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Posts Tagged ‘lenders’

Its almost that time of year again. TAX SEASON! Just after the Ho Ho Ho’s are done, for many people its the Woe Woe Woe’s of tax time. This is especially a crazy time for the self employed. Most business owners take advantage of all kinds of write-offs and tax breaks to eliminate most, if not all of their tax liablility. While that is awesome, it may not be the right move!

If you are thinking of buying a home this next year, be careful with your taxes. Just because you grossed $250,000 last year does not mean you get to use that for your income level. Lenders are not looking at your gross sales. They are looking at your net taxable income on your Schedule C. For many people this could be a problem.

Many business owners pay a professional to handle their taxes. These professionals have one goal in mind… to bring your net taxable income as low as possible so that your tax liability is small. But this also will affect any income that you can use to qualify for a home (or any other loan.) And with lender’s tightening up their loan programs, the old “stated” income deals are hard to find!

Here is a real life scenario I just went through…

A business owner filed taxes last year with gross income revenues of over $250,000! He had a fantastic year! He also had a fantastic accountant that was able to get his taxable income down to $2,500.00. Yeah, that’s right… $2,500.00. But even if it was $25,000, he would have had the same problem…. This year when he decided to buy his family a home, the lender is qualifying him off the NET income of $2,500! That means with no other debt at all, he could afford a house payment of roughly $75 a month. Oh, that also includes taxes and insurance. Not much home huh?

Lenders are figuring that if you are able to write off these expenses, then you are not holding that as cash. They can only go by your net income… and that is what you pay taxes on.

So what do you do? Either pay lots of taxes or keep renting? NEITHER! You can have the best of both worlds IF you know how to do it…

This year when you file your taxes, have your accountant show as much income as possible on the Schedule C. Yes, I know, that means you have taxes due… don’t worry about that right now. You have until April 15th to pay anything. Once you have FILED you taxes (and it does need to be filed) you can apply for a mortgage and be qualified on that income. Then GO FIND A HOME! Get started right away in finding the right home. Once you close on your home, have your accountant go back and AMMEND your tax returns, taking all the deductions you “forgot” to take the first time. Get this ammended return in by April 15th, and any check you may need to write Uncle Sam will be much less.

In doing this, you have achieved both goals… buying a home and reducing your tax bill.

ADDED 12/21/2007

I have recieved a few emails from folks concerned that this might be considered fraudulent. Please understand that I am not in any way promoting any type of fraudulent activity. However, we all know that when a good accountant is done with all the allowable write-offs that the IRS allows, the taxable income that a business owner may be left with is NOT the useable income they have lived off of for that past year. Majority of the time, the taxable income is dramatically less than what that individual actually used to live and pay bills. So using the Schedule C net income is not a totally accurate representation of a borrower’s income producing ability; however, it is the number lenders use to qualifying a self-employed borrower for a mortgage. So if you are self employed and plan to buy a home, I guess the best advice is to show your taxable income as what you actually lived off of last year when you first file, and then you can go back to ammend your taxes to take advantage of the additional items the IRS allows you to write off. Self employed individuals take the most risks in life and we all benefit from that. They should also be given the most opportunity as well. Is it working the system? I guess it is… but in my humble opinion, it is no different than what the accountant can work the system for in finding additional writeoffs.

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This is just one of the many creative solutions you will find when you work with a professional in the mortgage industry. If you are thinking about buying a home, you really need to work with those that know the in’s and out’s of the business. To get pre-approved, contact the Carolina Mortgage Connection at 877-411-9327 or apply online to pre-qualify.

“Ask and ye shall receive”

I recently posted about the delivery fees that Freddie Mac will be imposing on loans with score below 680 and LTV’s above 70%. With that report, I have been asked several times how this will work… Will the borrower need to have an additional 2% for closing? Will this be paid in the rate? How will this work?

I do not have any “official” word, but here is how it should play out…

The delivery fee is charged to the seller of the loan… i.e. the lender. So, for example, if the lender is Wachovia or Countrywide, when they sell the loan to Freddie Mac (and even Fannie Mae) they will have to pay a delivery fee according to the borrower’s score and LTV. I assume this will be deducted from the money they earn when selling the loan back to Freddie / Fannie.

This will apply to all loans sent to Freddie / Fannie regardless of who originates the loan.. in other words, brokers and bankers alike will have to deal with this. It all comes down to when the lender sells it to Freddie or Fannie on the wholesale end after it is closed.

Now, how will it be addressed? The cost will most likely be included in the rate. The feedback I am getting is that when a loan is priced and locked, the delivery fee that the lender will need to pay will be included in the lender’s yield from the rate. So if Wachovia, for example,  is getting 2% in yield when they sell to Freddie, but the new fee will eat up 1% of that yield, they will lock the rate to the borrower with a higher yield to net the same money. This would result in a higher rate to the borrower.

In other words, a better credit score will now definitely yield a better rate to the borrower! And those with moderate credit (640-680) will be impacted by this. Below 640 has already felt the crunch and will feel it even more so.

