Jun 19

Should Seniors Buying a House Do It With a HECM Reverse Mortgage?

sfMany home purchasers are seniors. Some become homeowners for the first time, but most have been and want to remain homeowners. They just don’t want to remain in their current house. They may want a house that has no stairs, or one that is closer to family or friends, or in a warmer climate. In many cases, they want to downsize both the physical house and the financial burdens that come with it.

Prior to 2008, the senior who wanted to combine house purchase with a reverse mortgage but could not afford to pay all-cash had to use a forward mortgage to finance the purchase, then repay it by drawing on a reverse mortgage. Because the senior had to qualify for the forward mortgage in the same way as any other home purchaser, an inability to document sufficient income or credit could bar the way. Furthermore, the senior who did qualify had to pay settlement costs on both the reverse and the forward mortgages.

In 2008, Congress authorized the HECM for Purchase program, under which seniors can buy a house and take out a HECM Reverse Mortgage at the same time. With this program, the qualification requirements associated with forward mortgages are avoided, and only one set of settlement costs is incurred.

Senior house purchasers now fall into three groups: those who pay all-cash and intend never take a HECM; those who pay all-cash and plan to take a HECM later; and those who take a HECM when they purchase the house.

Avoiding Reverse Mortgages Altogether

Senior home purchasers who are capable of paying all-cash, and who want to leave a debt-free home to their estate, will avoid reverse mortgages. The same is true of seniors with dependent children living with them, who the seniors don’t want to be evicted following their death. In addition, seniors looking to have a new house constructed to their specifications can’t finance construction with a HECM. The program requires that seniors using a HECM physically occupy the home as their permanent residence within 60 days of purchase.

These three groups of senior home purchasers who should avoid HECMs comprise only a small part of the total. Most purchasers would do well to at least consider a HECM.

Deferring the Reverse Mortgage

Seniors in a position to pay all-cash can defer the reverse mortgage decision. If they elect to take one in the future, they will be older and their house will be worth more, both of which increase the amounts they can draw under a reverse mortgage. Working in the opposite direction, however, is a likely rise in interest rates from the unusually low levels that have prevailed in recent years. Higher rates reduce the amounts seniors can draw under a reverse mortgage.

If interest rates are stable the credit line available to a senior of 62 who waits 10 years before taking out the reverse mortgage was only 17% higher, whereas a doubling of interest rates during the period would reduce the available line by 69%. For seniors looking to strengthen their finances in the future, waiting is a risky strategy.

Purchase With a HECM

Seniors who purchase a house with a HECM must have the means to pay the difference between the sale price of the property and the maximum amount they can draw on the HECM. As an illustration, a senior aged 62 purchasing a $300,000 house on July 25 could fund about half of it with a reverse mortgage. (Older buyers could finance more). The remaining $150,000 would have to be financed out of the senior’s resources: liquidation of assets or withdrawals from retirement accounts. Gifts from family and friends are also acceptable funding sources, but gifts from the home seller or anyone else involved in the purchase transaction, are not.

Seniors with the capacity to pay all-cash who take out a HECM at time of purchase have a range of options. They can use all the borrowing power of the reverse mortgage ($150,000 in the example above) to minimize their asset liquidation. A large proportion of senior purchasers do this, but in some cases it may be ill-advised because no borrowing power is left for future use.

At the opposite pole, seniors could pay all-cash for the house and retain 100% of the borrowing power of the reverse mortgage as a credit line that will grow over time so long as it is not used. At closing or any time thereafter, some or all of the line could be used to draw cash or a monthly payment.

The senior’s choice is not limited to these polar cases. Depending on the individual circumstances, a senior may prefer an in-between case where part of the borrowing power of the reverse mortgage is used to help pay for the house, and the remainder is retained for future use. The challenge is to find the mix that best meets the senior’s needs. To make a good choice, the senior needs to know what the options are, and what the long-run implications of any set of options are relative to any other set.

Jun 19

Transitioning From a Standard to a Reverse Mortgage: A Bad Idea For Some, A Good Idea For Others

In my father’s generation, very few people still had a mortgage to pay when they reached retirement age. Now it is common. But retired homeowners may now have an option my father did not have: if they have enough equity in their home, they can pay off the balance of their mortgage with the proceeds of a HECM reverse mortgage, which does not have a required payment.

Is converting a standard mortgage into a reverse mortgage a good idea? The letter below started me thinking about this question.

“Will I be better off 10 years down the road if I take out a reverse mortgage in order to pay off the balance on my standard mortgage? I am paying 3% on that mortgage, and have been told that reverse mortgages are available at 2.5% or less. If I did this, I would invest the $2107 I am now paying monthly for principal and interest. I am 76, the house I live in is worth $626,000, and my current mortgage balance is $380,000.”

I decided that whether or not this shift made sense depended heavily on the objectives of the senior borrower. Broadly, they fall into two groups.

