Debunking Real Estate Myths

A recent article on Trulia described widely-held myths about the real estate market. Here's my take on it.

1. Myth: Buyers with bad credit can’t qualify for home loans.
Even though requirements have tightened up considerably, recently, they seem to have relaxed a bit. A couple of the largest lenders of FHA loans announced that they’ve dropped the minimum FICO score guideline from 620 to 580, which is actually a fairly low score, but they are expecting a 5-10% down payment with these lower scores.

2. Myth: The Mortgage Interest Deduction isn’t long for this world.
The National Commission on Fiscal Responsibility and Reform caused a massive wave of fear when they recommended Mortgage Interest Deduction (MID) reform, which would dramatically reduce the size of the deduction.
Fact is, the Commission made a huge set of recommendations to Congress, but only a few are likely to be adopted. MID reform is not one of them, since economists and industry groups are convincing Congress that MID reform any time in the near future would handicap the housing recovery.

3. Myth: It’s just a matter of time before loan guidelines loosen up.
It’s possible that loans are as easy to get as they’re going to get. Zero-down mortgages won't be coming back anytime soon. If you want to get into the market, the time to get yourself ready is now!

4. Myth: If you don’t have equity, you can’t refi.
If your loan is held by Fannie Mae or Freddie Mac, they will actually refinance it up to 125% of its current value, assuming you otherwise qualify for the loan.
My niece and her husband recently refinanced their "underwater" Florida home.
If your loan is not owned by Fannie or Freddie, you might be a candidate for the FHA “Short Refi” program. While most mortgage workout plans are only available to people who are behind on their loans, FHA's Short Refi program is available to homeowners who are current on their mortgages and need to refinance up to 115 percent of their homes’ value.

5. Myth: If you’ve lost your job and can’t make your mortgage payment, you might as well mail in your keys.Until recently, this was essentially true, but there are some new funds available in the states with the hardest hit housing and job markets, which have been designated specifically for out-of-work homeowners.

The Hesitant Buyer

USA Weekend magazine had an article today by Annalisa Burgos, called "6 Myths of Buying a Home." It was aimed at first-time buyers, and contained common sense advice about treating a home purchase as a business transaction.
These suggestions may be easy to give, but having worked with many new buyers for more than three decades, I know that they are common concerns for what may be their largest financial decision.
So much of this process is emotional that it is nearly impossible for home buyers to narrow it down to "strictly business." The easiest advice to accept is her most sensible:
Realize that you should verify the information given in the listing by checking the details yourselves.
Don't stretch to buy as much house as you can get...not in today's market and in light of the current economy. And realize that your home's value may not increase very soon.
Some of her advice was reassuring for those suffering from "Buyers' Remorse."
As long as you were comfortable with the offer you made, don't be concerned that the seller accepted your offer right away. A purchase should be a win-win situation.
I found the two comments about buyers expecting to find the perfect home, and waiting for the house to "speak to them" to be the most familiar. In one of my first posts, I compared the home search to the search for a spouse. In housing or in love, finding the one that fills most of your needs may be as good as it gets.

My Taxes are Done

Another successful bout with Quicken and Turbotax, and my Federal and State Taxes are completed for another year.
With the government at every level hungry for more tax dollars, our Real Estate lobby is fighting to hold the line on the home mortgage deductions.
Tara at Trulia had some great pointers for homeowners filing their taxes this year.
Ask a roomful of homeowners what's so great about owning versus renting, and you'll hear them holler in unison: "the tax deductions!"
That means that if you're in a 28% tax bracket, Uncle Sam effectively subsidizes about a third of your borrowing costs or more, making your home more affordable or allowing you to buy a larger home than you could have otherwise. Also, big chunks of your closing costs are tax deductible, and hundreds of thousands of dollars of any profit (or capital gains) that you realize when you sell your home are exempt from income taxes.
Remember: You Have to Itemize Your Return to Claim Your Deductions.
During the recent debate on Capitol Hill about whether the mortgage interest deduction should be eliminated, it came out that nearly 40% of homeowners lose out on their major tax advantages every year when they fail to itemize their income taxes.
Another Point to Remember: Tax Relief for Loan Modifications, Short Sales and Foreclosures Is Only Around Through 2012.
2011 is projected to be the peak year for foreclosures during this market cycle. Distressed homeowners who are on the brink of a short sale, loan modification or foreclosure should be aware that normally, any mortgage balance that is wiped out by one of these outcomes is taxed as what the IRS calls Cancellation of Debt Income, or CODI.
The IRS is currently not charging income taxes on CODI incurred through a loan mod, short sale or foreclosure on most primary residences through 2012. But as I've mentioned before, banks are taking many months, or even years, to work out mortgages in any of these ways. If you foresee any of these outcomes in your future, don't put things off. Do what you can to get to closure on your distressed home and loan, ASAP, while you won't have income taxes to add as the insult on top of your significant housing injury.

A Long Delay in an All-Cash Sale

Closed another escrow, finally. This one should have been a snap. It was the Sunnyvale house that had five great offers. Because of all the difficult appraisals and recalcitrant lenders recently, the seller chose an offer that was all cash, and higher than the listed price. The only contingency was on the close of an existing sale of the buyers' residence. All inspections had been completed on our listing, and the buyers were willing to do any repairs and termite work on the reports, so it was also an "as-is" sale. As-is and all-cash...It should have been easy.
The first delay came from the buyers' agent a couple of weeks later. Most of the funds needed to close the buyers' house in Los Altos were coming from Japan, and only $50,000 a day was allowed into the U.S. We signed a week's extension. Meanwhile, the Los Altos buyers' loan documents had expired and had to be redrawn by their lender in the Midwest...another delay. The new closing papers were sent to the Los Altos buyers, but a long holiday weekend intervened. Meanwhile, the termite company was threatening to place a mechanic's lien on the Sunnyvale property, if the escrow didn't close soon. I had to remind the manager of our long business relationship, and personally guarantee the funds.
As we reached the end of a month long delay in closing, I also arranged a cash bonus for my seller to repay her for some of the interest she lost on the proceeds.
Another "all's well that ends well" saga. The buyers love their new house, the seller is delighted to finally live near her daughter, and I celebrated by buying new red boots!