They must have changed the rules

Roger Schlesinger
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Posted: Apr 05, 2007 8:52 PM

I was watching the NCAA men's basketball tournament, and I saw the super big guys, the ones that have to duck under door frames, camping out under the basket. After jumping up several times and yelling, "3 seconds in the key!" I realized they weren't going to call the foul.

I guess they might have changed the rule.

It used to be that to avoid taxes (actually, to defer the taxes) on the sale of your house, you had to buy a new house at the same or higher price, and roll the profit into that house. Now, you automatically get a $250,000 exclusion on profits if you have lived in your house over the previous two years continuously, as does your spouse (if you have one). I knew they changed that rule.

Once upon a time, we had a speed limit on the interstate highways. Now, it seems the highway patrol passes you at 76 miles per hour when you are going 75. The other night, I was stopped for driving a tad fast through my town, and I was given a pass because the officer thought it would be nice to let me go, since I told him I was taking my ill wife her dinner. (It probably didn't hurt that the famous female talk show host with the same name lived in the neighborhood. As I was leaving, he asked if Dr. Laura was my wife. I ruined his evening by saying no, and that in fact Dr. Laura had moved.)

The point is, things change and we often don't have any clue. When it comes to mortgages, these changes are generally for the better, and can help you immediately.

Let's start with the ability to refinance as fast as you want after you purchase a house. The old rule was, we had to use the purchase price as the value for a year, even if you could show by appraisal that it was worth more. Now, you can get a new appraisal the day after the purchase closes, and use that for the value. This helps a lot of borrowers who made good purchases, but couldn't take advantage of the additional equity for a year under the old rules.

If your house has been for sale, and it remains on the market, and you want to refinance and stay put for a period of time, it is now allowed for you to do so. You can proceed with a refinance one day after you take it off the market. There is a caveat: if you pulled cash out in the last 12 months, the refinance can't be done until the cashout is a year old.

With automated underwriting as prevalent as it is, borrowers with conforming loans (loans up to $417,000 on single family homes) can generally have a full-documentation loan without supplying any documents at all! High credit scores and a lower loan to value ratio are what help you get approved in that manner. Generally, the only condition is a verbal verification of employment for wage earners.

Should you need to pay off debt to qualify, it will work on conforming loans, but not necessarily on jumbo loans (over 417,000). On jumbo loans, even if you pay off the debts, they still can be counted against you in your ratio of debt to income. Subprime loans of any size work the way that the conforming loans work: pay off the debts and they aren't counted against you. This works even if you are paying the debts with the cash from the refinance.

Do you want a special rate on your loan, whether it is a new purchase, a refinance, or a cash out refinance? You can have one, if you are a low to moderate income borrower. You qualify if you earn 80% of the median income in the county you live or will be buying in for the transaction, or if you are living or buying into an area that is designated a low to moderate income census tract.

This works best in California, Texas, North Carolina, Florida and New York. You would be surprised by the areas that fall into these tracts. Homes can be worth multi-millions and you can still qualify!

In closing, I want to remind you of a few things: that "interest only" is not a loan but an option, the "1% loan" does not refer to the interest rate (which is usually around 7% or higher) but the payment rate, and a 50 year loan takes 40 years to pay off half the principal.

And finally, a car pool lane is not a reward to enjoy, like a nice walk in the park. It is a way to get from point A to point B a bit quicker, because you get to circumvent the majority of the traffic.