sure I would qualify for a home loan because I heard banks are tightening their requirements and not lending money.”
Tip - As you know, this is incorrect. Sure, banks are looking at files more carefully. But that does not mean you do not qualify. Take a litmus test: Is credit over 580 (540 with some lenders), verifiable income, no BK or FCL within last 3 years? if they have a FICO above 580 (540 for some lenders), receive a pay check, and have not been in Bankruptcy or Foreclosure for the past 3 years? There is more too it, but this will get the ball rolling.

Fear - “I don’t know if I make enough money to buy a home, so I just rent.” or “The attendant at the local 7/11 told me to wait because it will get worse.”
Tip - If you have not spoken with a professional, then you still have no idea. Suggest a local mortgage professional talk with your client to see what they may qualify for. Advice from people outside the business or someone that knows ’someone’ is not a viable resource. Besides, who knows where they receive their information.

Fear - ”What if I lose my job like the other 500 million people per day?” (There’s only 305 million in all America)
Tip - If my grandma had balls, she would be my grandpa (no offense grandma). The point is that you can not live off of ‘what if’. As you can see from the video, sometimes even the ‘professionals’ get stats wrong. Share the stats in your state, county, city. For example, Texas actually increased employment from last year by 153,000 compared to the year before (yes, that’s including the last quarter). Unfortunately for other states, Texas is the only state with positive numbers. But perhaps your area is not as effected.

Now, Greed is completely opposite of his younger brother. Greed is always thinking WIIFM (what’s in it for me). Often he is thinking of the quickest way to make a buck without spending money or working too hard. He wants to own the BEST and the BIGGEST, but doesn’t want to pay more than the worst and the smallest. Again, its not necessarily his fault. Greed has always looked up to those that rolled the dice and got lucky. He is hoping to get lucky as well. You may have also run into Greed in your area without knowing.

Here are some things that Greed may say or talk about, as well as some helpful tips for you:

Greed - “Im holding out for a lower interest rate.”
Tip - Sure, rates could decrease another 1/8 or 1/4 percent, but it could also increase (without notice). If you are not already approved with a lender, you may miss out on some of the lowest rates in a very long time. Don’t squabble over 1/4 percent while rates are low already and home prices are still low.

Greed - ”I may be able to buy the house for less and/or wait for the listing price to drop”
Tip - Take the advice of your Real Estate Agent and make an offer that is fair in comparison to the market. Don’t focus on ‘low-balling’ the offer or holding out. Not everyone is looking for the lowest price and someone could come along and steal your dream home.

Greed - “I think my house is worth more than what you are suggesting, Mrs. Realtor.”
Tip - There is not doubt that you will feel that your house is worth more… to you. Current sales for your size home show a different story. The good thing is that the house you want buy is also lower than what the sellers think its worth. This is a win/win market in many cases.

If you see these twins in your area, don’t panic. As a matter of fact, welcome them into your home. Show them some pretty pictures of the real world and how it could be if they were a little more open-minded. There are a WIDE variety of homes on the market today, so the choices are almost endless. Mortgage Companies are still lending money to the majority of applicants. FHA is a fantastic loan product for those with less than perfect credit and/or with little money down. And lastly, the rates are still outstanding!

Bottom line… Explain to them why its still a good market to buy and sell Real Estate.

Posted by John Cannata on March 23rd, 2009 12:39 AMPost a Comment (0)

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Why Should I Refinance My Home

March 23rd, 2009 12:36 AM

I receive this question quite often - Why Should I Refinance My Home? Whether you live in Texas or anywhere else, this is a valid question. Don’t just rely on anyone answering this question, you should consult a professional. Refinancing your mortgage is a big step, but how do you decide when to do it? I like to give my clients some tips to help them decide when the time is right for them.

Its no secret. Everyone has been talking about the rates - ”The rates are at an all time low.” or “Rates are at historic lows”. This is probably the first reason my clients decide to refinance. They hear it enough and want to know if refinancing would result in a lower monthly payments. Generally, if rates drop 1 percent or more - it’s a good time to refinance. But lowering your rate is not the only reason to refinance your home.

Perhaps you were thinking about refinancing because you need extra money. College tuition or a high interest credit card? When refinancing to a lower rate and payment the money you save can be spent elsewhere.

One of the best reasons to refinance is because a client wants to reduce the term of their loan. Many of my clients refinance to save money over the life of their loan. For example, if you currently have a 30-year loan and you refinance to a 15-year loan, after you refinance you may have a higher monthly payment but you will pay off your loan quicker. I recently refinanced my home to a lower rate and shorter term. The payment is slightly higher, but I am saving over $122,000 in interest.

Do you have an Adjustable Rate Mortgage (ARM)? I strongly recommend refinancing if you have an ARM loan. Convert it to a fixed rate loan. Right now, fixed rate mortgages are lower than adjustable rates and a fixed rate mortgage leaves out the ‘element of surprise’ when the adjustment happens every 6 months to 1 year. If the rates are lower than they were when you got your loan, switching to a fixed rate mortgage can offer more security and stability as well as save you money!

The last reason some clients look to refinance is to consolidate debt. Loans such as second mortgages, credit lines, student loans and credit cards can often be consolidated when you refinance. In Texas, we do have regulations for completing a Texas Cashout. I’ll be putting a post together for those as well. Watch for them on my outside blog www.FriscoTexasMortgage.com. Plus, consolidating your debt can result in tax savings, since consumer loans are not tax deductible, but a mortgage loan is tax deductible. For a better understanding, please consult a Tax Advisor.

Fortunately, rates are still low today, but no one knows how long they’ll stay that way. If you’ve been thinking about refinancing your mortgage, give me a call today. I’ll work with you to find a great rate so you can have more money in your pocket in 2009!

