Category: General

Just before the Christmas holiday – in fact, exactly a week before, on December 18, 2015 – the President signed legislation that renews the tax deductibility of mortgage insurance (MI) premiums for qualified borrowers through 2016.

This new legislation is effective for purchase and refinance transactions closed after December 31, 2014. Mortgage Insurance premiums paid or accrued after December 31, 2014, and through December 31, 2016, may qualify for tax deductibility on borrowers’ subsequent federal tax returns as follows:

• Borrowers with adjusted gross incomes below $100,000 may deduct 100% of their MI premiums
• For borrowers with adjusted gross incomes from $100,000.01 to $110,000, deductions are phased out at 10% increments for each additional $1,000 of adjusted gross household income

Quite often, of course, many buyers immediately stop listening when they hear the term “mortgage insurance” and start thinking about other things like needing to schedule an appointment with the vet to get their cat dewormed or why bread always lands butter side down when dropped. They lose their focus, and that could lose the sale. Get them to focus and remind them that those loan options that have mortgage insurance usually have lower monthly payments, much lower down payment requirements (3%), and cancellable premiums. As it dawns on them that you’re more than a real estate agent – you’re an expert – deliver this coup de grâce (I believe that’s French for “do you want fries with that”) about the tax deductibility, and they just might name their first child after you (or, at least, their next cat – whom I hope has been dewormed).

Just a couple of reminders to keep in your back pocket:

• Under the Homeowners Protection Act of 1998, lenders must terminate MI once the loan is scheduled to reach 78% of the original home value – the insurance policy should be automatically cancelled at that time
• The CFPB, this month, issued a compliance bulletin reminding lenders of this automatic cancellation requirement – even if the home’s value has dipped below the sales price

• The cancellation rules DO NOT apply to the low-down-payment FHA loans – borrowers are required to pay insurance as long as they have an FHA loan (if the loan was acquired after June, 2013)

While it should have been a front-page, headline-screaming report, a VERY interesting piece of information was buried several paragraphs deep into a Wall Street Journal story on the reasons the housing market isn’t doing a better job at boosting the U.S. economy. Buckle up, it’s a good one!

The percentage of homeowners who are underwater – that’s a figurative term, of course – is 8.7%. Not that anything other than 0% is ideal, but let me put that into perspective for you. According to CoreLogic, that statistic back in 2011 was 21%! You have to agree that’s pretty impressive by itself – but wait, there’s more!

The percentage of homeowners who BELIEVE they are underwater, according to data from Fannie Mae, is 27%. Yes, you read that correctly – 27%, as opposed to the 8.7% who are truly underwater. That means that for every three people who BELIEVE they’re underwater, only one of them is. Let’s expand that number: in a sample size of 100,000 homeowners, 27,000 of those homeowners believe that their homes aren’t worth what they owe; in reality, though, only 8,700 are really facing that struggle. This means you instantly have 18,300 people whom you can turn from “no, I can’t” to “YES, I can” in listing their house.

It’s highly likely that this perception is one of the chief reasons so few homes are actually on the market. According to the National Association of Realtors (you’ve heard of these cats, right?), inventories fell another 2% in October, and this remains well below historical levels when compared to the sales pace.

I’m just spitballing here, but wouldn’t it make sense to make a VERY BIG DEAL of this in your marketing? It could be something as simple as “Two out of every three people who believe they’re underwater in their home really aren’t – let’s talk!” Let’s be honest, the average homeowner, when it comes to the value of their home, relies on gossip and the flyer on the house two doors down. Do you want to rely on those two items as your “marketing team”?

Food for thought: In one of our past editions of this extraordinary oracle of lending lore – sorry, I got carried away there for a moment – we talked about properly reading an appraisal to assure you’re getting the most for your seller. That same expertise will arm you with the ability to BE THE EXPERT and convince a potential seller that they’re ready to put their house on the market NOW.

If your client is a first-time homebuyer, do both of you a favor and consider a multi-unit property. Obviously, most first-time homebuyers are looking for that cute little house with a two-car garage and a white picket fence – one of the symbols of the American Dream, of course. However, consider for a moment that many first-time homebuyers are willing to look at and embrace a “tweak” to the American Dream: a revenue-generating investment. While most investment properties require a fairly significant down payment, an FHA loan only requires 3.5% (and it can be a gift). Making an even better case for this type of purchase is the size of loan FHA allows for the following sizes of properties:

o2-unit property: $347,000
o3-unit property: $419,255
o4-unit property: $521,250

Your buyer is only required to live in this property for 12 months. Once she’s hit the 12-month mark, she can slide another renter into her unit and look for a single-family residence (if she so desires). In addition to the rental history she’s built up with her other tenants, she can immediately count future rents for the unit which she’s just vacated as long as she has a one-year lease signed for that unit – all of that will be used as income in helping her qualify for the loan on the SFR (perhaps with a two-car garage and a white picket fence).

