(When the bond goes down, rates go up.)

Today the bond is ending down, somewhere around -12 points.   

The downward trend began on March 24^th where you see the big red candlestick going down the chart.  It dropped even further on March 25, but then regained most of the loss.  Since that time, it has not been able to recover even half the loss from the March 24^th drop. 

If you have been following our blog posts and commentaries, you will remember the Treasury department has announced it will stop buying Mortgage Backed Securities (MBS) at the end of March.  They have been purchasing huge pools of MBS (over $1 Trillion!) at a rate of return that few if any bond investors would take.  This kept mortgage rates artificially low.  The Treasury department is sticking to their schedule, so as of tomorrow MBS rates of return will have to rise to a level that will attract investors. (The consensus is a rise of about .5% - 1.0% over time, which is the amount mortgage rates should increase). 

Rates rose almost .25% just after the March 24^th drop. 

Some analysts have speculated that there are huge pools of money that have been waiting on the sidelines that should help replace what the government has been buying, and keep rates stable.  Two problems with that thought process. 

1.    Few investors are interested in buying MBS at a rate of return that the government was buying;

2.    The government is already indicating that it plans to start selling their huge load of securities back out on the market soon. 

If the government dumps a bunch of MBS on the market, it will stall the buying.  Their whole reason for buying the MBS in the first place was the lack of buyers in the market.  If they do not have a slow release of these securities back into the market, we may have the same issue of oversupply all over again.  Let’s hope they have a financially sound strategy that does not spook the markets.

If you have not yet locked in these great rates, you may very well miss them if you do not act quickly. 

I am not a U.S. citizen. Can I claim the tax credit?

Perhaps. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

Would I be considered a first time homebuyer if I owned a principal residence outside of the United States within the previous three years?

Yes. A taxpayer who owned a principal residence outside of the United States within the last three years is not disqualified from taking the credit for a purchase within the United States.

Churchill Mortgage would be happy to assist you if you are interested in taking advantage of the Homebuyer Tax Credit.  Contact one of our Home Loan Specialist at 1-888-562-6200 for more information or to get pre-qualified for your loan.  Just make sure to have your purchase agreement signed by April 30, 2010 and the closing documents signed by June 30, 2010.

The Federal Reserve’s $1.25 trillion program that has supported the mortgage market since 2008 ends tomorrow.  Today we have already seen the bond be extremely volatile, down as low as -31 bps.  When the bond goes down, rates go up.  If you are planning on purchasing or refinancing and have not taken advantage of the current great rates, highly consider locking in your rate today.

I purchased a home that qualifies for the first-time homebuyer credit. I will be renting two of the bedrooms and reporting the rental income on Schedule E. Will I still qualify for the credit if I use the home as my principal residence?

Yes, if you meet all first-time homebuyer eligibility requirements. See Form 5405, First-Time Homebuyer Credit, for more details.

I purchased a duplex home with two separate dwelling units. I will live in one dwelling and will rent out the other dwelling unit and report the rental income on Schedule E. May I qualify for the first-time homebuyer credit, and what amount do I use for the purchase price to determine the amount of the credit?

Yes, you may qualify for the credit for the dwelling unit that you use as your principal residence. To determine the amount of your credit, you must allocate the purchase price of the duplex between the two separate dwelling units. Your credit is 10% of the portion of the purchase price of the duplex allocated to your dwelling unit that you use as your principal residence, up to a maximum credit of $8,000. You may not use the entire purchase price of the duplex to determine the amount of your credit.

If you are interested in purchasing a home with the intent to rent part of the space, Churchill Mortgage would be happy to help you get Pre-Approved.  Contact one of our Home Loan Specialist at 1-888-562-6200 or Request A Call Back on our website www.churchillmortgage.com/.

Lock In Your Rate!

The government will be ending their mortgage backed securities program in 2 days (March 31).  What does this mean for you?  Rates will most likely rise.  The consensus among analysts is rates will go up .50% following the Fed’s exit.  We strongly suggest you consider taking action now.  If you have not locked in a rate, feel free to contact one of our Home Loan Specialist at 1-888-562-6200.