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President Obama recently signed the new stimulus package which among other things improves the previous $7500 tax credit from the IRS for FTHB,s. Following are some of the benefits of this provision:

• The credit is now $8000
• Does not have to be paid back! This is huge.
• It is for FTHB's only. An FTHB is someone who has not owned property during the last three years.
• There are some income limitations as follows: $150K maximum for couples and $75K for singles. Higher salaries up to a maximum would cause the credit to be prorated accordingly.
• For purchases made between Jan 1st 2009 and Nov 30th 2009
• You have to stay in the home for three years.

It is important to note that this money will be available AFTER you purchase your property. However, if you can get a gift from a relative or even a loan from your 401K you can pay it back after you get your refund.

You claim your credit with your tax return of 2008 or 2009. If you have already filed your 2008 return, you can always do an ammendment to claim it this year. The information contained herein is considered accurate but not guaranteed. It is intended to educate the consumer and should not be relied upon to make a purchase decision. Consult a tax professional for advice before making any purchase decision.

One of the nice features of an FHA loan is the capability of utilizing a relative to qualify. Now you may wonder, What’s so special about that? Well, what is special is that the relative DOES NOT have to live in the property. The relative then becomes a non occupying co-borrower. On a typical conventional loan, a co-borrower is allowed but it has to live in the property.

There are some factors to consider when utilizing a non occupying co-borrower:

• The credit report of all applicants is utilized. Therefore, if the borrower does not qualify because of poor credit history by itself, it will not qualify with a co-borrower either.
• The co-borrower has to have enough income to cover his/her financial responsibilities in addition to the new mortgage payment including taxes and insurance.
• The co-borrower could be a close friend as opposed to a relative but then the transaction would require a minimum of 25% down payment. If it’s a relative then the down payment would be as little as 3%.
• The co-borrower does not even have to live in the same state to qualify.
• The loan would show up as a liability on the co-borrower’s credit report. This may affect any future credit related purchases made by the co-borrower.

Though not everyone has a relative willing or able to help with a property purchase, for those that do this is a great opportunity to purchase their home without having enough income.

People in Florida approved a measure last year that increased homestead exemption from $25K to $50K. This sounded like a great opportunity to decrease property taxes. And it is. But not for everybody. As it turns out if you have lived in your property for at least three years or more chances are that the extra $25K in homestead exemption will not make a difference and in fact your overall tax bill my go up. It did with me.

Before analyzing how this phenomena happened, it is important to understand how property taxes are calculated. The counties determine your taxes by first determining what the assessed value of your property is. When you first buy your property this value is typically 85% of the purchase price. As you live in your property for years, this value cannot go up by more than 3%/yr by law. The market value on the other hand is supposed to represent what your home is worth on the market. However, once you have lived in your property for 2 years or more this value is outdated. This value is usually below the real market value but in reality it is not a factor used to calculate your taxes. Once the assessed value is determined the homestead exemption(if you qualify) of $50K is subtracted from this value and the new value is used as the base for your taxes. This new value is multiplied by the millage rate to calculate your total tax bill. Millage rate is the tax rate pre-determined by your property appraiser for each of the departments that will receive a slice of the pie. One mil equals $1 for every $1,000 of taxable property value. If your millage rate is 20.49, then you are paying $20.49 in taxes for every $1,000 of taxable property value. Let's say your assessed value is $200K. When we subtract the $50K homestead exemption it yields an assessed value of $150K. If your millage rate is 20.49 your taxes will be $3073.50 for that year. The millage rate varies from county to county but it is specified on your tax bill or you can find it in your property appraiser's website.

