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July 2010
Index of all
past
Affiliate Corner columns
Where do we go from here?
By Tom Gross
Crestline Mortgage
It came during the second week of June. The news was what a reasonably informed agent or lender would expect: according to Inside Real Estate News, buyers wrote contracts on 3,883 homes in the Denver area during May, a 41.3 percent drop from April.
Without proper context you might suddenly start sounding like Chicken Little. Your fellow agents might get ready to call 911 if you held the article and chanted “The sky is falling! The sky is falling!” We knew that with the end of the federal tax credit for both first time homebuyers (FTHBs) and move-up buyers there would be a push to get contracts in place by the April 30 deadline, but could you have predicted a 41.3 percent drop?
Several “experts” within our industry were quoted, and the consensus was that the drop was expected. Although that expected drop is reality, I’m convinced that our focus should be on the reality that we are within the prime selling season of our calendar year – June, July and August.
Where do we go from here? What do we do? If I told you that you could offer your qualifying buyers a tax credit that could potentially save more than five times the maximum $8,000, which expired last month, would you listen? Would you be interested? Like the fly fisherman who presents his hopper just under overhanging branches at the edge of the stream – the results may be just what he wanted, but has never seen. CHFA Statewide Mortgage Credit Certificates (CHFA MCCs) may be the 25 inch rainbow trout you’ve always imagined.
The CHFA MCC program allows MCC holders/owners to claim up to 20 percent of their paid mortgage interest each year they live in their home as a federal tax credit. To put that in perspective – with the median price of a closed Denver metro single family home being $230,000 in May 2010, I chose the conservative approach of using a $200,000 purchase price as my starting point – the result for a minimum down-payment FHA loan at five percent with a 30-year fixed rate was $820.27 tax savings/credit for 2010 (projected first payment Aug. 1, 2010). This tax credit continues for the life of the loan if the client keeps the property as their residence. At the end of 30 years it would result in total tax savings/credit of $36,807. Not bad for a maximum cost to your borrower of $700 ($500 CHFA fee, maximum $200 lender fee).
CHFA MCCs are available to FTHBs who have not owned a home as their primary residence in the past three years, current homeowners looking to refinance certain qualified subprime mortgages, or eligible veterans. There are income limitations, i.e. $87,400 for a family of 3+ within the Denver metro area and your borrower must have a FICO of over 580. The purchase must be for their principal/primary residence and if the home is sold, the transaction may be subject to the Federal Recapture Tax.
As of June 14, 2010, MCCs were temporarily limited to “targeted areas” listed in the CHFA Seller’s Guide with the exceptions of eligible veterans and properties located in Grand and Routt Counties. This temporary policy will be in place until late July 2010.
Although the $8,000 FTHB Federal Tax Credit is now in the rearview mirror, CHFA MCCs may give you and your buyers an extra incentive to attain the American dream.
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