Virginia mortgage rates and industry news

( 10/20/08 ) I heard a speech today by Senator Obama who was campaigning in Florida.  In his comments, he stated that real estate investors who owned rental properties or second homes would no longer be able to deduct the mortgage interest on these types of properties under his new tax plan.  Only those who own one home, a primary residence, would still be eligible for the mortgage interest deduction.  His comment was directed at Senator McCain who owns 6 or 7 homes, and Obama wanted to point out once again, that the "Rich" aren't going to get any breaks or be able to take advantage of this significant tax incentive any more.

Why should YOU care?  Millions of hard working, investment savvy Americans own rental homes and second homes.  Whether you want to rent a home on a yearly basis, or a sweet place in the outer banks for a week, these homes are almost ALWAYS owned by an INDIVIDUAL investor.  Real Estate investing is a cornerstone in our economy!  Eliminating the ability to write off mortgage interest against these homes will send huge shock waves through the real estate community, forcing a huge sell off of homes and send home values plummeting.  Foreclosures may even rise to new levels and innocent renters may be forced out of these homes.  Couple that with the fact that new investors will not want to buy investment properties either because the tax incentive will no longer be there, thus creating "negative cash flow" in many cases.

How much does the average real estate investor stand to lose?  If mortgage interest is no longer tax deductible on second homes, investment properties or rental properties, the average investor carrying a $300,000 mortgage at 7.00% will lose an approx. $21,000 per year in write-offs.  Pretty substantial?  You bet!

How will this affect the stability of the housing market and home values? 

If I were an investor who owned multiple rentals, and the rent I collected barely covered my mortgages, but still afforded me a small positive cash flow, that positive cash flow, under Obama's plan, would now be negative, and I would either have to significantly raise rents across the board to make up the difference, or sell these homes (in an already tough market) to get rid of the negative net cash flow.  

If I were an investor looking to purchase an investment property or second home, the rental income would need to be fairly substantial to offset the loss of mortgage interest deductions.

Who will this affect?

Renters - May see a significant increase in rent

Investors - May have to raise rents on their tenants or be forced to sell their rentals in an already tough market, potentially flooding the market with homes.  Investors may have to foreclose forcing renters out of once profitable properties

Home owners - May lose even more precious equity in their already depressed homes as supply may drastically increase, while demand is driven down by loss of incentives

While neither tax plan proposed by either of the presidential candidates is "clear cut" by any stretch, as a home owner or real estate investor, you should be painfully aware of what is being "proposed" by one of the candidates.  In an already tough real estate market, this "proposal" could make things a lot worse for all of us.

Not a sermon or a "left-wing" jab by any stretch - just a thought for all of us home owners and real estate investors who take pride (and stock) in our homes.

Thoughts?  Id love to hear them! 

As many of you know, Fannie and Freddie increased the conforming loan limits up to as much as $729,750 (depending on your area) to help homeowners refinance jumbo loans at much more attractive rates.  Notice has just come down that these temporary higher loan limits will be ending very soon, and reduced rates will be ending for these loan limits.  If you owe more than $417,000 and want/need to refinance, the time to act is NOW! 

How soon?  Many lenders want this type of loan closed no later than December 1, 2008 so that they can still sell this product in time to meet their own internal deadlines. 

When should I lock?  For a 30 day lock, you'll need to lock in your rate no later than November 3, 2008.  That's only 1 month away!

Mad dash to the finish line?  You bet!  In fact, thousands of homeowners will undoubtedly be taking advantage of this loan at the very last minute, so expect longer turn times and delays in underwriting.  Right now, the average refinance takes approximately 2 weeks to close.  If you wait until the last minute, it will take a lot more time.

Rates are still too high!  Consider this...Right now these loans have been averaging 5.75% - 6.375%.  Current "traditional" jumbo loans average 7%++.  If you miss your opportunity, it may be a long while before jumbo rates are this attractive again!

As they say...."Ye all have been warned!"

Paul Thistle, President

Loan Planet 

703-753-5747