California Legislature has passed Governor Arnold Schwarzenegger’s proposal (AB 183) to extend the $10,000 first time home buyer tax credit starting May 1, 2010 until December 31, 2010. He is expected to sign the bill soon.

The previous California tax credit limited to a total of $100 million for new home purchases only was exhausted eight months before the proposed deadline. The initial bill credited over 10,000 home buyers.  The new bill appears to double the amount of assistance.

Highlights of New California Tax Credit

• $10,000 tax credit or 5% of purchase price (whichever is lower)
• “Qualified principal residence” means a single-family residence, whether detached or attached, that is purchased to be the principal residence of the taxpayer, is eligible for the homeowner’s exemption under Section 218, and has either never been occupied or is purchased by a first-time home buyer.
• New homes for any taxpayer and new/existing homes for first time home buyers
• $200 million in funds available on a first come, first serve basis
• Credit given in 3 equal payments to a taxpayer’s personal income tax returns over 3 year period

When additional information comes available and the bill is actually signed, I will post the updates.

This is an extremely rare opportunity to take advantage of the reduced prices in homes, 40 year low in interest rates and to receive an incentive back from the state of California. Now, is the time to make a move.

Frequently Asked Questions for California Tax Credit

Related Articles:

California Releases Guidelines for 2010 New Home and First Time Home Buyer Tax Credit

Apply for a loan now!

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Forms for Reference

Assembly Bill 183

2009 Form 3528 – actual form from last year – cannot be used for new credit – only use as a reference – DO NOT SUBMIT THIS!

FTB Publication on 3528 – after credit was exhausted, FTB released this

Today, most California First-Time Home Buyers choose FHA Mortgages due to the low down payment (3.5%) that is required.

This can be a little confusing for borrowers looking at foreclosure properties that have a significant amount of perceived equity, but the FHA clearly defines that the minimum down payment on a purchase transaction is 3.5% of the lesser of the appraised value or the sales price.

In addition to the FHA 3.5% down payment, borrowers must have sufficient funds to cover borrower-paid closing costs such as pre-paid taxes, insurance, title, appraisal, underwriting, and processing fees.

All sources of funds have to be properly documented and verified. Underwriters will be looking to verify that there were no additional undocumented debts incurred by the borrower to obtain all or part of the required cash investment in the property.

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Acceptable sources of borrower funds include the following:

• Savings and Checking Accounts
• Earnest Money Deposit
• Gift Funds
• IRAs
• Savings Bonds
• Private savings club
• 401 (k) and Keogh Accounts
• Stocks and Bonds
• Thrift Savings Plans
• Cash saved at home
• Sales Proceeds
• Sale of personal property
• Commissions from sale
• Trade Equity
• Rent Credit
• Collateralized Loans
• Disaster Relief Grants and Loans
• Employer’s Guarantee Plans
• Employer Assistance Plans

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Questions About the Source of Down Payment Funds:

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Q: How is the Earnest Money Deposit verified?

The EMD is the initial deposit submitted with an accepted purchase contract offer which is held in an escrow account. These funds count towards the borrower’s down payment and/or closing costs.

The EMD is verified by a cancelled check, certification from the deposit-holder acknowledging receipt of funds, or separate evidence of the source of funds.

*If the EMD exceeds 2% of the sales price or appears to be excessive based on the borrower’s history of savings, there may be more documentation required to source and document the money trail.

Q: How are Savings and Checking Accounts verified?

A verification of deposit (VOD), along with the most recent bank statement is one way a lender may request to verify these funds. If there is a significant increase in an account, or the account was recently opened, a written letter of explanation may be required as well.

Q: What if I have been saving money in a jar or have mattress money?

The borrower will need to provide a written letter of explanation and evidence of the ability to accumulate the cash. This can include analyzing a borrower’s income stream, the time period which the funds were saved, spending habits, documented expenses, and a history of using financial institutions.

Q: How is a down payment documented from a 401 (k) or IRA?

