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MCC - Mortgage Credit Certificates,

 A Blast From The Past

With all of the creative financing options of the past several years’ one option that has been forgotten is the good old-fashioned Mortgage Credit Certificate (MCC). In the early to mid 90’s the MCC was a popular tool for many first time homebuyers. Here are answers to some common questions about the MCC program.

What is an MCC?
An MCC is a dollar for dollar tax credit on a borrower’s federal tax return. This credit is used to offset a tax liability.

Who is eligible?

MCC’s are generally limited to First Time Homebuyers. Some State/Local Housing Financing agencies allow buyers in targeted area’s to be non-first time buyers. Generally MCC’s are limited to low to moderate-income borrowers. Income limits vary according to the geographic location of the property.

Who issues the MCC Credits?

MCC’s are generally issued by State Housing Finance Agencies and in some cases Local Housing Finance Agencies can also issue an MCC Credit Certificate.

How much is the credit and how is it calculated?

An MCC credit is equal to a minimum of 10% of the interest paid by a borrower during the year and can be as high as 50% of the interest paid for some borrowers.

How will it help my clients?

If a borrower pays $5,000 a year in interest and has a 20% MCC credit, that credit amounts to an extra $1,000 for the borrower over the year. That equals an extra $83.33 per month in the borrowers pocket and can mean as much as an extra $5k to $10k in buying power for a client. In addition for borrowers with higher debt ratios the MCC credit may help them qualify.

Can my clients use this with the First Time Homebuyer Tax Credit?

Yes, MCC’s can be used with the First Time Homebuyer Tax Credit.

Can my clients use this to increase the amount of their tax refund?

NO! This is a tax credit that means in order to get the full benefit of the credit your client must have a tax liability at the end of the year. This liability is “washed” away by the tax credit. Most borrowers create a tax liability by changing their withholdings out of their paycheck. That means more money in every check with no tax liability at the end of the year. This makes that dream house much more affordable!

WHAT YOU NEED TO KNOW ABOUT YOUR CREDIT AND HOW TO KEEP IT UNDER CONTROL!

Your credit report is a record of your credit activities. It lists all of your credit card accounts and loans, the balances as well as your payment history. It also shows if any action has been taken against you because of unpaid bills such as a lawsuit or bankruptcy filing. Because businesses use this information to evaluate your applications for credit, insurance and employment, it’s important that the information in your report is complete and accurate, especially if you plan to make a big purchase like a home.

The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission (FTC), is designed to promote accuracy and ensure the privacy of the information used in consumer reports. Under the FCRA, both the credit reporting agency (CRA) and the organization that provided the information to the CRA (usually the credit card company) must correct any errors or incomplete information in your report.

If you do encounter a mistake on your credit report, several steps need to be taken to correct the matter:

1. The first thing to do is get a copy of your credit report from each of the three major CRAs: Equifax, http://www.equifax.com; Experian, http://www.experian.com; and TransUnion, http://www.tuc.com.

2 In a written letter, tell the CRA what information you believe to be inaccurate. Include copies (not originals) of documents that support your position. Provide your complete name and address, identify each item in your report you dispute, and request deletion or correction. Be sure to make copies of your dispute letter and enclosures.

3. Send your letter by certified mail, return receipt requested, so you can document what the CRA received.

4. The FCRA mandates that all CRAs reinvestigate the items in question — usually within 30 days — unless they consider your dispute frivolous. They also must forward all relevant data you provide about the dispute to the credit card company. After the credit card company receives notice of a dispute from the CRA, it must investigate, review all relevant information and report the results to the CRA.

5. If the disputed information is found to be inaccurate, the credit card company must notify all nationwide CRAs so they can correct this information in your file. Disputed information that cannot be verified must be deleted from your file.

6. When the reinvestigation is complete, the CRA must give you the written results and a free copy of your report if the dispute results in a change. If an item is changed or removed, the CRA cannot put the disputed information back in your file unless the credit card company verifies its accuracy and completeness, and the CRA gives you a written notice that includes the name, address, and phone number of the credit card company.

7. In addition to the CRA, you should also write to the credit card company about the error. Again, include copies of documents that support your dispute. If you are correct — meaning the information you disputed is found inaccurate — the credit card company cannot use it again. Further, at your request, the CRA must send notices of corrections to anyone who received your report in the past six months.

Home Valuation Code of Conduct:

Now What?

The way appraisals are ordered and transmitted to the client has changed!

