The latest, I’m told, HUD announced down payment assistance is now available again for FHA-approved vendors through a bridge loan for the $8000 tax credit to monetize it up front to assist with closing costs, pay down interest points or to put down additional down payment outside of the 3.5%. So buyers will still need to come up with the 3.5% required for an FHA loan on their own, if they take advantage of the loan.

What I do not have much information on at this point is the “bridge loans”. My instinct is that if you go this route you should be careful because it’s a “loan”. Make sure you are well acquainted with how this works. You’ll need to talk to your lender about the terms and implications to ensure it’s actually more beneficial for you to take the loan to monetize the tax credit before it would normally be available (after you file your taxes next year.)

The following is the result of an interview with mortgage & financial expert, Shawn Meehan of Home Financial Group, a Suntrust Mortgage Joint Venture. A podcast recapping my conversation with Shawn will be available soon.

Who is Shawn Meehan?

Shawn is a Vice President of Home Financial Group, a Suntrust Mortgage Joint Venture, here in Nashville. Here’s what makes him stand out. For the last two years, Shawn has had the honor of being named as one of the Top 100 Loan Originators in the Country! He credits his success to his outstanding customer service reputation with his clients combined with his overall financial expertise. He’s a CPA also, which allows him to talk all things financial and advise his clients in financial planning well beyond the mortgage. Besides his credentials, he’s one of the nicest guys you’ll meet. So I grabbed a few minutes of his time to bring some of his expertise here to you today.

Walk us through the process of obtaining a mortgage.

It begins with a loan application. Different lenders take them in different ways. Some may send a form to complete or send you to a website. Both of these methods will take as much as an hour. Or the method I prefer, is in person. It takes about 10 minutes, let’s me get to know you more, and is more personal overall.

Then I do the homework. I pull the credit report and begin the pre-approval process. Automated underwriting and the issuance of the pre-approval letter then take place. After pre-approval is complete, I meet with my client one on one to talk through the program options. This is also the time that first time home buyers receive a bit of education.

Lastly, you move through to the actual pre-approval, where you can then move forward with confidence on a specific house. You’ll stay connected with the lender throughout the contract process up to close.

First time home buyer tax credit…how does it work?

It’s up to $8,000 true tax credit. The earlier tax credit version (2008) required it be paid back in $500 increments over 15 yrs. This one…does not require pay back. The home buyer tax credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, has a federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

What the real drawback is for first time buyers is it still does not give what most first time home buyers need the most: cash for a down payment. The home buyer’s tax credit comes in the form of a tax refund after you do your taxes. If buy in 2009, you have to wait until file taxes in 2010 to get the tax credit. Even still, it’s still a great offering for first-time home buyers.

What about the rest of us? What incentives are there to buy now?

It really is a great time to buy a home in general. There has never been a better time because interest rates are at an all time low. They’re below 5% on 30-yr fixed loans. The result is a much lower monthly payment than ever seen before. Combine that with the buyer’s market of dropping property values, and it’s a great opportunity to pick up a great deal with great interest rate.

How do I know which bank I can trust to handle my mortgage?

Financial institutions have been under the microscope lately, and for good reason. They’ve dropped the ball. To determine which banks are doing well vs. those that are not, you need to look at the financial institution’s track record and how they are weathering this storm. Suntrust, of which I’m affiliated, is a very solid bank. Yes, our stock has gotten beat up just like the rest, but we’re still doing extremely well through this time. The balance sheet is still solid, and the bank is solid as a whole. It is well regarded in the banking community. So I’m pleased to be associated with them.

Which mortgage loan program do you like at the moment?

One of the most popular programs out there now are FHA loans. They’ve made a huge come back recently. For instance, 2 yrs ago, 10% of my loans were FHA’s. Now it’s almost 50%. It seems that just about every other loan right now is an FHA loan.

