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If you’ve dreamed of owning a home, recently enacted legislation offers a valuable incentive.
The legislation provides a tax credit of up to $7,500 for first-time home buyers.　

“This might be the opportunity of a lifetime for some first-time home buyers,” said Scott Hudspeth of Amerifirst Home Mortgage. “But buyers should note that there are time restrictions on this offer.”　

Only homes purchased on or after April 9, 2008 and before July 1, 2009 are eligible. The opportunity is available to anyone who has not owned a home in the previous three years. Here are some additional facts about the legislation:　

 

• The credit is equal to 10 percent of the cost of the home, up to $7,500

 

• Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit

 

• The tax credit works like an interest free loan and must be repaid over a 15-year period or when the home is sold.

 

• Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.　

Every time the Federal Reserve cuts the Fed Funds rate, as they did today by .50, mortgage companies are deluged by calls from borrowers with loans in process hoping they can get a better rate. Most of the time the answer is no! Don’t worry though - this isn’t your loan officer trying to take advantage of lower rates to make more money without passing it along to the consumer.

To better understand this, it helps to take a look back in history to the last extended series of rate cuts by the Federal Reserve. This occurred between January of 2001 and June of 2003. During this time the Federal Reserve lowered its target Fed Funds rate 13 times. In the month following each of those rate cuts, the 30 year fixed mortgage rate fell 8 times, but 5 times it went up! In fact, almost every time on the actual day the Federal Reserve cut rates, mortgage rates went up even if they later continued going down. Most of the time it took them a week or two to even return to pre-rate cut levels.

The reason why is, in the end, pretty simple. There is absolutely no direct relationship between the rates controlled by the Federal Reserve and mortgage rates. Only a very slight indirect relationship. The Federal Reserve controls the rates they charge banks to borrow money and the rates banks charge when loaning money to each other for very short terms. Often for money just loaned overnight. This is why you keep hearing the term “liquidity” thrown around on the financial news when discussing Federal Reserve rate cuts. When banks don’t have enough liquid cash on deposit to cover their daily obligations, which is often, they borrow it from each other. This rate indirectly affects credit card rates, bank personal loan rates, and banks use it to set their “prime rate”. The prime rate is the rate that banks charge their most credit worthy customers. Most customers don’t get that rate. Home equity line of credit rates are based on the prime rate plus some factor which depends on the loan characteristics. Home Equity rates will usually be quoted as “prime plus x” where x is some factor like 1 or 1.5 or 2 added to the prime rate. None of this affects 30 year fixed FHA or conventional rates.

The money that the bank uses to loan you for your mortgage comes from the sale of mortgage bonds. There are many different types of bonds including mortgage bonds, treasury bonds and corporate bonds and they are all competing in the marketplace for investment money. This money comes from individuals and also pension funds, retirement funds and money market funds. These bonds are also competing for investment dollars with the stock markets and commodity markets. There are three primary agencies that sell most mortgage bonds. These are FNMA (Federal National Mortgage Association or Fannie Mae), FHLMC (Federal Home Loan Mortgage Corporation or Freddie Mac) and GNMA (Government National Mortgage Association or Ginnie Mae). You hear about Fannie Mae and Freddie Mac in the news all the time today. They each issue bonds for conventional mortgages. You don’t hear much about GNMA, but they sell the bonds which fund government mortgages like FHA and VA loans.

These “mortgage backed securities” are traded on the open market daily and prices change constantly throughout the day. The prices go up and down just like the stock markets. Here is where it gets a little tricky. The bonds are pooled in huge amounts based on their face interest rates. So the price quotes will go up and down from 100% of the face value of the bonds. So when the price goes down, the yield goes up. For instance, when traders can buy FNMA 6% mortgage bonds for less than 100% of the face value the effective interest rate goes up. To simplify it, if they pay $99 for $100 of face value at 6%, the owner is getting a yield or interest rate above 6%.

At all hours of the day as borrowers are locking loans, lenders have to make an educated guess about how much they will be able to sell that mortgage bond for. What they hope is to be able to sell the bonds for more than 100% of face value, but they don’t know the price they will get on the open market, so they try to add a cushion to the rates to make sure they have room to profit. It is this price which determines the mortgage rates you get when you lock in your mortgage.

Because these bonds are competing in the marketplace for the same pool of investment money available for stocks as well as other types of bonds, the prices of mortgage bonds usually go down when the stock market goes up. People have to sell their mortgage backed bonds in order to buy stocks. As they sell, bond prices go down and interest rates go up.

Mortgage rates had been falling for months now prior to the .50% Federal Reserve funds rate cut today. The Federal Reserve cut the rate because of massive losses in stock markets all over the world among other things (700 billion Bail) which didn’t help yet, so many unanswered questions. They wanted to prevent such losses in the U.S markets but it doesn’t look like it was what the market was looking for.   Stocks closed down 200 today after the news with lots of uncertainty still in the economy.  Were down over 200 points today.  Yes, people (institutions really) had to sell their bonds causing bond prices to drop and mortgage rates to go way up today. Most lenders changed rates for the worse 4 times just today trying to catch up with the falling prices. In one afternoon, rates lost weeks of improvement. And I think it will take some time to recover from all of this.

So there you have it. If your eyes haven’t glazed over or you haven’t fallen asleep yet, you at least know the basics of what happens behind the scenes where interest rates are being set. 

Scott Hudspeth
Teleseminar coming October 29th, 6:00 P.M.
sign up at www.michiganzerodownfinancing.com 
 www.michiganzerodown.com

You could have great credit and a stellar payment history, but don’t take it forgranted. A payment that is one day late could cause problems if you have a home equity line of credit.

In fact, I recently had a client call me in a panic. His bank froze his substantial line of credit, funds he was relying upon while in between jobs. When I looked into this, I found out why: he had one late payment on his mortgage for the first time in his life.

This just demonstrates how bad it is in the banking industry. If they sense any sort of financial distress, they will take swift action. This client even had a high credit rating and long-term relationship with the lender.

Here’s the bottom line: banks and lenders just want to get paid…they are not looking to be your friend!

They could also raise your interest rate if you start making late payments-even one or two days late.

Banks are running scared. What you need to do is pay your bills on time…every time.

There’s an amazing financing option on the table for buyer who qualify for a mortgage but don’t have a down payment.

Guaranteed Housing Program has partnered with local lenders to help them extend 100 percent financing opportunities to

The Benefits are:

• No down payment required.

• No expensive monthly mortgage insurance means you may qualify for a larger loan

• Flexible credit and qualifying guidelines

• No mazimum purchase price limit

• Closing costs can come from any course and may even be rolled into the loan up to appraised value 

• Repairs and improvements can be included in the loan up to appraised value.

• competitive fixed 30-year rates, 2-1 buy downs and you can qualify at the lower rate 

Eligibility Criteria:   

• Occupy the property as your primary residence
• Do not have sufficient cash for a 20 percent down payment plus pay typical loan closing  
  and relocation expenses
• Be a U.S citizen, a U.S. non-citizen national or a “qualified alien.”      
• Provide stable and dependable income for repayment ability
• Have a credit history that indicates a willingness to meet obligations as they become due.
• Have an adjusted household income that is within Rural Development guidelines based on the number of persons who occupy the home.
• Purchase a residential property that is located in a Rural Development eligible area.  

Scott Hudspeth at Amerifirst can help you with your Rural Development home loan.  For more information      visit                                            
 
www.michiganzerodown.com coming soon
www.scotthudspeth.com
269-488-9530 Office
269-217-4481 Cell
Scott@AmeriFirst.com