Part 3 (Excerpt)

$8,000 tax credit the government is paying you to buy a home with a very low down payment

We have back in the studio today Mr. Dan Havey. Dan and I have worked together in the mortgage industry for about 14 years and we are happy to have him back. He has seen a lot of changes in the market and thanks again for being here.

Michael, here is a question I wanted to ask you, there is so much misconception in the marketplace today as far as what is still available for financing. I think a lot of people have this idea that it is impossible to finance a loan or get a mortgage or that you have to be able to put 20% down or have a 720 FICO score. Can you let people know whats really going on out there?

Well you know a lot of things have gone away. There are a lot of those old loan programs that were fancy ways to sell money and finance real property and a lot of thats gone. The reality of it is, if a person has a minimal amount of money down, there is absolutely financing through the Federal Housing Administration with 3.5% down. You can buy up to about $358,000 with only 3.5% down. Now with Fannie Mae and Freddie Mac, we actually do have a few investors that will allow us to only put 5% down with those and that loan amount maximum is $417,000. So there is still plenty of financing for primary residences.

Now in regard to looking at investment properties believe it or not there are actually still some stated income loans out there, but the stated income loan is for a non owner occupied property, the interest rates are very high and you know what, if you can put 20 to 25% down and prove your income you are better off using conventional financing, it is absolutely still available.

Now if you are a first time home buyer living in an apartment and you are getting kind of tired of it, you are looking at low interest rates, you are looking at the property values have come down over 50%, FHA is generally going to be the direction that person is going to want to go, right?

Absolutely and you know Dan with the $8000 first time home buyer tax credit you know that is a check that the government sends you for up to 10% of the sales price of the home up to $80,000. Its capped at 10%, you are not going to get more than $8,000 back and you may get less if you buy for less than $80,000, but whats really interesting about this is you can, if you have already filed your 2008 tax return, you can file a 1040X and get that credit sooner. You dont have to wait until April 15th of 2010 to get your tax credit. You put the money down today, close on the mortgage, move in, file your 1040x, there is a form that is called the 5405 but thats not all that important, and you can have that money back in your pocket right away.

So I know that was part of the plan that came out today and just to make it a little bit clearer for peoplelets just take an example. Lets say you buy yourself a $150,000 house and you buy it as an FHA, it doesnt really matter how much money down or how you buy the house but if you buy a $150,000 house, you are going to get an automatic $8,000 tax credit that you can take off of the taxes that you owe the government. So lets take an example where you are a W-2d employee and you pretty much break even at the end of the year, you dont owe the government any money and they dont owe you any money the government will actually write you a check for $8,000 for that tax credit and if you buy it this year you can amend your tax return for 2008 and get a check from the government for $8,000.

And thats not including the other tax write offs that you get for writing off the taxes on the house writing off the interest on the house, so again with a $150,000 house with 6% interest roughly you are going to be looking at another $10,000 worth of write offs on top of that. Now that is a write off not a tax credit, like the other one so you are going to save whatever your tax rate is. So lets say your tax rate is 30%, that is another $3,000 in taxes saved. So if you buy a house this year you are going to put an extra $11,000 in your pocket.

So if you buy a $150,000 house and you have to put 3.5% down, Thats what? Lets just say roughly $5,000, you just made $6,000 and you get to own a house. ($11,000 tax savings minus $5,000 down payment) And your mortgage payment is more than likely less than or equal to what you are paying for rent and you own it.

Exactly and you get the benefits of having your own house…

Duration : 0:6:14

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Part 5 (Excerpt)

Inventory of foreclosed homes may be declining soon Home sales double in last year

So we are back in studio today with Dan Havey. Dan and I have known each other for many years and we have worked very close over the years in real estate. Dan and I are not necessarily 100% in agreement with where the market is today and whether we are at the bottom or not. I tend to believe that we are. Let me tell you my thinking on this.

Dan uses actual facts and figures to make his prognostications. Heres what I know, I know that Fannie Mae and Freddie Mac have put a moratorium on foreclosures. What that means is that they are slowing the supply of repos. What that means is that they are putting fewer homes on the market, which means the supply has been reduced to a 9 month supply of resale homes on the market. The builders are gearing up, getting ready to start building again, but they are not building again just yet. Thats a great indicator.