FHA has several benefits. Interest rates are quite attractive. They can be the same or even better than conventional rates. They are a little more lenient on credit scores. If you are not quite in the 700’s with your credit score, sometimes even if it’s in the lower 600’s, you can still qualify for FHA loan. The down payment requirement is considerably less. Buyers only need 3.5% for FHA vs. 5% in a regular conventional loan. FHA loans are also more liberal in allowing gift money for down payments. It used to allow down payment assistance, but that has changed. Even though there are quite a few benefits, it is more difficult for first time home buyers to buy because there is not a lot of 100% financing.

One program I like still providing 100% financing is the THDA program, specifically the “Great Start” program. There are a few restrictions, like you can’t make more than $61,000 per a year, etc. If you qualify you may receive a gift from THDA to go towards the down payment for up to as much as 4%. It’s one program that will still let you get a loan for $0 down. Interest rates are a little higher (½ point higher than regular conventional rates), but it’s not bad. This program is not just limited to first time buyers.

How do you compare Good Faith Estimates from different lenders?

In order to compare Good Faith Estimates (GFEs), look at 3 things:

1. Rate
2. Points
3. Closing costs

It will also shows prepaid items, but you can ignore that in your comparison. It will be the same from lender to lender. Focus on the true closing costs. Total them and compare closing costs and rates across the board from lender to lender. Make sure you obtain the GFEs from the different lenders on the same day because rates change from day to day.

Sometimes it is difficult if you’re dealing with an out of state lender. Out of state lenders do not know the specific state charges, like recording fees and state tax. Many times they are way off in their estimate. Some will throw title insurance in also, which is not typical for a buyer here. For the most part, I will have to try to fix someone else’s GFE and explain the confusion caused by the variances in costs from their lack of local knowledge. So I highly recommend working with a reputable local lender who makes their living from their solid reputation.

It seems like people want to “time the market” for the lowest rates. Your thoughts?

We all know everyone wants to get the lowest rate possible and the lowest possible purchase price when buying, but it is incredibly difficult to predict the bottom with rates and home prices. All we DO know is that rates are at an all time low. Could they go lower? Sure, but there’s more room to go up than down, overall. Timing it perfectly is near impossible. If you have a good rate, go ahead and lock it. With rates so low and Nashville home values having dropped 10% - 20%, it presents a great opportunity for buyers right now. Don’t wait and totally miss the opportunity by trying to time the absolute bottom.

How long will rates remain this low?

Again, it is incredibly difficult to predict, but everything I hear right now points towards favorable rates until the end of the year.

What should people do now to prepare to buy a home? What if credit needs improving?

Two years is the magical time to make or break your credit. You can turn bad credit to good credit in two years simply by not having any delinquent payments. If you make all of your payments on time for a year or so, you can see your credit increase considerably, sometimes enough to get a good FHA loan.

If you need to get your credit up fast to take advantage of the tax credit this year, call me for a few extra secrets. While they are not secrets, per se, you just need to be careful in your choices. So it’s best for an offline, one on one discussion. I can make some recommendations specific to your situation and hopefully help you improve your credit fast.

How do I estimate how much I can borrow or afford to buy?

For a “general idea”, if you take your gross monthly income and multiply it by 40%, it will tell you how much debt you can afford to incur on a monthly basis. Of course, you must consider any debt you currently have and subtract that from the number.

For example: $4,000 monthly income X 40% = $1,600 debt.

Subtract current debt: $1,600 - $300 car payment = $1300.

In this example, the borrower should be able to afford a $1,300 mortgage payment. Now, to figure what that is in a home’s sales price will probably require a professional. You have to include property taxes and insurance in with the principal and interest and work that backwards in determining how much purchase price you can afford.

Do you have a recommended source for mortgage calculators?

There are many online to choose. I own an iphone, so I’ve chosen an amortization table iphone app. I have it with me at all times where I can pop it up anytime. I love the convenience of that.

What is the conforming loan rate limit before entering a jumbo loan?

That limit is $417,000.

Explain who should consider refinancing a mortgage right now.

Virtually everyone. The general rule of thumb is that if rates go at least 1 point below your current rate, it is worth refinancing. Most of the loans out there now were written between 6% - 6.5%, so with rates as low as they are now it’s a great time for anyone to refinance. At the time of this interview, rates are at 4.75%!

