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SOLAR NEWS

Two items came to my attention recently in regards to solar power for your home that I thought you should be aware of.

The first is that the federal tax credit that was set to expire at the end of 2016 was just extended for five more years. I’ve heard VERY little mention of this in the news so I’m guessing this will be news to most of you. I’m still hearing some ads for solar that tell you to “hurry up” before the federal tax credit expires, but I’m sure they’ll update their ads soon. (FYI: The California tax credit is long gone.)

Here is a quote from a website called The Simple Dollar, “The extension means a 30% federal tax credit offered by the EPA and Department of Energy to encourage Americans to use solar power for the next five years. If you install Energy Star-approved solar power systems, the credit allows you to claim 30% of the cost as a tax credit for the year you installed it. That amount is taken directly off your tax payment, rather than as a deduction from your taxable income.”

The other item is that you can now buy solar power through PG&E. You can choose to have either 50 or 100% of your power come from solar. The catch is that you aren’t saving money with this program, but the argument is that it’s better for the environment. There are no panels required, nothing to buy, no long-term leases to sign, etc. So this may be a good option for people or businesses who are renting, or their building doesn’t allow for a good solar system installation due to the size or direction of the roof, but you still want to go solar for environmental reasons. You can find out more at pge.com/solarchoice.

DOWN PAYMENT—THEN AND NOW

In the early 1900’s, home loans were rare. You either had to save over a lifetime, or inherit money in order to buy a home for cash. The few home loans that existed required at least 50% down. The loan itself was a balloon loan due in five years or less. Thankfully, times have changed. Down payment requirements have fallen dramatically over the years.

 

A few decades ago most lenders settled in around the 20% down payment scenario and that was the “norm” for quite a while. Then 10% down become popular, then it went to 3% down, and then nothing down, and then during the height of the mortgage mania, they’d give you a loan for 125% of the value of the property! Of course that was crazy and that blew up in their faces big-time!

 

When the real estate bubble burst, many lenders reverted back to 20% down, but even then loans were hard to get. Good borrowers were having trouble getting loans even if they had the 20% down. And many other borrowers just couldn’t come up with 20% down. So the government radically revamped their lending programs and became the “lender of last resort.” 3.5% down payment loans became abundant, although they came with higher fees in the form of mortgage insurance.

 

Now that prices are back up and foreclosures and short sales have diminished greatly, lenders are feeling more optimistic again. Yes, to get the best rates and terms with lowest fees (initial and monthly fees) you are still looking at 20% down. But if you don’t have 20% down, there are now lots of programs again for 10%, 5%, 3.5% and even 0% down. But thankfully I haven’t seen the return of the 125% loan again!

SHORTER WAITING PERIODS

In years past, it was pretty rare to have a short sale or foreclosure on your record. Because of that, mortgage lenders weren’t in a big hurry to lend to people that had one of those. They would often make someone wait 5-7 years until they would approve them for a mortgage loan again. This worked out OK for the lenders back then because they could still make all the loans they wanted.

 

Fast forward to when the mortgage meltdown happened and a huge swath of Americans experienced a distressed sale of their home. The market appears to be in a recovery now, and lenders are now much more willing to lend money than they were just a few years ago. But they are finding that many of their potential customers don’t qualify because they are still within the 5-7 year waiting period.

 

I’ve been expecting lenders to start to shorten their waiting periods. A few of them did a year or so again, and now more of them are following suit. There was a recent announcement that one of the major lenders that used to have one of the longest waiting periods is now shortening from 7 years down to 4 years. And there are many other lenders that have dropped their waiting periods to 2 years. I also know of one aggressive lender that has NO waiting period after a foreclosure or short sale. However, that lender only offers adjustable-rate loans for that situation. Most people really want to lock in a fixed rate loan right now. But still it’s nice to know that if you had a distressed sale in the last 5 years, you now have a lot more options to buy a home again sooner than in the recent past.

3% DOWN PAYMENTS ARE BACK

For a long time, home buyers had to come up with at least 20% down to buy a home. Then it got reduced to 10%, then 3%, then nothing, and then at the peak of the madness, buyers could get loans for 125% of the value of the home and sometimes even walk away from the closing table with money in their pockets after buying a home!

 

When the mortgage meltdown happened, lenders really tightened up their guidelines and the low, low down payment plans were few and far between, or they were really, really hard to qualify for, and also very expensive in regards to fees.

 

As of right now, FHA loans are the go-to loans for low down payment as they can go as low as 3.5% down. Since they are basically the only source for these, they’ve been jacking up their fees and insurance rates because they had no competition (and because this is still a risky loan and FHA lost a TON of money in the recent past!)

