In the midst of a collapse in the mortgage and financial markets and a tightening of credit underwriting guidelines, is it possible a true No Down Payment opportunity still exists, and is one you can actually get closed? As far fetched as it may sound, the answer is a resounding – yes, maybe!
The American Recovery and Reinvestment Act of 2009 created an incredible opportunity for a group of home-buyers, one that could allow them to purchase a home with ultimately no money invested in the transaction. No down payment or closing costs, as long as the real estate agent and mortgage lender understand the new rules.
Under ARRA, first-time home-buyers are given a tax credit of up to 10% of the purchase price not to exceed $8,000, or $4,000 for married filing separately. This tax credit, unlike the tax credit provided in 2008, does not require the home-buyer to repay the credit, as long as they remain in the home as their primary residence for at least 36 months post closing. Additionally, as of February 25th, the IRS will allow this credit to be taken in either the 2008 or 2009 tax year. The only requirements to receiving the tax credit are, they must purchase the home prior to December 1, 2009 and their adjusted gross income does not exceed $75,000 for single or $150,000 for joint filers.
So what about the No Down Payment and closing costs I spoke about? If you’re working with someone who qualifies as a first-time home-buyer, someone who hasn’t owned a home in the previous 3 years, and you can place them in an FHA mortgage, here’s how it could go together. FHA requires a minimum down payment of 3.5% of the purchase price (must be paid by the buyer), plus they need money for closing costs, unless the seller agrees to pay those costs. If you negotiate the right transaction, your buyer will have no money invested in the transaction, compliments of the government.
Here’s a scenario: You have a buyer purchasing a home for $140,000, they will need $4,900 in down payment and an estimated $2,900 in closing costs (may vary slightly in different areas), for a total of $7,800 invested. If they purchase the home , having the money necessary to close the transaction, they would after closing, immediately file tax return form number 5405 with the IRS (either with their original tax filing or in an amended return, depending when they purchase). The will receive the $8,000 tax credit funds, making their investment in the property zero.
Now you have ability to help many people buy their own home, using this government assistance program, in a time when home buying opportunities are at their highest level. This becomes a win-win-win situation for everyone, go help you community!
President Obama signed the American Recovery and Reinvestment Act of 2009 into law. So what does that mean for your mortgage business? Whether you’re in favor of the package or not, one thing is certain, the American public knows nothing about this $787 billion dollar debt. The average American knows our economy is in trouble, knows this is the largest debt ever created in our history and hopes our elected officials are taking the right steps.
So as the media continues to report on job loss statistics and our politicians are promoting this legislation with doomsday comparisons to the Great Depression, consumer confidence continues to fall. Unfortunately, confidence is what drives our business. Borrowers must have confidence in the real estate market, confidence in their personal financial situation and confidence in the growth and direction of the country. So how do we deal with all the negative economic news and continue to build our business? It seems almost insurmountable. So I thought you should have s0me real economic numbers to see. Numbers that fly in the face of Obama’s continued references to the Great Depression. Numbers that may help your borrowers make sound financial decisions based on facts not political fear mongering.
The 2008, the annualized Gross Domestic Product (GDP) decline was 3.8% a significant decline, but nothing compared to 1930, the beginning of the Great Depression, when the GDP declined 9%. According to President Obama, American’s lost 3.4 million jobs last year. That’s a large job loss number, but only represents 2.2% of the American workforce. In 1930 jobs declined by 4.8%, then 6.5% in 1931 and over 7% in 1932. In fact during our last big recession of 1981-1982, the job loss was 2.2%. Today’s unemployment rate stands at 7.6%, considerably higher than we have seen in recent years, but a far cry from the height of the Great Depression when uemployment was at 25%.
During 2008 we saw the loss of a few dozen banks and politicians tried to scare us with the notion of a total melt down of our financial institutions. Doesn’t anyone remember the Savings and Loan failures of 1987-1988 that saw over 3,000 financial institutions fail? Comparing the few bank failures of 2008 to the Great Depression, that saw over 10,000 banks fail, is completely misguided and used either to foster fear or is being talked about by politicians that haven’t bothered to read history. Either way this promotes a loss of consumer confidence.
You can’t out talk the politicians, but you can help your customer base understand the true facts. Understand that the “sky’s falling” mentality helps politicians promote their agenda, but each person needs to assess their own circumstance and make appropriate financial decisions. Today’s interest rates and real estate market offer great opportunities for many people, but as they are fed an ongoing diet of bad news and promotion of fear by media outlets and politicians, they become paralyzed and avoid making a sound financial decision.
You need to promote the facts and offer your customers an insight they will not get from our self-serving politicians.