Interest rates couldnt be better. They havent been better than they are now, so not only can you buy a house at the same price you would have paid for that house in 2002, but you are going to get a significantly lower interest rate then it would have been then. Effectively a house today is going to cost you less than it would in 2002, with the interest rate and the home value being what they were. Now if property values do continue to increase and the average rate of 4%, your internal rate of return on your investment will increase exponentially.

One of the things that Dan Havey did say, and I kind of think you need to pound on this a couple of more times is this, you dont buy a house for you and your family as an investment, you buy a house because you want to live there, because you want to raise your family there, because its right for you. The investment part of it will come in time on its own. For now owning a home, owning that dirt, raising your family, making your new memories, is the best thing in our opinion that you can do.

Dan, why dont you take a minute and talk about the year over year numbers that you have. Well, there is a number of things I agree with you on Michael and one of the things I was really surprised by when I started looking at the numbers the other day is that since June of 2008, so 7 or 8 months ago, since then, year over year sales actually increased and in many cases have doubled. So lets just say for a specific example if there were 5,000 sales in Maricopa County in June of 2008 that would mean that there were 2,500 a year earlier, and so anytime you see an increase in sales year over year and especially when you see this big of an increase, 100% increase year over year for most all of the last 8 months, that is a huge indicator that the market is starting to recover. Now there are other factors as Michael said, the builders are not quite building yet, but I like the fact that there is the moratorium in many cases now on the foreclosures going through, and with the Mortgage Bailout Bill that came out today part of it was $75 Billion that they were going to throw at Fannie Mae, Freddie Mac, and all of the other lenders who received TARP funds to help modify loans.

One of the requirements is if the lender, Fannie, Freddie, or the servicer is working with the home owner they have to stop the foreclosure process, so hopefully what this is going to do is over the next six months its going to help out millions of people. I am not quite sure how they are going to get all of these loans done, there are an awful lot of people that need to have their loans modified, but even if they can just help some of these people to delay the foreclosure sale, help these people get their loans modified.

First off it is going to help keep people in their homes but the biggest thing from the standpoint of property values and first time home buyers is that its going to start taking some of that supply off the market there are going to be less repos out there for people to buy and because of that property values are going to begin to stabilize and quit dropping…

Duration : 0:5:43

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Part 4 (Excerpt)

FHA financing why you should work with a broker: 4% appreciation over the last 17 years

You mentioned earlier that property values are up 71% long term, even though we had this 50% drop. Youre talking about the average 4% appreciation per year since 1992.

Right, I did some calculations I was working on a book last year and one of these days I may get around to publishing it. Its called Real Estates Future and what we were looking at was a statistical model to be able to pick the top and the bottom of all the real estate markets. I hadnt looked at the thing for about a year until I was working with Michael the other day and I started pulling it out and going lets run the model and see where we are in regards to the market, and one of the things I looked at is the last time we saw the bottom of the market was when I was selling houses for the RTC and that was in 1992, the median home price was $76,000. Median home price now is $130,000. That means from 1992 until now it went up 71%, thats after we just saw a 50% decline. So it is up 4% per year on average, and where else are you going to get a return like that? Even if you put 3.5% down on a house you are getting a heck of a lot more than a 4% return. If you look at the internal rate of return it is significantly greater.

Right and dont buy a house because you are looking at a rate of return. If you are a first time home buyer and you can qualify for this program, if you have been living in an apartment for the last three years and you just want to have a better place for yourself and your family to live, I know right now there are a lot of fabulous houses out there for $130,000. I saw one the other day that was listed at $100,000 that I know was probably at least $250,000 a couple of years ago. Yes, four bedroom-three bath houses, we are currently working on several cases at $150,000 or below, in good parts of Maricopa county.

I ran some numbers before as well just looking at the number of homes that sold in Maricopa County in January and in that month 45% of all the houses that were sold, sold for less than $130,000. And when I had the example earlier about the median family could buy a $280,000 that was 85% of the market. 85% of all the houses that were sold in Maricopa County could be purchased by a family of four with a median income.

And you know with the loan limits the way they are with FHA with 3.5% down you can go all the way up to $358,000 and still only put 3.5% down. Pretty much anyone can get in and I would probably say that 90-95% of all the houses sold were within the FHA loan limit. That means you can still get in with 3.5% down, you dont have to have perfect a credit report, you cant have a lot of bumps on it but it doesnt have to be perfect, you dont have to have a huge FICO score.