I live in Palm Beach County. Upon careful examination of my latest tax bill it is worth to point out the following observations:

• Exemption of School Budget – the public schools budget was exempt from the second $25K. This means that the public schools obtained their budget before they subtracted the extra $25K. In my case the school budget actually increased.
• Home Assessed Value – although the market value of my property decreased $41K from last year, the assessed value – the value used to calculate your property taxes – actually increased by almost $6K(3%), the maximum allowed by law on a homestead property.
• Solid Waste Authority Increase – the solid waste authority rate increased by over $100. This arbitrary increase is a direct increase on the tax bill(non ad valorem)and totally unaffected by the $25K increase in exemption.
• Millage Rate Increase – this is possibly the biggest contributor to the tax increase. The millage rate in my case increased by .1746 as compared to 2007. This is a clever way to increase property taxes in stealth mode.

These four factors offset the extra $600 or so in savings that I would have achieved with the extra $25K in homestead exemption. As mentioned at the beginning there are some people that did benefit from this homestead exemption increase but chances are that if you have lived in your property for several years you saw little or no savings from this extra $25K homestead exemption, and in fact your tax bill may have gone up.

Whether you are getting a Conventional, FHA, or USDA loan, chances are you will have to pay Private Mortgage Insurance(PMI). For a full explanation on what is PMI, how it is calculated and how to eliminate it go to our What is PMI page. 

PMI is now fully tax deductible through 2010 thanks to a new law passed earlier this year. The mortgage must have originated after 12/31/06. The full deduction is limited to homeowners making $100,000/yr or less. If you make more than $100K you can still get a partial deduction. Consult your tax advisor for details.

There are some good deals out there on properties due to foreclosure, short sale, or simply the owner could not keep up the property. Let’s say you found a good deal but needs repairs.

When an appraisal is done on that property, the appraiser will write the noted deficiencies in the appraisal. A conventional lender as well as a regular FHA 203(b) loan, will require that the repairs be done before closing. This is the preferred way of handling the situation if you have enough reserves to cover the expenses, or if you negotiated that the seller will cover the cost of the repairs, before the closing. Typically no major structural repairs such as moving walls, roof replacement, or room additions are considered in this category. The ideal situation is to have the property habitable before the loan closes.

When the repairs are considered major and neither the buyer nor seller has the funds to cover the repairs, that’s when an FHA 203K streamline rehabilitation loan is appropriate. An FHA 203K streamline is a loan that provides the financing as part of the same mortgage loan to cover the cost of repairs up to a maximum of $35K. There is no minimum. It is underwritten once, based on the value of the property “as is” as well as the value of the property after repairs are completed. Both values would need to be on the appraisal. An approved contractor will be necessary to perform the work. However, the borrower may be able to do the work himself provided it meets the licensing, bond and insurance guidelines required by HUD and the particular county.

Examples of these repairs could be but are not limited to:

• Missing kitchen cabinets and/or appliances
• Missing toilets, sinks, bathtubs or other plumbing fixtures
• Exposed electrical wires and missing wall outlets
• Broken or torn down walls
• Missing carpets or tiles

Work not allowed:

• Major rehabilitation or major remodeling, such as the relocation of a load-bearing wall;
• New construction (including room additions);
• Repair of structural damage;
• Repairs requiring detailed drawings or architectural exhibits;
• Landscaping or similar site amenity improvements;
• Any repair or improvement requiring a work schedule longer than six (6) months; or
• Rehabilitation activities that require more than two (2) payments per specialized contractor.

Again, if the property needs some repairs the ideal situation if possible is to complete the repairs upfront either through the borrower or the seller paying for the repairs and then closing on a regular FHA 203(b) loan. When that is not feasible a 203K FHA streamline loan is a great alternative to procure the funds to make the house habitable in the first place. There are many other requirements for a 203K loan. Call us for additional details.

A great majority of properties in Florida have lost value during the past few years due in part to the glut of available properties for sale and not enough qualifying borrowers available. One of the hardest hit properties are the condos in South Florida, particularly in the tri-county areas of Palm Beach, Broward and Dade counties. As a result there are many bargains that can be snatched at in the 100’s and even well below $100K. Although the properties may be widely available, the financing is not as easy as it once was.