Listed below are the most frequently asked questions regarding appraisal-ordering procedures and what now must be included on an appraisal report. Just a note—HVCC applies to conventional loans only. FHA, VA and USDA loans are exempt from this rule.

How does an appraisal get ordered?

You must order an appraisal thru an Appraisal Management Company who in turn, assigns the appraisal order to ANOTHER appraiser—or the mortgage company’s independent person who has nothing to do with the origination of the loan.

What is an Appraisal Management Company?

It’s a third party, independent company formed for the specific purpose of being a middleman in the appraisal ordering process. With this additional layer of management, the appraisal costs more.

Can I talk to the appraiser?

Lenders must provide a copy of the purchase agreement but are prohibited from speaking with the appraiser about value. However, there is nothing in the HVCC rules prohibiting real estate agents to discuss the transaction with the appraiser.

What’s the buzz about the “value trending” appraisals must now include on the appraisal report?

In addition to traditional sales comps, appraisers must now provide a “trending analysis”. It’s a new form where they must include the following information: Sales Price compared to Listing Price (shown as a percentage); months of housing supply, days on the market, sales activity compared to the overall sales, seller concessions and number of sales of foreclosed properties. Yes, it could affect the appraisal value.

What if the value comes in lower than the sales price?

The real estate agent needs to provide additional information or comps to support the value to the lender.

The lender in turn, sends to the appraisal management company, who gives it to the appraiser. Expect delays.

Can an appraisal be assigned to another lender?

Yes, but the lender who ordered the appraisal must agree to the transfer.

Can the borrower pay for the appraisal at the door?

No, it must be paid by credit card by the lender ordering the appraisal.

What’s the 3-day appraisal notice to the borrower all about?

The borrower has 3 days to “review” the appraisal and the loan cannot be closed until the 3-day waiting period has elapsed. However, the borrower can sign a waiver if they wish to close earlier than the 3-day waiting period.

The appraisal report can be sent to them by email or if no email address, a printed copy by the appraisal management company.

What Are The New Rules When You Buy a Home & Current Home is Not Sold or Not Going to Be Sold?

• Determine whether or not your home MUST be sold – you may want to get it listed NOW!
• Get pre-qualified if you intend to keep current residence after you buy another.

FANNIE MAE RULES, As of August 1, 2008. If your client is purchasing a new residence and is retaining their current principal residence (not sold and closed at time of closing) it is MUCH more difficult to qualify. One of the three must apply.

1. Current Home Pending Sale

· Count both house payments, old and new, in qualifying ratios unless there is an executed purchase contract on home being sold, and evidence that the lender’s financing contingencies are cleared.

· Required cash reserves after closing: enough to make six months house payments on both properties; less with documented 30% equity in home pending sale.

2. Existing Home Converts to Second Home

· Count both house payments, old and new, in qualifying ratios.

· Required cash reserves after closing: enough to make six months house payments on both properties; less with documented 30% equity in home converting to second home.

3. Existing Home Converts to Rental Property

· Count both house payments, old and new, in qualifying ratios. Rent may be used to offset payment ONLY if a new appraisal verifies 30% equity, home is leased, and security deposit verified.

· Cash reserves after closing: enough to make six months house payments on both properties.

Bottom Line –

1. Any time you retain ownership of your current home and need to close on a new home, you must qualify with both payments. Only exceptions are:

1. A home that is sold, with a valid purchase contact, and evidence that all financing contingencies are removed; or
2. The current home is to be rented (see #3), with evidence of 30% equity, a lease, and a security deposit.
1. You always need cash reserves after closing in the amount of 6 months PITI for both homes unless there is 30% equity in their current home.

Avoiding HUD Home Headaches:

Tips On Buying HUD Foreclosures!

Bidding & Buying HUD homes—it seems to be the hot ticket in town.

However - Remember these key points to avoid problems!

Only primary residence buyers allowed in the first round of bidding.

Be advised that if the home is being offered as eligible for FHA financing it:

• Has an existing FHA appraisal that must be used (unless expired) AND
• The sales price has usually been based on the existing appraised value. Bidding above the sales price may result in them paying the difference out-of-pocket between their bid and appraised value.

HUD does not automatically provide title insurance. Make sure that the lender has disclosed this additional expense if you want to purchase it to avoid surprises at closing. Only if HUD has agreed to pay closing costs, could the insurance be provided at HUD’s expense.