While liquidation of the account is not required, underwriters will only use up to 60% of the value of the assets, unless the borrower can prove that a higher percentage an be withdrawn after subtracting any Federal income tax and penalties.

Q: Do I have to show liquidation of funds from Stocks or Bonds?

No, you may not have to show actual liquidation of funds from a Stock or Bond, but the accounts will be verified by providing monthly or quarterly statements.

Q: Who can give a Gift Fund?

A gift fund can be considered as an acceptable source of down payment as long as there is no expected of implied terms of repayment to the donor by the borrower.

Gift funds can be given by the following:

• A relative
• A close friend with a clearly defined and documented interest in the borrower
• A charitable organization
• A government agency or public entity that has a home ownership program
• Borrower’s employer or labor union

FHA requires the donor to provide a statement from a viable account from which the gift is donated.

Q: Can real estate agents use their commissions as part of the down payment?

Yes, a family member who is a licensed real estate agent may also donate their commission.

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There are many more down payment options that can be considered by an FHA underwriter as acceptable funds to close.

It is important to be completely transparent with your loan officer at the time of the initial application and financial strategy session so that we can put a game plan together for your individual scenario and goals.

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Top 5 California Mortgage Links / Articles / Questions

1. California First-Time Home Buyer Frequently Asked Questions
2. California Mortgage – How Much Can I Borrow?
3. What Are The Current Mortgage Interest Rates?
4. Applying For A California Mortgage – What Documentation Do I Need?
5. How Does The Mortgage Approval and Funding Process Work?

First Priority Financial
3700 Hilborn Rd #700
Fairfield CA 94534
951-506-4663 | Email

______________________________________
>> Fast Application —————- >> Rate Tracker
______________________________________

While the approval and funding process of a new California purchase mortgage has several moving parts, this article should help you put the basic time line in perspective.

1.  Loan Application –

This is where the loan officer spends a little time over the phone or at the office with a potential borrower discussing their lending scenario, financial goals, and required documentation.  Depending on the amount of information requested by both parties, a typical loan application generally can take between 15 minutes to an hour.

2.  Pre-Approval –

A pre-approval lets the borrower know how much they can qualify for, and is issued once the loan officer has verified income, assets, and credit.  As lending guidelines continue to change, most loan officers will take the pre-approval a step further and run a full online Fannie Mae (DU) or Freddie Mac (LP)  automated underwriting approval to make sure the borrower has an additional layer of confidence prior to shopping for a new home.

Keep in mind, DU or LP approvals are not considered full underwritten approvals, unless an underwriter has physically analyzed the submitted documentation.  Every bank has their own quality control systems for this process, but the average time it should take for a full underwritten approval is 48-72 hours.

So basically, it is a good idea to get everything in and wait an extra day or so for an underwriter to issue a full approval.

3.  Loan Search / Good Faith Estimate –

Once a pre-approval has been issued, it is important that the lender and borrower agree on the actual terms of the new mortgage prior to submitting offers on a new property.  A Good Faith Estimate is a form that outlines the  interest rate, down payment, purchase price / loan amount, and other estimated closing costs so that the borrower can make an educated decision.

Even though the GFE is an “Estimate” based on the disclosed costs of the new loan, there are several things that the loan officer doesn’t have control over.  Make sure you ask your loan officer what specific line items you can expect to be consistent or change prior to closing.

4.  Purchase Offer -

Depending on which market you are in, the purchase offer and acceptance process can be an entirely new beast to deal with.  Short Sales, Bank Owned (REO), and Rehab properties may take several weeks of negotiation before a perceived win / win deal is reached.  It is important to hire a full-time real estate professional who is familiar with the landscape and knows how to navigate these types of transactions.

Recent neighborhood sales, pending foreclosures, and the actual terms of the purchase agreement are a few things that you need to pay close attention to before you commit to putting a sizable earnest money deposit down.

4.  Due Diligence Period –

This is the time, as defined in the purchase agreement, that the borrower and seller have to complete all inspections, appraisal, review HOA / title documents, and anything else that may have an impact on the successful closing of the purchase transaction.

