The Downside is The Upside

Volume 13 Issue 2 February 2018

T

he stock market has set

several records

already this year.

We have a new

tax plan which lowers taxes

significantly for companies

and moderately for individ-

uals. We just had a decent

retail holiday season with

higher home sales closing

out the year. In other words

--everything is looking up for

the economy. Most economists are cau-

tiously optimistic that the good times

will continue through at least 2018.

Unfortunately, with the economy gain-

ing momentum, some of the movements

upwards are actually turning out to be

downers. More specifically, we are re-

ferring to interest rates and

oil prices. The price of oil

moved over $60 per barrel

in January after oscillating

above and below the $50

level for more than a year.

Certainly, higher oil prices

is the price we have to pay

for having a better econo-

my that increases oil de-

mand. However, oil prices

could still fall if the news on the supply

side becomes more optimistic.

Not so with interest rates. You can't

pump money out of the ground. The

better economy has caused the Federal

Reserve Board

In This Issue P2 Tax Reform and Real Estate, cont. || P2 Are You HomeReady?™

P3 The Downside is The Upside || P4 Tax Reform and Real Estate

Disclaimer…

Note that the tax law is very new, and the IRS has not even issued regulations or instruc-tions to implement the law. This information provided is based only upon what has been published by the media reporting upon the law. We expect many clarifications, and perhaps even technical amend-ments, to the law in the coming months. We suggest you speak with your accountant for tax advice based upon the new law and for updates as they are issued.

Selected Interest Rates January 25, 2018 30 Year Mortgages——–4.15%

2017 High (March 16 %

2017 Low (Sept 14)——3.78%

15 Year Mortgages—— 3.62%

5/1 Hybrid ARMs——–—–3.52%

10 Year Treasuries—–—2.64%

Sources—Fed Reserve, Freddie Mac

Note: Average rates do not include fees

and points. Information is provided for

indicating trends only and should not be

used for comparison purposes.

Continued on Page 3

THIS NEWSLETTER IS BROUGHT TO YOU BY:

Are You…

F

annie Mae has bestowed an early holiday present to those who wish to become home owners. Their

HomeReady™ Program is designed to remove many of the restrictions that have previously been imposed upon those who were trying to purchase in today’s real estate market. This program is poised to make a big im-pact with those who did not think they could purchase a home or refinance their present homes. How will HomeReady™ make such a big impact?

First, the biggest obstacle to purchase a home is coming up with the cash neces-sary to fund the transaction. With today’s skyrocketing rents, it is hard to save up several thousands of dollars. However, HomeReady™ is now lessening the cash required:

• Low down payment. With a low 3.0% down payment required, the cash requirement is lessened significantly. On a $300,000 purchase, 3.0% down is less than $10,000. That is much less than the cost of a late model used car.

• Low down payment. Fannie Mae is al-lowing all the cash required to fund the transaction to come from a gift from an immediate family member. When parents help their children purchase a home, they are providing them with the most signifi-cant financial assistance possible because in the long run, owners have an average net worth of over ten times that of renters, according to studies published by the

Federal Reserve Board.

Help with closing costs. Fannie Mae permits lenders and sellers to pay most or all of the required closings costs, further reducing the cash needed to get to clos-ing. It should be noted that these solutions could raise the price of the home or rate on the mortgage slightly.

Second, HomeReady™ is making it easier for home buy-

ers or those who are refinancing to qualify for a mortgage.

• Parents can help. Not only can parents give a gift, as an alternative they can co-

borrow to help with the income needed to qualify. Parents do not have to live in the home to provide this assistance; however, a 5.0% down payment is required if this solution is utilized.

• Boarder and household income. These additional sources of income can be used to help qualify with proper documentation and history. For example, perhaps a spouse works, but cannot be on the mort-gage because they have a very low credit score. Household income can be used to offset higher debt ratios within the qualification calculations–within certain limits.

Third, HomeReady™ is helping by lowering required payments for your mortgage. Lower payments not only make home ownership more affordable, but also help a prospective homeowner qualify for the purchase.

Page Two

“…someone who is thinking about purchasing

or refinancing should start with a lender…”

Maximum state deductions. The

$10,000 cap on state and local

income and property tax deductions

again will have a greater effect upon

those who have higher incomes,

own more expensive homes and/or

live in higher cost areas. It should

also be noted that the deduction for

moving expenses is also going

away.

Home equity loans. The new law

keeps the deduction for debt on

second homes, but does not allow

the deduction of home equity debt.

Apparently, this provision applies to

existing home equity debt. This

might change how owners pay for

expensive renovations or whether

they might purchase instead.

While these changes may look like

a negative for home ownership, the

net-effect upon housing could be

positive. Putting more spending

money in the hands of consumers

could boost the economy which

creates jobs and demand for

housing. The tax law also did not

change the benefit of selling a home

as compared to other investments.

