The residential mortgage market has long made a distinction between two categories of mortgage loans depending on the amount being borrowed. “Conforming loans” are those up to a stated ceiling amount (currently $417,000) and “jumbo loans” are those in amounts above the conforming limit. Rates have historically been higher for jumbos than for conforming loans, and for some time now the differential in rates between conforming and jumbo loans has been substantial, making it significantly more expensive to obtain mortgages in high loan amounts.
As part of the 2008 economic stimulus package, Congress increased the ceiling amount for conforming loans in certain high cost areas around the country. In the Boston area, the conforming loan ceiling was raised to $523,750 for 2009. This has allowed borrowers to obtain higher mortgages at conforming rather than the higher jumbo rates. Congress recently passed legislation extending the increased ceilings through December 31, 2010. So for another full year, the conforming loan limits in the Boston area for single family homes and condominiums will remain at $523,750.
This is good news for those of you in the Boston area looking to purchase or refinance, as it remains possible for another year to obtain that higher loan amount at lower cost.
Sunday, November 22, 2009
Tuesday, November 17, 2009
Attorney Representation in Residential Purchase and Mortgage Transactions
I represent many buyers of residential real estate, and I am often asked by clients whether or not I can, or should, represent the mortgage lender as well. This is a good question, and one worth spending a moment to discuss.
In Massachusetts, a residential mortgage loan must be prepared and closed by an attorney. In this context, the attorney represents the lender, but it is fairly common for a buyer to ask the mortgage lender to permit their own attorney to close the mortgage loan as well. Although a technical conflict, it is a conflict that is regularly waived by both buyer and lender because the interests of both parties are largely the same. Both want clear title, proper documents and all other matters to be in order for closing. It is extremely rare that the interests of buyer and lender become adversarial, but in those rare cares, an attorney acting in dual representation would be required to withdraw. In over 25 years of practicing real estate law, and in representing both buyer and lender in a majority of those cases, I have never been required to withdraw due to a conflict between the parties.
In my view, there are two compelling advantages to a buyer in having the buyer’s attorney close the mortgage loan: quality control and cost savings. From a quality control standpoint, most buyers feel there is comfort in knowing that the attorney they have engaged is also the one responsible for the important pieces of due diligence and preparation needed to get to closing, rather than an attorney other than the one they selected and with whom they may not be familiar. As to cost, regardless of who represents the lender, one of the buyer’s closing costs will be an attorney's fee to the lender's attorney to close the loan. This is generally a fixed fee determined by the lender and the attorney and quoted to the buyer on the good faith estimate of settlement charges. Because an attorney representing only the lender generally will not be involved with any matters outside the scope of the loan closing, a prudent buyer will also engage an attorney to handle the negotiation of the purchase and sale agreement and and any other matters that may arise strictly between buyer and seller. Depending on the buyer’s wishes, this personal representation may end upon execution of the P&S or may continue through and including the closing, and naturally, the buyer will pay a separate fee to the attorney for these services. If two attorneys are involved, there is a probability of overlap in the effort to reach the closing table, and the buyer may feel he or she is paying twice for certain services. Instead, if the buyer’s attorney closes the loan as well, all preparation is consolidated into one effort, thereby reducing any duplication of effort and thus reducing the total legal fees in the transaction.
Most, but not all, lenders will honor a buyer’s request to have their personal attorney close the loan, so long as that attorney is qualified, but remember that this request must be made early in the process before the lender assigns the transaction elsewhere. If you are buying residential real estate financed by a mortgage loan, and your attorney is experienced in the representation of mortgage lenders, I encourage you to consider asking your lender at the time of application to use your own attorney to close the mortgage loan as well. The odds are you will be quite satisfied with the outcome.
In Massachusetts, a residential mortgage loan must be prepared and closed by an attorney. In this context, the attorney represents the lender, but it is fairly common for a buyer to ask the mortgage lender to permit their own attorney to close the mortgage loan as well. Although a technical conflict, it is a conflict that is regularly waived by both buyer and lender because the interests of both parties are largely the same. Both want clear title, proper documents and all other matters to be in order for closing. It is extremely rare that the interests of buyer and lender become adversarial, but in those rare cares, an attorney acting in dual representation would be required to withdraw. In over 25 years of practicing real estate law, and in representing both buyer and lender in a majority of those cases, I have never been required to withdraw due to a conflict between the parties.
In my view, there are two compelling advantages to a buyer in having the buyer’s attorney close the mortgage loan: quality control and cost savings. From a quality control standpoint, most buyers feel there is comfort in knowing that the attorney they have engaged is also the one responsible for the important pieces of due diligence and preparation needed to get to closing, rather than an attorney other than the one they selected and with whom they may not be familiar. As to cost, regardless of who represents the lender, one of the buyer’s closing costs will be an attorney's fee to the lender's attorney to close the loan. This is generally a fixed fee determined by the lender and the attorney and quoted to the buyer on the good faith estimate of settlement charges. Because an attorney representing only the lender generally will not be involved with any matters outside the scope of the loan closing, a prudent buyer will also engage an attorney to handle the negotiation of the purchase and sale agreement and and any other matters that may arise strictly between buyer and seller. Depending on the buyer’s wishes, this personal representation may end upon execution of the P&S or may continue through and including the closing, and naturally, the buyer will pay a separate fee to the attorney for these services. If two attorneys are involved, there is a probability of overlap in the effort to reach the closing table, and the buyer may feel he or she is paying twice for certain services. Instead, if the buyer’s attorney closes the loan as well, all preparation is consolidated into one effort, thereby reducing any duplication of effort and thus reducing the total legal fees in the transaction.
Most, but not all, lenders will honor a buyer’s request to have their personal attorney close the loan, so long as that attorney is qualified, but remember that this request must be made early in the process before the lender assigns the transaction elsewhere. If you are buying residential real estate financed by a mortgage loan, and your attorney is experienced in the representation of mortgage lenders, I encourage you to consider asking your lender at the time of application to use your own attorney to close the mortgage loan as well. The odds are you will be quite satisfied with the outcome.
Thursday, November 5, 2009
First Time Homebuyer Tax Credit Extended
Good news for first-time homebuyers! The United States Senate has voted to extend and expand the first-time homebuyer tax credits which have been in place as part of the economic stimulus package enacted earlier this year; the House is expected to follow suit later this week. The program was scheduled to expire at the end of November, but will now be extended through June 30, 2010. Under the new bill, Buyers who have owned their current homes at least five years will be eligible for tax credits of up to $6,500. First-time homebuyers, or anyone who hasn't owned a home in the last three years, will still get up to $8,000. To qualify, buyers have to sign a purchase and sale agreement by April 30, 2010, and close by June 30. The credit is available for the purchase of principal homes costing $800,000 or less; vacation and second homes are not eligible. There are income caps: the credit is phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.
If you are considering the purchase of your first home, this is the time to do it! Lower prices and the tax credit make this a most favorable time to become a homeowner.
If you are considering the purchase of your first home, this is the time to do it! Lower prices and the tax credit make this a most favorable time to become a homeowner.
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