In light of the new HVCC and FHA Appraisal guidelines, it may take several extra weeks to have an appraisal completed.  Please make sure that everyone is aware of these delays so that it is properly noted in the purchase contract.

5.  Appraisals / Inspections Completed –

Typically, the appraisal and home inspection are paid for in advance by the borrower and have to be completed within 10 days of an accepted offer.  Obviously, an extended period of time will have to be given if the mortgage falls under HVCC guidelines.

The mortgage company will have to order the appraisal through a third party Appraisal Management Company, but the buyer’s agent generally handles the logistics of the property inspection. Most borrowers like to be present at the time of the home inspection, however, the appraisal is handled privately by an appraiser.

6.  Final Conditions Submitted to Bank -

The appraisal, preliminary title report, and any addition borrower documents are submitted to an underwriter for final approval.  This process takes 24-48 hours and is the final step, other than a loan lock, needed to order closing documents.

Proof of hazard insurance is also required prior to ordering loan documents.  Some mortgage programs allow a borrower the option of including their quarterly real estate tax payments and annual hazard insurance premium in the monthly mortgage payment by establishing a separate escrow (impound) account.

Make sure you know what your total monthly mortgage payment is before ordering documents.

7.  Loan Lock –

Mortgage rates have a tendency to change a few times a day depending on market conditions and adjusting credit / bank guidelines.  It is important to regularly communicate with your loan officer to make sure you get the rate and closing cost scenario that you have budgeted for.

Some brokers have the ability to change banks or negotiate a lower rate if things change for the better, but you are ultimately putting full trust in your loan officer when it comes to the rate game.  Basically, make sure you work with a loan officer that believes in full disclosure, communication, and transparency.

Rates can be locked between 7 – 90 days.  A good rule of thumb, the shorter the lock period, the lower the interest rate.  Since a .125% adjustment in rate may only impact your monthly payment by a few dollars, it is a good idea to find a rate you are comfortable with and lock as soon as possible.  With the rapid fluctuations in pricing due to the turbulence on Wall Street, rates could move .5% in a matter of hours causing monthly payments and closing costs to significantly change.

8.  Final Loan Documents Signed -

The final loan documents are delivered to an escrow or title company for preparation.  The borrowers will either sign with an escrow officer, or meet an approved notary at a convenient location.  The signing generally takes about 1 – 2 hours, depending on the amount of questions the borrower has about the transaction.

If there is additional funds to close, like a down payment or closing costs not covered by the seller, the borrower will bring a certified check to the escrow company.

*Make sure your loan officer knows where these funds are coming from so that there is a documented paper trail for the underwriter to approve.

The final property inspection is also completed during this time. If there are things that still need to be fixed before the you agree to close on the purchase, let your loan officer know if you want to hold off on funding, unless the rate or documents are set to expire.

9.  Funding / Recording-

Once the final documents have been signed by the borrowers they are shipped back to the bank for a quick inspection and then set in line for funding.  A wire is sent from the lender through a few places and eventually ends up at the escrow company.

Since this process may take a few hours, it is common to hear about a delay between the time a bank “Funds” a loan and an escrow company “Records” a closing.

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Top 5 California Mortgage Links / Articles / Questions

1. California First-Time Home Buyer Frequently Asked Questions
2. California Mortgage – How Much Can I Borrow?
3. What Are The Current Mortgage Interest Rates?
4. Applying For A California Mortgage – What Documentation Do I Need?
5. How Does The Mortgage Approval and Funding Process Work?

First Priority Financial
3700 Hilborn Rd #700
Fairfield CA 94534
951-506-4663 | Email

______________________________________
>> Fast Application —————- >> Rate Tracker
______________________________________

How Much Can You Borrow?

How do banks decide how much money to lend you in California? They base their decision on their estimate of your ability to repay the loan.

To make this estimate, they look at your income, your available cash, your debt, your credit history and your Loan To Value.

Riverside County’s updated lending limits for FHA will also play a key factor in determining the type of program and how much you can borrow. The new limits in Riverside County for a Single Family Residence is now $500,000.