If HUD is offering a repair escrow,this amount can be ADDED to their FHA loan, but HUD doesn’t pay for it.

Lender documents must be to the title company up to 10 days prior to closing date in some states. Make sure the buyer’s lender understands and can accommodate the requirement.

HUD signs closing packages first. Then once the loan proceeds and the title company receives buyer down payment and closing costs, the buyer is allowed to sign. Make sure that the lender is aware and has the ability to fund the loan BEFORE they have a completed loan package.

Closing delays are common due to “title clearing” issues. Foreclosed homes can have several liens due to utilities, taxes; etc that must be dealt with before closing can take place. Be perpaired in the beginning for potential challenges, such as rescheduling of moving trucks, and possible rate lock extension fees.

You  will appreciate your proactive approach to making your dream come true!

Get a New Mortgage Understanding FHA Down Payment Options!

Little-Known Sources for FHA Down Payment!

Has this happened to you?  “I’d like to buy a home but don’t have the money for the down payment or closing costs!”  There are a lot of lesser-known alternative sources of funds that are acceptable to FHA!  These sources of Down Payments might help you buy a home sooner than you think – simply by knowing what FHA will accept and the “right” questions to ask your Mortgage Broker!

 Gift Funds – Family, close friends (with no financial interest), employers, and charitable organizations (with no financial interest) are acceptable donors.

• Loans from Immediate Family – Unsecured or secured against the subject property.  Payment must be calculated in ratios.
• Secured Loans – Can be collateralized by investment accounts or real property.  Payments on loans against deposited funds (401K, etc.) aren’t considered in ratios.
• Trade Equity – Borrower can trade real property as part of cash investment. (i.e. boat)
• Sale of Personal Property – Requires third party estimate of worth and proof of sale (car, boat, motorcycle, eBay).
• Bridal Registry Accounts – Account is opened prior to wedding to allow family and friends to deposit cash gifts.
• Sweat Equity – Labor performed or materials furnished by the borrower before closing on existing or new construction.
• Commission from Sale – Family member, who is a licensed real estate agent and entitled to the commission from the sale, can gift commission to borrower.
• Rent Credit – When purchasing a home currently being rented, the amount of rental payments that exceed the fair market rent can be considered part of the cash investment.

Additional details and documentation requirements apply to each source but all are legitimate and workable.  Contact me for all the information on how this may work for you. www.tmes.com

 Home Buyers Tax Credit Extended!

Effective December 1, 2009

It’s part of the HR 3548 Bill called Worker, Homeownership & Business Assistance Act of 2009-Section 11.

Read the highlights—but always refer your clients back to their tax advisor for specific questions or unusual circumstances.

First-Time Homebuyers:

Tax Credit of $8000 or 10% of sales price.

Must be “principal residence”.

Could not have owned a home within 3 years prior to the closing date of new purchase.

Long-Time Residents of Same Principal Residence –

Tax credit of $6,500 or 10% of sales price.

Must have owned home for 8 years and lived in that home consecutively for 5 years out of those 8 years.

Current home must have been principal residence.

Special Rule for Members of Armed Forces:

Member of “Uniformed” Services.

Member of Foreign Service of the United States.

Employee of Intelligence Community.

Extended Duty defined as “Official Orders outside the United Stated for at least 90 days during the period 12-31-08 and May 1, 2010”.

Tax Credit Dates Extended.

Important Dates:

Sign a sales contract between December 1, 2009 and April 30, 2010 and close by June 30, 2010.

Qualified Armed Forces – December 1, 2008 and April 20, 2011 and close by June 30, 2011.

Income Limits Increased:

$125,000 Single

$225,000 Married

Modified Adjusted Gross Income (MAGI) – can earn up to $20,000 more than income limits and still get a partial tax credit.

Age Limit:

18 Years old on Date of Closing

If married, and spouse is less than 18 years old, other spouse must be 18 years old

Maximum Sales Price:

$800,000

Proof of Purchase

Copy of HUD 1 must be attached to IRS 5405 “First Time Homebuyer Credit” form.

Ineligible Home Buyers:

Non-resident aliens.

If property disposed of before the end of the tax year.

If property ceases to be principal residence before the end of the tax year.

If property is acquired from a person who is “related” to the homebuyer or if married, the homebuyer spouse (this was added to the HR 3548).

Income exceeds income limits (MAGI calculations).

Less than 18 years old.

For more detailed information contact us 703-255-5810