 

However, changes are coming that will make the FHA loans look much less desirable, in my opinion. This past week Fannie Mae and Freddie Mac announced that they will start backing mortgages with down payments as low as 3%. At first glance this isn’t much different than the 3.5% down payment for FHA loans, but there is more to the story!

 

When a buyer gets an FHA loan, they have to pay the mortgage insurance every month until the loan is either paid off or refinanced. In the old days, FHA would let that insurance come off when the value of the house rose, or the balance was paid down enough to where there is at least 20% equity. Fannie and Freddie will allow the mortgage insurance to come off let FHA used to, so this would be a BIG advantage to them over FHA. So if you are shopping for a mortgage, be sure to ask your lender representative about these new 3% down loans.

AFFORDABLE HOUSING IN BRENTWOOD

I’m sure there are a lot of people out there who would like to buy a home, but don’t think they make enough money to qualify to buy an average-priced home around here. Or they assume that even if they did, they couldn’t compete with all the cash investor-buyers. Well, there is good news! The City of Brentwood has an affordable housing program designed just for this situation. They do NOT allow investors to buy homes in this program, so you are only competing against other owner-occupants. This is also restricted to buyers that have not owned another primary residence during the last five years. You must be employed full-time, and you must have at least $4,000 in a savings account. Furthermore, there are income minimums AND maximums. I don’t have space to list all the income guidelines for a family sizes, but for a single person the minimum is about $45K a year and a maximum of about $75K. For two people’s combined incomes it’s about $52K minimum and about $82K maximum, and it goes up from there. You must make enough to qualify for the payment, but if you make too much, you can’t participate in this program.

 

So this program really creates an opportunity for someone that would like to buy their first home but is getting beat out by stronger buyers on other properties.

 

If you would like more information on this program, send me an email at Brian@SharpHomesOnline.com and I’ll send you the City’s brochure. I also happen to have one listing that falls under this program’s guidelines and it’s currently priced at $279,900 for a 3 bed townhouse built in 2004. You can view more info about that listing on my website at www.SharpHomesOnline.com and click on “our listings” and look for 364 Jefferson Drive in Brentwood. If it’s sold by the time this article prints, it will be moved from the “Active” listings into the “Pendings.”

DEDUCT INTEREST WHEN NOT ON TITLE?

I’m seeing more situations where a parent will step in to buy a home for their adult child since the parent has better credit, even though the child will be living in the home and making all the payments. There is typically a question about whether the child can write off the interest on the loan, and the answer is “probably.”

Regulation 1.163-1(b) of the IRS reads: “Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness.”

The IRS has challenged this type of situation before – sometimes they allow the deduction, but other times they don’t. They want to see that the party claiming the deduction has all “the benefits and burdens of ownership…”

Here are the factors in the cases allowed in the past that seemed to sway the IRS towards approval: 1. The child must live in the property. Their driver’s license, voter registration and utility bills should be in their name and should list the property address. 2.
Parent and child should sign a written agreement saying that the child is fully obligated to make mortgage payments, that parent can evict in the event of default, and that parent recognizes that the child has an “equitable interest” in the property. 3. Child should be responsible for all maintenance and upkeep of the property. 4. Parent and child should sign a Quit Claim Deed, conveying the property to the child. This will not be recorded, but shows your intent that the child really “owns” the property.

Please see a tax expert and/or attorney for specifics to your situation.

FHA LOAN ISSUE WHEN SELLING

FHA stands for the Federal Housing Administration. They specialize in guaranteeing loans for lenders when the buyer is only putting 3.5% down. When I first got into real estate many years ago, we didn’t run into many FHA loans because they had a fairly low cap on the amount of loan they would insure. All that changed a few years ago when real estate bubble burst and many lenders either went out of business, or just stopped lending altogether. The loan limits for FHA loans were increased significantly in some areas during this time to keep mortgage loans flowing. It seemed like overnight FHA became the lender of choice for most buyers for several years. So that means there are a lot of loans on the books right now that are FHA loans. And many of those homeowners are now thinking of selling their home.

In a “normal” real estate transaction, we have a scheduled close of escrow date. Sometimes we close on time, other times it closes a day or two late. Besides the frustration that comes with adjusting moving trucks and moving help, or funding the next purchase, the buyer and seller just complain a bit and put up with these delays. The payoff on the seller’s loan just adds another day or two and that’s about it.

However, if the seller has an FHA loan, then they need to keep a close eye on the calendar. If the closing date moves into the next month, FHA will expect to get paid for the FULL month’s worth of interest, even if you close on the 2nd or 3rd of the month! This is a big, expensive “gotcha” that you want to avoid! So plan your closing towards the last week of the month, but leave a couple of days cushion in case there is a delay. And if you are the buyer, don’t be surprised if the seller gets quite upset if you close “only” a day or two late if it carries over into the next month because this could cost them thousands of dollars in interest!