Banks look at a few things when qualifying a borrower for a new mortgage:

There are two debt-to-income ratios that banks check based on the information you provide on your loan application.

Front-End Ratio

First, they check to see how much of your income would go toward the mortgage payment. This is called the front-end ratio.

Their guideline is that your total payment, including principal, interest, and escrow payments, should not be more than 31% of your gross (pre-tax) monthly salary; however lenders do go beyond this figure with compensating factors like additional assets or an elevated credit score.

To calculate this for yourself, take your annual salary and multiply it by .31, then divide it by 12. This number is your maximum total mortgage payment per month.

Back-End Ratio

Banks also check how much of your gross income is required to pay all of your debts combined. This is called your back-end ratio and includes the mortgage as well as car payments, credit card payments, student loans, and child support and alimony payments.

Their guideline for this ratio is that your total debt payments should not be more than 43% of your gross income; however, I’ve seen this figure reach as high as 55% again with compensating factors.

To calculate this for yourself, take your annual salary and multiply it by .43, then divide it by 12. This is the maximum allowable amount of your total monthly debt payments.

Don’t Be House Poor

Be cautious with these numbers however. Just because the bank says they are willing to lend you a certain amount, doesn’t mean you need to borrow that amount!

Instead, consider your own budget and lifestyle, and make sure you don’t end up with such a high mortgage payment that you can’t put money away for retirement, go for a nice vacation, or even go out to eat.

Some debt counselors recommend that your total payment should not be more than 31% of your net pay (after taxes), leaving you money for a comfortable lifestyle as well as the other costs of home ownership, such as repairs, maintenance, and higher utility bills.
Credit

The most obvious measure of a borrower’s credit standing is the score, which can range between 300 and 850.  While there are several mortgage programs with different credit guidelines, having a 620 or greater will increase your chances of getting approved.

There is other criteria that banks look at regarding a borrower’s credit standing, such as payment history, total balances and limits, type of credit borrowed, and recent inquiries.

Loan-to-Value

The (LTV) is calculated differently depending on whether the new transaction is a purchase, refinance, or rehab loan.

Basically, it is the amount of the new loan in comparison to the total value of the property.

When qualifying for a Las Vegas FHA loan on a purchase, a 3.5% down payment would equal a 96.5% LTV.

Keep in mind that banks will verify a paper-trail of the assets used for the down payment, so it is important to communicate with your loan officer about your current financial position.

There are a few factors to consider when deciding on the amount of your new mortgage:

1.  Desired Down Payment

2.  Budgeted Monthly Payment

3.  Length of time you want to own the property

Since California Mortgage Rates also influence your monthly payment, it is important to pay attention to the market.

Schedule a strategy session with a California Mortgage Expert by phone or at our office to discuss the best lending solution for you and your family.

Top 5 California Mortgage Links / Articles / Questions

1. California First-Time Home Buyer Frequently Asked Questions
2. California Mortgage – How Much Can I Borrow?
3. What Are The Current Mortgage Interest Rates?
4. Applying For A California Mortgage – What Documentation Do I Need?
5. How Does The Mortgage Approval and Funding Process Work?

First Priority Financial
3700 Hilborn Rd #700
Fairfield CA 94534
951-506-4663 | Email

______________________________________
>> Fast Application —————- >> Rate Tracker
______________________________________

As an FHA licensed California mortgage company, we are privileged to offer our First-Time Home Buyer community with FHA programs that  provide the American Dream of home ownership.

With flexible credit history guidelines, low down payment requirements, competitive mortgage interest rates, and common sense underwriting practices, FHA mortgage loans are designed to meet the needs of many First-Time Home Buyers.

We understand how overwhelming buying your first home can be. There are literally hundreds of questions that our clients uncover as they start their initial mortgage and real estate related research.

While we do spend a significant amount of time updating our blogs and home buyer packets with the most relevant and valuable information necessary for our clients’ to feel confident that they are making the most educated decisions, our main goal is to earn your trust through communication and service.