We’re not kidding ourselves into believing that every child dreams of being a landlord when he grows up, but it doesn’t hurt to have a two-minute conversation with your new buyer and present him with the option as outlined above. He’ll thank you for presenting him with all the options – and if he takes your advice, he’ll either be asking you to find a house for him in a short twelve months or look for more multi-unit properties, which means you could have a lifetime client looking to grow and manage a lucrative portfolio. We’re fairly confident that’s worth a two-minute conversation.

Expand Your Horizons

Relocation and timing don’t always coincide with one another, and that usually leads to the potential buyer signing a twelve-month lease on a rental property when she’s moving to a new city because she thinks she needs an employment history to qualify for a mortgage. For those professionals with jobs that are tied to a contract (doctor, attorney, teacher, nurse, dentist, etc.), we can close and fund 60 days before their starting that new job and use that income to qualify. Put that information in your back pocket and start marketing yourself all over the country – or around the world.

Do you know what actions could help improve a buyer’s credit score? Do you know how easily some of those actions are performed and how quickly they take effect? A recent survey from TransUnion indicates that an overwhelming majority of those planning on or considering buying a home in the next 12 to 18 months have little to no idea. This same survey found that while nearly three out of four (74 percent) of potential homebuyers believe it’s important to check the accuracy of their credit report, less than 45 percent correctly understand that their credit score measures the following:

• The amount of debt they hold
• The risk of not repaying a loan
• The financial resources they have to pay back loans

“As many people across the nation prepare to take advantage of still-low interest rates and look to buy a home, it’s essential they understand their credit score before applying for a home loan,” said Ken Chaplin, senior vice president at TransUnion. Here are some other interesting statistics that came out of the survey from TransUnion – although the majority of consumers recognize the importance of a credit score:

• 33 percent incorrectly thought increasing their income has the potential to help improve their credit score
• 28 percent incorrectly thought closing old accounts had the same potential

While this isn’t rocket science, looking at and analyzing credit reports is something your average buyer does not do on a regular basis (or ever). Free of charge, we’re happy to go over a buyer’s report and not only show them how to address those issues that may be adversely affecting their credit but educate them on the why’s and the how’s. Knowledge is power.

You’ll Find This VERY Interesting
We received a contract on November 17th. By November 30th – a mere fourteen days later – we closed that loan and everyone was a happy camper. Bear in mind, in that two-week period, we had the Thanksgiving holiday (November 26th), the day after (November 27th) when everyone was closed down, and the weekend (November 28th & 29th). This wasn’t luck – it was a product of our system we put in place LONG before TRID came along. We’re not bragging. We’re just letting you know the facts.

By a show of hands, who here has never heard of Johnny Carson? For those of you who raised your hands, suffice it to say, without him the world probably wouldn’t have a stage on which Jimmy Fallon, Conan O’Brien, Jimmy Kimmel, and Seth Myers could stand. In essence, Mr. Carson made late-night television what it is today. Even the likes of Jay Leno and David Letterman owe him a huge debt of gratitude. (If you’re getting ready to raise your hand and ask who those two cats are, I’m done.)

One of Johnny Carson’s skits was “Carnac the Magnificent” in which he would play a soothsayer and seer who could intuit things and see the future. The way he most frequently displayed this “talent” was taking sealed envelopes and answering the questions that were contained inside the envelopes. One of his most famous – the one that got the longest recorded laugh in the history of the show – was “Sis Boom Bah”, which was the answer to the question contained inside the sealed envelope: “What sound do you hear when a sheep explodes?” The written form doesn’t do the joke justice. Carson’s delivery was impeccable, take my word for it.

With that said, no one can really see into the future, but there are some smart people out there who can give us some pretty safe predictions. Read on.

According to a recent report issued by BMO Harris Bank, many Americans are gearing up to purchase a home in the coming years.

• 52% of Americans say they are likely to buy a home in the next five years
• These same folks are willing to pay an average of $296,000 for a home with a 21% down payment
• Among those who intend to buy, 78% plan to get preapproved before seriously searching for a home
• Meanwhile, 75% of current home owners set a budget before looking for a home; 16% usually spend less while 13% go over budget
• 74% of those looking to buy a new home will consult a real estate agent, while 59% said they will visit online real estate websites, and 37% will seek recommendations from friends and family

Armed with statistics like this, you are well poised to be an invaluable resource to the up-and-coming generation of home buyers. Rather than having them look at you solely as someone who knows the market and where to find the best properties, you can be the consultant/financial expert who puts them on the right path and set yourself apart from your peers – let us help you help them. It will take some patience, but the payoffs will be abundant!