Good News For Buyers!

 

If you lost a home through a foreclosure, bankruptcy deed-in-lieu or short sale recently and have been biding your time to wait the 2-5 years until you can buy a home again, there is some good news for you! The Federal Housing Administration (FHA) just released some new guidelines for lenders which could allow you to qualify to buy another home in as short as 12 months!

The old rules said that you had to wait at least three years before qualifying for an FHA loan. That could be shortened to two years if you could prove “unforseen circumstances.” But these new rules shorten that even further, although the burden of proof is even higher. Below are the requirements:

You must be able to prove that you lost your home because of a loss of income or employment that was beyond your control, and that the income of borrowers on your old loan dropped at least 20% for a period of at least six months. In addition, you have to undergo housing counseling from a HUD certified counselor. And on top of all that you have to have no late payments on any other obligation for the preceding twelve months.

They will need written verification of all of the above. This means they’ll need to see a termination or income reduction letter, plus they’ll review your tax returns for that year, and you need to provide written proof that you completed the counseling. They may require more documentation for certain situations.

Please note that the above just means that you can APPLY for a loan sooner. There is no guarantee that you will be approved. And since we still have VERY low inventory around here, there is no guarantee you can actually BUY a home.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). #1 in Brentwood listings sold since 2000. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

Unintended Consequences

The California Homeowner Bill of Rights went into effect Jan. 1 of this year. It was promoted as a way to protect California homeowners against their lender foreclosing improperly before the homeowner has a chance to fully attempt a loan modification or short sale. Since it passed, we have seen a HUGE reduction in the number of foreclosures in California. But we’ve also seen a big reduction in short sales, too, as  loan servicers scramble to adjust their practices to conform to this new law. They are supposed to provide one point of contact for the borrower through the process. The loan servicers are also forbidden from what is called “dual tracking” where they work on a short sale or loan mod, but at the same time continue to pursue and then complete a foreclosure action. They are supposed to stop as soon as they receive a complete loan modification package or a short sale is approved. If the servicer violates this new law, it also gives the borrowers new powers to sue the servicer. One provision of the law that the banks were most worried about is that if the borrower has at least a “reasonable justification” to believe that the servicer violated a material provision of the law and then sues the servicer, the servicer may be responsible for all the research and legal costs. This is true even if at the end of the process it’s determined that the servicer did NOT violate the law. This could cost the servicer tens of thousands of dollars in legal fees and 6-12 months in delay even if they were foreclosing correctly and that is borne out by the courts.

Well, some legal experts are worried that the new law is so onerous against lenders that it could backfire in a way for some borrowers. There are two general types of foreclosure, a trustee’s sale and judicial foreclosure. Apparently this new law only applies to trustee’s sales. So the concern is that some lenders may opt for judicial foreclosure if that option is open to them. In some cases that can be really, really bad for the borrower but historically we rarely see judicial foreclosures. We’ll have to wait and see if these fears are valid or not.

SEEK LEGAL ADVICE FOR YOUR OWN SITUATION. I AM NOT AN ATTORNEY. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Keep Trying Keep Your Home

In one of my kids’ Winnie the Pooh books, Pooh is encouraged to “try, try again” when faced with an obstacle. That is sage advice, and I’m going to urge some of you to “try, try again” with the “Keep Your Home California” program.

This is a program that the State of California created in response to a large amount of money they received from the Federal Government as part of the “Hardest Hit Fund.” When it was first released, only a few lenders were participating, and the qualifications were strict. Since then, more and more lenders have come on board, to where there are now roughly 100 lenders and loan servicers participating. This means that if you called before and were disappointed that your lender wasn’t participating, you should call back, because the odds are VERY good now that they now ARE!

And on top of all that, there have been some recent changes to the PRINCIPAL REDUCTION program that are very interesting. In the past, Keep Your Home California would match $1 for every $1 that your lender dropped your balance. That appears to be changing now, to where nearly all of the principal reduction money is coming from Keep Your Home California and not your lender, so lenders are obviously much more interested in that program all of a sudden! It’s basically free money to them (thanks, taxpayers!).

They have several programs to choose from: from money to help you catch up on your payments, principal reductions, relocation assistance, etc. So check in with them if you need some help with your mortgage. For more info, call 888-954-KEEP(5337) from 7 A.M. and 7 P.M. Mon-Friday, and 9 A.M. to 3 P.M. on Saturdays. Or check out their website at www.KeepYourHomeCalifornia.org. Their website is now interactive so you can find out online instantly if you may qualify for any of their programs.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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  • 320 Fairview Ave.
  • Brentwood CA 94513
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