Please feel free to contact us directly at any time via phone, email, or online application form if you desire personal attention gaining a better understanding of some of these complex details.

First Priority Financial 951-506-4663

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FHA First-Time Home Buyer Basics / FAQ

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What is a Mortgage?

A mortgage is simply a financial agreement with specific terms of re-payment between a borrower and bank or investor where real property (home) is used as the collateral to secure the debt.

Where does mortgage money come from?

There are many different types of mortgage loans that are either backed by an individual bank’s deposits (portfolio loan), or funded by a group of investors through complex relationships on Wall Street which involve Mortgage Backed Securities, Government Sponsored Enterprises (GSEs) such as Fannie Mae and Freddie Mac, and other financial institutions on the secondary market.

Basically, investors or banks set the guidelines on the mortgage money that they lend to homeowners. If a borrower has less than 20% equity in a property, then a separate mortgage insurance policy is required which usually has another set of qualifying guidelines associated with it.

Does the FHA fund mortgage loans?

No, The Federal Housing Administration (FHA) is a US Government agency that was created in 1934 as part of the National Housing Act of 1934 for the purpose of stabilizing the housing market by providing adequate insurance on mortgage loans.

Basically, the FHA insures lenders if a borrower defaults on mortgage payments or goes into foreclosure.

However, FHA insurance guidelines are more flexible and cost-effective for most First-Time Home Buyers.

In order to originate and fund FHA insured mortgage loans, mortgage companies have to meet strict licensing requirements that include special FHA audits, as well as state and federal regulation.

If you can gain anything from this short history lesson, working with an FHA licensed mortgage company should make you feel a little more safe and confident in the professionals you are trusting with your mortgage transaction.

How do I qualify for a California FHA Mortgage?

To qualify for an FHA mortgage, underwriters will evaluate the following factors:

• Amount of mortgage loan amount
• California FHA lending limits
• Borrower’s income, employment and other personal documentation
• Borrower’s credit worthiness
• Borrower’s initial down payment and funds to close
• Appraisal and other property conditions

How do I find the right home?

First-Time Home Buyers looking to qualify for an FHA mortgage need to pay close attention to a few FHA appraisal requirements that may impact the approval. If you are interested in purchasing a foreclosure or short sale that may need some rehab work, then an FHA 203k mortgage is a special program that provides for funds to make that possible.

We strongly suggest that you work with an experienced real estate agent who knows how to find the best listings available that will meet our guidelines.

What are the main benefits of buying a California home right now?

Besides the fact that FHA mortgage rates and property values are very low, there is the revised $8000 First-Time Home Buyer tax incentive that sweetens up the deal and the $6500 Move-Up Buyer Credit.

While it is certainly understandable to be cautious about the potential for future decline in property values, the low rates should make up for the difference in any short term losses. Keep in mind that if rates increase an additional percentage point, it could have a significant impact on your monthly mortgage payment and cost of the life of the loan.

What is my next step?

Great question! It is important to present an offer to a seller once you have had the opportunity to get a full mortgage approval from your mortgage lender.

Since the mortgage processing and approval process may take a few weeks to work out any underwriting challenges or questions, it will strengthen your negotiating position when you have an underwritten bank approval when submitting your offer to a seller.

We work through a full financial strategy session with each of our clients before sending them out to find a new home. Just as your real estate agent’s mission is to protect your interests with regards to your property investment, your loan officer has a fiduciary responsibility to make sure you obtain an affordable mortgage loan that you can feel safe and secure paying on over time.

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Top 5 California Mortgage Links / Articles / Questions

1. California First-Time Home Buyer Frequently Asked Questions
2. California Mortgage – How Much Can I Borrow?
3. What Are The Current Mortgage Interest Rates?
4. Applying For A California Mortgage – What Documentation Do I Need?
5. How Does The Mortgage Approval and Funding Process Work?

First Priority Financial
3700 Hilborn Rd #700
Fairfield CA 94534
951-506-4663 | Email

______________________________________
>> Fast Application —————- >> Rate Tracker
______________________________________