The exception may be those who plan to sell their home within a year. It does take a couple of years to recoup the costs incurred by the refinance. So the costs associated with the refinance is something that should be weighed carefully. You’ll get a better rate and a lower monthly payment, but there are up front costs in doing it. I help each of my clients weigh those costs vs benefits.

What are some ways we can pay off our mortgage faster?

You’d be amazed at how much of an impact one extra mortgage payment a year will make. A little bit of extra principle payment will knock years off. For example, one extra payment per year on a 30 year mortgage will reduce the duration to 25 years! If you can do more, the outcome is even better.

What advice can you give those who may be at risk of foreclosure?

The best advice I can give you is to “over communicate” with your lender. Don’t wait until they call you. Take the initiative and be the one to call them. Talk with them regularly. Under NO circumstances should you avoid talking with them. If you’re not communicating with them they will not work with you. Lenders do not want to foreclose, so they will go to great lengths to work with you IF you are communicating with them.

The Obama Administration has recently developed a new plan for loan modifications. Those individuals who have suffered certain provable hardships (loss of job, for example) that prevent the ability to make mortgage payments, may find help in this plan. The banks are trying to implement it right now. Stay in contact with your lender for the latest updates, but through the modification it can reduce your total mortgage payment to 31% of your gross monthly income.

For more information in obtaining a mortgage or refinancing contact:

Shawn Meehan, Vice President
Home Financial Group A Suntrust Mortgage Joint Venture
201 4th Avenue North, 7th Floor, Nashville, TN 37219
Phone: 615 593-2626 ; Fax: 615-850-1156
shawn.meehan@suntrust.com
Website: http://www.homefinancialmortgage.com/loanofficer.asp?shawnmeehan

For more information in buying or selling a home contact:

Dena Williams, Realtor
Keller Williams
5500 Maryland Way, Suite 110
Brentwood, TN 37027
Phone: 615-376-5123; 615-739-2944
Fax: 615-690-5773
Email: denawilliams@realtracs.com
Website: http://www.nashvillereal-estate.com

home buyers tax credit

What is the tax credit in the stimulus pkg?

American Recovery and Reinvestment Act of 2009

What: Plain and simple it’s $8,000 or 10% of the property’s value (whichever is the lesser).

Who: First time home buyers who have not owned a property in the last 3 years.

When: Homes bought between January 1, 2009 and December 1, 2009.

How: IRS form 5405 form here. Recipients must not make more than $75,000 per individual or $150,000 jointly (adjusted gross income). The credit does NOT have to be repaid if purchase is between January 1, 2009 and December 1, 2009.

This is different than last year’s $7,500 first time home buyer tax credit, where homeowners who bought in 2008 that receive the credit must pay it back over 15 years.

While calculating how much mortgage you can afford for a home is comprised of a combination of factors covered in another topic, a couple of tools can help you get started. You’ll need to calculate an estimate of how much your monthly mortgage payments will be for any given scenario of price, term, interest rate, down payment, etc. The calculator you’ll see here is comprised of two tabs. The first tab, Mortgage, allows you to calculate an estimated monthly mortgage payment amount with amortization over the term for principal, interest, property taxes, and PMI. The Loan tab allows you to create an amortization schedule when of the loan - principal and interest. This schedule will pop up after you press calculate and show year by year, how much of your monthly payment will go towards principal and how much will go towards interest (and how much towards property taxes, insurance and PMI on the mortgage tab) with a grand total at the end. Your amortization schedule will look something like this below:

This sample amortization schedule is for a $300,000 loan at 5.5% interest over 30 years. On your own schedule, you’ll be able to scroll down to see all of the years in the term and the grand totals for each column.

Calculate your payments and amortization schedule now below:

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All-in-one Mortgage Calculator

Check out the multi-faceted calculator below to figure out everything from refinancing to pre-qualification, to buying vs. renting decisions, to the effects of making extra payments, to how to pay credit card debt off sooner, and more. There are twenty calculators here for your use.