Therefore, while the tax write-off

may become less important, a home

could become an even better

investment. Homes also provide

protection against inflation and

forced savings plans, while renting

provides none of these benefits....����

Tax Reform and Real Estate

Continued from Page 4

Page Three

Mortgage insurance. HomeReady™ re-quires less mortgage insurance “coverage,” which lowers the required mortgage insurance payments. In addition, the borrower can pay the premium through a slightly higher rate, which would make the payment tax deductible in most cases. This would lower the effective payment even more.

• Fewer rate premiums. In the wake of the recession and recovery, Fannie Mae added many costs to their mortgages in order to help fund their debt to the government after their bailout. But now that this debt is largely paid for, they are removing the rate premiums for those who utilize the HomeReady™ solution, especially for those with good credit. Again, this will lower the required monthly payments for the average homeowner.

Finally, Fannie Mae is helping by making more Americans eligible for the HomeReady™ Program. This improved access will mean that this program will become a more universal solution for home buyers.

• No first time buyer requirement. Unlike their previous 3.0% down payment solu-tion, Fannie Mae is not requiring those who use the program to be first time buy-ers. The applicant cannot own another home when they close their HomeReady™ transaction, except for parents helping children purchase as previously men-tioned.

• Flexible income requirements. As a low-

to-moderate income program, Ho-meReady™ does limit the income a poten-tial home buyer can make to 100% of the area’s median income limit. However, there are areas which are classified as low-er-income areas and if you purchase with-in these areas, the income limits are in-creased or they may be waived complete-ly. We can help you determine which areas qualify for the more liberal guidelines and

the general income limit for your area.

• Higher loan amounts. Fannie Mae is not only allowing loans to $453,100 with a low 3.0% down payment, in higher cost areas, the HomeReady™ Program can be used for loan amounts up to $679,650 with a 5.0% down payment. Again, we can help you determine the loan limit within the area in which you are considering purchas-ing.

• Refinance candidates. With no-cash out finances allowed at 97% of the value of the home, HomeReady™ will be a great solution for those who previously could not refinance because of a lack of equity. And again for high cost areas the limit would be 95% up to as high as $679,650. With home prices rising in many areas, those who were previously “underwater” may now have a viable refinance solution to take advantage of today’s low rates. As a matter of fact, Fannie Mae is so dedicated to making sure that the HomeReady™ Program reaches as many prospective homeowners as possible, they are promising that their latest upgrade to their automated underwriting system will automatically alert the lender that a prospective purchaser or refinance candi-date qualifies for the program. This means that someone who is thinking about pur-chasing or refinancing should start with a lender so that they can be pre-approved for the HomeReady™ Program.

Lower cash requirements, flexible qualifica-tion guidelines, lower payments and a wider array of those who are eligible? Fannie Mae has created the HomeReady™ solution which is poised to make more Americans home owners in the coming year!...����

...HomeReady?™

©2018, All rights reserved

The Hershman Group www.originationpro.com

1-800/581-5678

The Downside is The Upside

Continued from Page 1

“…You can’t pump more money out

of the ground…”

to raise short-term interest rates five

times over the past two years.

Long-term rates have also been

trending upward as the economy has

improved. Most are not expecting

another increase by the Fed when

they meet as we go to publication.

But that does not mean that long-

term rates won't keep rising if we

get the news that the economy is

still rolling. As a matter of fact, the

threat of higher interest rates is one

reason that real estate is so hot.

Most want to purchase before rates

go up further. Will rates keep mov-

ing up? That depends upon whether

the economy stays strong in 2018...

����

Tax Reform and Real Estate

Address Correction Requested

In This Issue:

The Downside Is The Upside

T

he new tax law brings many changes for individuals and corporations.

Much has been written about the provisions of the law which goes into

effect in 2018, and this coverage will focus upon how the changes

might affect homeowners or those who are considering purchasing. In

general, the tax benefit for owning will be lessened. Here is why:

Lower tax rates. Though the tax rates will not come down for individuals as

sharply as they will for corporations, any reduction in tax rates will reduce some-

what the tax benefits of having a home loan. For example, if someone was in a

25% tax bracket and now is in a 22% tax bracket, there would be a 12% reduc-

tion in benefits. How much your tax benefit will be reduced will vary, not only

by gross income, but also because of the elimination of personal exemptions and

the enlargement of the standard deduction.

Larger standard deduction. The larger standard deduction will mean that married

couples financing lower-cost homes are likely to see little or no tax benefit from

having a home loan. For example, if a married couple has mortgage interest of

$15,000 per year and no more than $9,000 in additional deductions, they will be

better off taking the standard deduction of $24,000.

Maximum loan size. The maximum home loan which can be written off will

move from one million dollars to $750,000. This lower cap will affect those who

own expensive properties and/or live in high-cost areas. Further, because exist-

ing loans are exempted from the lower cap, it may discourage some from selling

their home. (continued inside)