Do they even look at FICO scores? Its complicated, the Federal Housing Administration does not have a minimum FICO score requirement, however all of the mortgage banks have overlays, so in other words nobody uses just the FHA guidelines, they have their own parameters on top of the FHA requirements. One of the main reasons why you would want to go to a broker instead of directly to your bank is they may or may not have enough overlays that will work in your favor. As a broker we have all of the major mortgage banks and we know the guidelines, so we can make anyone fit into a house that can get approved.

Right and thats always the nice thing about working with a broker because you have, lets say you have 20 banks that you are signed up with and you are FHA with all of them, so you have 20 different sets of guidelines that you can fit the borrower into. If a home buyer went to a bank and they had to do an appraisal and a credit check and all that and then they denied you, you would have to go to a different bank and they would have to do all that same stuff all over again. When you are working with a broker they do it one time and then shop it to 20 different lenders.

Yes, and I have to point something out more importantly, if you go directly to your bank and you do get declined after you have spent the money on all these different things the process is much more difficult because you have to start all over again and the reason you were declined has to be explained as well and it becomes a much more lengthy process. Where as when working with a broker you dont have to do that. We take the hit for you and we move you into the right lender of your choice…

Duration : 0:6:3

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Part 7 (Excerpt)

FHA Guidelines regarding foreclosures and first time home buyers; incredible home buying value

Ok I was just checking because I thought this was a story about all the mortgage backed securities that were going under. It started at the top and it worked its way down. The reality of it is that people were buying homes, not reading what they were signing, not understanding how it worked and shame on the people who were putting it in front of them, knowing that they didnt know and we all need to take a little responsibility here for this past crisis. It is not just the Wall Street firms; its not just the mortgage companies and banks, the brokers have little in fact to do with it, we didnt create the loan products that people were buying, we were merely disseminating it to the public. I am glad to say I was not a part of any of that. I was able to stay away and do traditional, conventional type financing for people. So luckily I didnt have a lot of clients who got stuck into that nightmare.

Speaking of that nightmare, Dan when we talk about the people who have had foreclosures, their lives have been turned around, turned over and they think that there is no where for them to go. One of the nice things about the Federal Housing Administration loan, the FHA loan, thats the first time home buyer type loan, the minimum down payment loan, its only 3 years after you have had a foreclosure that you can qualify to purchase a home again. So it is important if you have had a foreclosure, you need to point your future away from the flame, you need to save your money, do your best, work as tightly as you can on a budget and look forward to that time when you can go back out and buy a home again.

Property values are going to be up from where they are today, but there is still going to be plenty of great value out there and there are not going to be loan products that are going to get you in trouble again. They wont exist. What really caused the great inflation in home values starting in about 2002 was the financing was just getting crazy. I wont get into a whole lot of technical stuff about mortgage backed securities and all that, but the lenders were creating products, selling them off their books, thinking that they would never have to worry about them again. They sold trillions of dollars worth of these loans and those are the ones that are going bad.

Ones that were toxic in the first place: the stated incomes, the option ARMs, all those loans are all gone now. I was saying earlier today that we are back to where we were in financing in 1992-1993, back when the median home price was $75,000. Now I dont think we are going to go anywhere near that again, I think at $130,000 we are getting real close to the bottom of the market and what I was thinking was when I got into the business in 1995 and you were in at about the same time I was, and I remember talking to a guy who comes into our office to sell us loan programs, now this is the very beginning of the really crazy stuff, and he was saying we can do 70% no doc loans.

We go, what do you mean? If somebody puts down 30% they dont have to verify anything, they dont have to verify their employment; they dont have to verify taxes, anything. We were absolutely floored, but by the peak of the market we were doing 100% no doc loans. If you were breathing they gave you a loan and the credit scores didnt have to be that high, I think I saw them as low as 600…

Duration : 0:5:36

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Expert: Matthew McKillen
Contact: www.excelmortgage.com/
Bio: Matthew McKillen brings 21 years of industry experience in arranging loans for his clients.
Filmmaker: Christopher Rokosz

Duration : 0:1:32

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Expert: Richard Blake
Bio: Richard Blake is a licensed real estate agent that has closed more than 20 times the number of transactions per year than that of the average realtor for the last three years.
Filmmaker: Christopher Rokosz

Duration : 0:1:47

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