Conventional lenders for the most part don’t want to lend on condos and when they do, they require hefty down payments of 20% or more, and that’s for owner occupying properties. If the condo is an investment, be prepared to pay upwards of 5 points in discount points plus closing costs. Therefore, other than paying cash for it the most practical way to obtain financing is through and FHA loan. Whether you are a realtor representing a buyer for a condo, or just a private individual interested in purchasing one, it would be to your advantage to consider the following facts before deciding to make an offer or obtain financing on a condo:

• First and foremost find out if the condo is already on the list of approved condos from the HUD website here. If the condo is not listed in that website, it does not necessarily mean that it will not qualify.
• Some lenders will not consider financing at all any condos that are not already on the HUD approved website. But some lenders offer what is called a “spot approval” during the loan process. This is a basic checklist or questionnaire that the home owner’s association(HOA) completes during the loan process. However, the lender can still reject the condo depending on the information provided by the HOA. And the HOA charges a fee for completing the questionnaire which means that the buyer would have paid anywhere between $100 and $200 to complete the questionnaire, just to find out that the condo does not qualify.

What can you do then? Here is what we recommend:

• First make sure that the condo you are thinking or buying is a good value. Your realtor can verify this for you from previous sales. Otherwise you can check online yourself from our useful links page yourself.
• Call one of our advisors and provide the condo address and name so we can verify the eligibility information for you.
• We can provide you a copy of the questionnaire FREE of charge to you. Call the HOA and ask if they will complete the questionnaire for free before even making an offer. If they won’t then ask then if it’s OK that they answer a few critical questions over the phone for you. We can tell what those are. If they won’t even do that, you need to decide if you want to take the risk and pay for the questionnaire or just move on to another condo.
• If they did complete the questionnaire or they at least answered some key questions, provide it to us so we can review it and tell you if the condo would be approved.

Taking the above steps and doing your home work ahead of time will avoid a lot of frustration, as well as time and money wasted down the road.

Since we are in Florida which is a state prone to hurricane losses, we pay much higher insurance rates than most other states. However, we have been spared of major hurricanes during the past three years. Therefore, the rates have started to come down as more companies have started to underwrite in Florida again.

If you are still paying high rates you may want to consider the following steps to decrease your insurance rates:

• When considering the location of your property, just be aware that you will pay more for insurance if the house is east of I95.
• Age of the property being considered does matter for insurance purposes. Some insurance companies do not insure properties older than 40 years(the number could vary) and those that do charge a much higher premium. The best thing to do is call your insurance agent for details before buying. Look in our trusted partners page for an agent.
• If you already own a house have a mitigation inspection done. This is an inspection that checks mostly your roof construction, to determine how it can withstand the force of a hurricane. Check our trusted partners page and look under the home insurance category for an insurance agent. The insurance agent will most likely have a trusted inspector to do your inspection. Or go to www.mysafefloridahome.com/InspectionFirmList.asp for a list of approved inspectors with the state. Once the inspection is done you get a report with the findings. The insurance agent will need to see your report to give you a quote.
• The report will contain among other things improvements to your roof to better withstand a hurricane. You don’t have to implement them. But if you do the state of Florida may be able to help. At this point there is no more funding for this but please continue to check their website(www.mysafefloridahome.com/GrantEligibility.asp) to see when funds will become available again.

For more information go to www.mysafefloridahome.com.

If you need basic information first please view the What is a credit score? page. There are several steps you can take to improve your credit scores.  They can be done by you, if you have the time and knowledge, or by a credit repair agency(more on this below). If you are going to do it yourself here are a few steps:

• Get a copy of your credit report. You can get it FREE once a year from www.annualcreditreport.com. Follow the instructions and get it from all three agencies(Transunion, Equifax & Experian). You will not get the scores unless you are willing to pay a fee. By getting the scores you can check that they are very close to each other and if they are not, one or more agency does not have the correct information. If you decide not to pay the fee you will still get a list of all your accounts(tradelines) which is all you need to start the process.
• Review it thoroughly and look for errors, particularly make sure all accounts both open and closed belong to you.
• Look at the payment history, balances, credit limits, account numbers, etc., and make sure they all match with your statements.
• If you find errors you can dispute them with the agencies in question. If all three report it, then do it for all three. You can do this online at each agency’s website. You will need to submit evidence of the errors or discrepancies such as canceled checks, statements, social security card, plus whatever else they may ask to verify your claim. Alternatively you may want to contact credit grantors which can provide a quicker response than credit reporting agencies.
• Always get name, extension, expected date of reported change, request faxed & signed acknowledgement.
• It can take up to 30-60 days for the credit agencies to respond and another 30-60 days or more to remove the negative items if you are found correct.
• Distribute debt from revolving credit. Let’s say you have five credit cards and one of them is almost maxed out. Let’s say you have four other credit cards with low balances. If you move part of the balance from the maxed out card and redistribute it evenly over the other four cards, this changes the ratio of debt to available credit, thereby gaining about 20 points in your score with little effort.
• Transfer outstanding balances to new accounts. Let’s say you have only two credit cards and both are pushing the limit of available credit. Let’s say you open two new credit card accounts each with a credit limit of $5,000. You transfer part of your existing balances to the new accounts. Although you acquired two new cards with no credit history, the greater impact is the change in the ratio of debt to available credit.

Credit Repair Companies

There are many companies who claim they will repair your credit and therefore improve your scores within a certain period of time. You can usually do the same thing yourself, if you have the time and knowledge. If you don’t, they can be a great advantage. What they will do is challenge some of the negative items that are on your credit report. Your creditors have a limited time to respond and provide proof that the information is correct. If they don’t, then the information has to be removed. But just like everything else, do your homework before you hire them. Search online for complaints, ask them if they can provide references(may be unlikely due to privacy reasons, but ask anyway), ask friends or co-workers, check the Better Business Bureau or the state attorney’s office. Most of them charge you a hefty fee upfront. Try to find one that charges the fees after they remove the negative items. Discuss thoroughly with them your credit report and understand upfront what they can and can’t do so you set your expectations. You will need a minimum of 3-6 month to see improvements and possibly up to a year to see great improvement. As of the writing of this report we need a minimum of 580 to do a loan with FHA. However, check with us because that’s changing constantly. Check our trusted partners page and look for credit repair companies.

When you fill out a credit application we run a credit report for the underwriter. Each lender and each loan program have different guidelines they must follow. You should not anything that will have an adverse impact during the loan process. Adhering to the following guidelines during the loan process will give you the best opportunity for success.

Don’ts…

• Don’t apply for credit of any kind. If you receive invitations to apply for credit cards don’t respond. They will pull your credit report and your score will decrease. Don’t make any major purchases such as furniture, appliances, computer, cars, etc., until after the closing.
• Don’t pay off collections or charge offs unless the lender specifically asks you to in order to secure the loan. Generally, paying off old collections causes your score to drop. The lender is only looking at the last 2 years of activity.
• Don’t close credit card accounts. If you have to do that wait until after closing the loan.
• Don’t max out or over charge existing credit cards as this could have a negative impact in your ratio of debt to available credit thereby lowering your scores.
• Don’t consolidate debt to one or two cards. Again, this will impact your ratio of debt to available credit adversely which will lower your scores.
• Don’t co-sign on another person’s loan or change your name and address. The less activity that occurs while your loan is in process the better it is for you.

Do’s…

• Do consider joining a credit watch program. Your bank, credit union or credit card company may offer a free credit watch program that alerts you to changes in your credit report. This will alert you hopefully before the underwriter.
• Do pay all your accounts on time. One 30 day late payment can cost you 30-75 points.
• Do continue to use your credit as you normally would. If it looks like you are diverting from your normal spending patterns it could cause your score to go down. For example if you have had a monthly service for internet access for the past few years there is really no reason to drop it now. Again, wait until after closing to make any changes.
• Do call us if you receive any notification from a collection agency or creditor that could potentially have an adverse affect on your credit score, so that we can direct you to the right resources and prevent and prevent any negative changes in your credit report.