Posted by John Cannata on March 23rd, 2009 12:36 AMPost a Comment (0)

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First Time Home Buyer $8000 Tax Credit

March 23rd, 2009 12:35 AM

I wanted to take some time to provide some common questions and answers about this Tax Credit. You probably want to read this if you are a First-Time Homebuyer or an agent that works with First-Time Homebuyers. The below Q&A pertains to any new home buyer whether you live in the Frisco Texas area or anywhere else within the United States.

First, the basics about the program that you may have read before:

1st-Time Homebuyers that purchased between 1/1/09 and 11/30/09
The Tax Credit is equal to 10% of the purchase price, not to exceed $8,000
Principal Residence only (includes SFR, Condos, Co-ops, and Townhomes)
Refundable Credit which means any unused credit will be issued to you in a check.
Annual Income not to exceed $75K (single) or $150K (couple).
No Repayment due for the $8,000 - True Tax Credit (as long as home is kept for at least 3 years. If home is sold within 3 years, repayment for tax credit is required)

Now for the things you may not have read about:

What defines a First-Time Homeowner? Buyers who purchase any home which is utilized as their primary residence (new or resale) between January 1st and November 30th. As defined, the Frist-Time Homeowner could not have owned a primary residence within the last 3 years. For married couples, if one of the spouses has owned property within the last 3 years, they are both disqualified. Ownership of a vacation home or rental property not used a Principal Residence does not disqualify a buyer as a first-time homeowner.

Income Clarification: What is the Income Limitation to claim the Tax Credit? The homeowners annual income can not exceed $75,000 to receive the full tax credit or $150,000 per couple to receive the full tax credit. Are you automatically disqualified because your income is above these limits mentioned? You are still qualified for the reduced refund if your MAGI (modified adjusted gross income) is above $75,000 (single) or $150,000 (married), but not above $95,000 (single) or $170,000 (married). If your income is above $95,000 (single) or $170,000 (married) then you no longer qualify. What is MAGI? This term is defined by the IRS and is not your Adjusted Gross Income (AGI). It’s a calculation of your AGI and personalized deductions. It is best to seek an accountant for a clear understanding.

How is this tax credit different from the tax credit originally passed in July 2008? The biggest difference is that this is a true tax CREDIT, not a deduction. It is also no longer a loan, which means you will not need to pay it back over a period of time. The only exception for this credit is that you must keep your home for at least 3 years. If you sell your home before your third year, the refund would need to be paid back.

What does it mean that the tax credit is ‘refundable’? Plain and simple, this is a credit and not a loan nor a deduction. Any unused portion from your 2008 or 2009 taxes will be refunded to you in the form of a check or wire. For example, if you owe the IRS $5000 in taxes, and your expected tax credit is $8000 then your net difference of $3000 will be refunded to you. If you owe $10,000 in taxes, then the $8000 will be applied so that you only have to pay the IRS $2000. And finally, if you are to receive a credit from your taxes of $3000, then the $8000 will be added to it for a total credit of $11,000.

What type of home qualifies? Any home used as a primary residence. This obviously includes single-family residence, but also includes attached homes like townhomes, condo’s, manufactured homes, and even houseboats.

I am building a home. Would I still qualify for the credit? If you purchase the home from a home builder, then the ’settlement’ date on the contract must be between 1/1/09 and 11/30/09. If you have hired a contractor to build your home, then the tax code defines the purchase date as the 1st date the homebuyer occupies the home. This date must be between 1/1/09 and 11/30/09.

My home was purchase in 2008, would I still qualify for this tax credit? Not if your home was purchased prior to 12/31/08. However, if you purchased between 4/9/08 and 12/31/08 then you would possibly qualify for the $7500 tax credit which was approved during the Bush Administration.

How do I claim the $8000 first-time homebuyer tax credit? The claim is made on your federal income tax return. The first step is to complete form 5406 which helps determine the amount of your credit. The amount is then placed on line 69 of the 1040 form. No other approval is necessary, however, you will want to be sure you qualify based on the First Time Home Buyer guidelines and Income limitations.

What if I already filed my 2008 taxes and claimed the $7500 tax credit? Home buyers need to file an amended return on a 1040X form. It’s always best to consult an accountant prior to filing your return.

Do I have to claim the tax credit in 2009 or can I claim it in 2008? The law was written in a way that homebuyers could claim this credit in either year. Someone with an adjustable income may ‘elect’ to claim the credit in 2008 because they know their current MAGI for 2008 where as in 2009 the MAGI may be above allowable limits. If the 2008 tax returns have been filed, see an accountant for further assistance and suggestions.

Does a homeowner have to wait to file their 2009 tax returns in order to utilize their tax credit? Yes. There is not a current program which allows you to utilize this credit prior to filing your tax returns. Some homeowners may choose to drop their deductions within their paychecks knowing a credit will be received. My suggestion is to wait for the full return at the end of the year or file an amended 2008 tax return. Should you choose to adjust your deductions, consultant an accountant.

There are a few more items that could disqualify a First-Time Homebuyer from this tax credit:

Income exceeds the MAGI of $95,000 (single) and $170,000 (married)
Homebuyer stop using the home as a primary residence
Non-resident alien (see the definition in the IRS Publication 519)
If you have utilized any state or city bond program
If the homeowner sells the home before the completion of the third year.
Homebuyer purchase the home from a close relative including but not limited to: parent, spouse, grandparent, child, or grandchild (arms length transaction)

Should you have any additional questions about this program, feel free to contact me directly by phone or email. I’ll be happy to answer any questions you may have.

Posted by John Cannata on March 23rd, 2009 12:35 AMPost a Comment (0)

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