Now, one thing to consider… and please pay attention to this: The delivery fee will be imposed on lenders selling their loans to Freddie / Fannie after March 1, 2008. HOWEVER, we will start seeing the rates increase sooner than March 2008, maybe as early as DECEMBER because the loans closed in December/January may not actually get delivered until around March! So NOW IS THE TIME FOR BUYERS TO GET OFF THE FENCE!

For more information on mortgage and home financing, or for help in the Charlotte NC area, please contact Ed Nailor with 1st Metropolitan Mortgage- your Mortgage Loan Specialist.

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Ed Nailor
Home Loans in Charlotte

1st Metropolitan Mortgage
10801 Johnston Rd Suite 213
Charlotte, NC 28226

704-248-8694 Phone
visit http://carolinamortgageconnection.foundbydesign.net/

Get pre-approved to buy a home in Charlotte NC today

This week Inside the Money:

• Freddie Mac announces Higher Costs for Mortgages
• Rates remained relatively level
• Subprime is making strides
• It’s still a great time to buy or refinance!

Freddie Mac announces Higher Costs for Mortgages

Freddie Mac announced that beginning March of 2008, it will impose “delivery fees” to lenders that write loans with credit scores below 680 and with loan to values over 70%. The fees will range from 0.75% to 2% of the loan amount on a sliding scale of credit score ranges. No word yet as to the ability to “roll” these fees into closing costs, or if the lender itself will just charge a higher rate to provide greater yeild to pay this fee. We will see as we get closer.

Rates remained relatively level

Rates over the past week have held fairly steady. The average 30 year fixed mortgages were hanging in the low to mid 6% range (including FHA). With recent announcements of Freddie Mac and Fannie Mae losses, one can only expect that these rates may begin to move upward soon, however I would expect it to be a gradual move if this happens.

Subprime is making strides

Believe it or not, the lenders still in the subprime market are beginning to make strides. Rates are falling, although very slowly. And credit score requirements are beginning to come back down. For a while you needed to have a 680 score to get 90% with many subprime lenders, and then you were looking in the 9-10% range with many of them. Pricing is slowly coming back and minimum scores are being lowered, however most subprime lenders are still shying off from 95-100% loans. There are a few, but most of these buyers can also qualify for a Fannie Mae type loan and save money there.

It’s still a great time to buy or refinance!

Even with the “mortgage crisis” and the tightening of liquidity in the market, rates are still near record lows and holding fairly steady. There are a ton of mortgage products for nearly any buyer, although those with major credit issues may need some work before buying. And home selection could not be better. For anyone thinking about buying a home, now is the time to make your move. Opportunity is knocking very loudly.. don’t ignore it!

For more information on mortgage and home financing, or for help in the Charlotte NC area, please contact Ed Nailor with 1st Metropolitan Mortgage- your Mortgage Loan Specialist.

_________________________________________________

Ed Nailor
Home Loans in Charlotte

1st Metropolitan Mortgage
10801 Johnston Rd Suite 213
Charlotte, NC 28226

704-248-8694 Phone
visit http://carolinamortgageconnection.foundbydesign.net/

Get pre-approved to buy a home in Charlotte NC today

As many people have heard, Bank of America has decided to exit the wholesale marketplace to pursue a stronger retail presence in the mortgage industry. This is not considered to be a major blow to wholesale. While BOA is a big name bank, their presence in the wholesale market was very small. Many of the brokers I know and have spoken to that were signed up with BOA rarely used them because they were finding better rates with other lenders!

Regardless of that, the mortgage industry is still plugging along strong. While news media and the internet continue to pour out their “the sky is falling” coverage, mortgage rates are still near all time lows and despite the subprime industry woes, there are still plenty of programs out there to service your first time home buyers, low to moderate income borrowers and even those with credit issues! And with the selection of homes available, your message to people on the fence is to jump in NOW!

Rates right now are still hovering in the lower 6% range (have seen them vary between 6.25-6.5% all week) and with programs like My Community Mortgage, House America, as well as the FHA government programs, there is no reason not to have a hot holiday season!

The soft market is the result of fear my friend. With the news media coverage of the “worst collapse in the mortgage market”, people have held still because they are afraid they can not buy. While the news media in my opinion is no longer really news, they are competing for advertising dollars, so big scary headlines help capture audiences. I doubt they will let this go for quite some time… even after all the dust clears, there will be continuing coverage of all the players that caused it to begin with.

Our job as professionals is to let people know that now is one of the best times EVER to buy a home. You can negotiate more than ever, buy more home for the money and RATES ARE STILL AMAZING!

If there is anything I can do to help you achieve this goal, please let me know. I honestly want to be a partner in your success!

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Ed Nailor
Mortgage Specialist
1st Metropolitan Mortgage
10801 Johnston Rd Suite 213
Charlotte, NC 28226

704-248-8694 Phone
704-644-0258 Fax

Visit www.EdNailor.com