Wealth Maximizers

The author of the letter asks whether transitioning to a reverse mortgage would make him wealthier after 10 years than staying with his current mortgage. He is a “wealth maximizer”, probably because he is looking ahead to sell his home at some point, or wants to leave as large an estate as possible. However, paying off his mortgage with the proceeds of a reverse mortgage would reduce his wealth.

If he stays with his current mortgage, his $380,000 balance would be paid down to $218,253 in 10 years. If instead he pays off the balance now with the proceeds from an adjustable rate HECM, currently available at 2.154%, in 10 years he will owe $704,343. Investing the monthly payment of $2107.48 at 1%, which is about the highest super-safe return that is available today, would generate $218,253 over 10 years. But that still leaves him with $267,837 less wealth than if he had stayed with the standard mortgage.

Of course, he might earn more than 1% on the monthly payment, but he would have to earn 6.55% to equalize the two strategies.

The transition to a reverse mortgage would reduce his wealth primarily because HECM reverse mortgages require mortgage insurance. An annual premium of 1.25% raises the interest cost to 3.404%, bringing the total cost above the 3% he is now paying. In addition, his HECM loan balance would include financed settlement costs.

The loss from transitioning would be even higher if this borrower itemizes his tax deductions, because he would lose the right to deduct his interest charges. Interest charges are deductible not when they accrue but when they are paid. On a HECM, interest ordinarily is not paid until the borrower dies or moves out of the house.

Consumption Maximizers

Another senior of the same age with the identical standard mortgage, offered the identical HECM reverse mortgage, would find it advantageous if her objective was to maximize consumption rather than wealth. By converting to the HECM, the senior would have an additional $2107 every month to spend, consisting of the payment on her standard mortgage which goes away.

Consumption maximizers don’t anticipate selling their home, and the size of their estate is not important. The potential for increased consumption outweighs the decline in wealth resulting from growth of the reverse mortgage balance.

Sorting Out Who You Are

Many seniors are conflicted about whether they are wealth maximizers or consumption maximizers, which may invite intrusion by other interested parties. In most cases, their children will want them to be wealth maximizers who shun the HECM. Loan officers, in contrast, will want them to be consumption maximizers because they are selling HECMs. Seniors should ignore both and decide for themselves who they are.

Jun 19

Picking on the Right Commercial Mortgage Madison

Looking out for a good and also reliable company which can provide you with the perfect financial help in terms of commercial mortgage Madison? There are some things which will which have to be remembered.

When you want to get the perfect benefits it is suggested that you get in touch with correct commercial mortgage Madison loans. These will be the ones which will be very useful for you and with this things will also fall in place for you. Getting perfect financial help is not easy always. You will have to put in efforts and research for some good options. The time you start to look around you will certainly come across many different sources that will offer you financial help. But it is very important that you pay attention to each of the aspects and only then pick on the right source.

It is not necessary all the time that each of them will give you the best results. Therefore it is suggested that when you are looking out for one you have to look out for plenty of suggestions first. Take a look at all that they have to offer you with. Also understand whether the commercial mortgage Madison loans offered by them will help you buy the kind of property you want or not. This is because only then things will be useful and you will find it easy to buy the right property for your office premises.

There are two simple types of loans but when you want it for your office premises see to it that you take into account all the many aspects. This is because only then you will know whether it is worth picking on or not. There might be too many lenders these days that you might come across. But be sure of the fact that you pick on some lender or the agent who will help you well in all the many ways. There are too many fundamentals too over here that you will have to first check so that you do not fall in any kind of a mess ever.

When you start looking out for such lenders who will present you with commercial mortgage Madison you have to make sure that you pay attention to a few fundamentals too. They have to be reliable and also very smart enough so that they can provide you with the right kind of loans for you. When all of these aspects are satisfied you can be assured that you can get the right commercial loans.

Jun 19

What Is FICO and How Does It Relate to My Mortgage?

It’s no secret that many people think about their credit scores. Even those who have little experience with credit are aware of the concept through free credit report advertising and other media coverage. And though most adults in this country are familiar with credit scores, many do not understand how they really work. For anyone seeking a mortgage, understanding credit reports and scores is invaluable. As one of the main drivers for mortgage approvals and interest rates, it can be very helpful to know how their decisions directly affect their score, which directly affects their mortgage.

Fair, Isaac and Company (FICO)
Fair, Isaac and Company, now branded as FICO is an analytic software company that developed the modern system for determining credit scores used by most credit bureaus. The terms “credit score” and “FICO score” are often used interchangeably to quantify the level of credit risk a person is based on their credit history. The software that takes information about a person’s credit history, and uses that data to calculate a score based on the information is most often FICO.

Credit reports which list the credit history data are generated by the three main credit reporting bureaus; Equifax, Experian, and TransUnion. Lenders report information about your financial activity to the bureaus who compile the information from each creditor a person interacts with. The report contains information such as amount of debt held, the amount of credit available, payment history, length of credit history, and other similar information. Reports hold both positive and negative information providing a snapshot of a person’s credit at the time a report is pulled. FICO software analyzes the report and generates a number ranging from 300 to 850. The number is generated by comparing information in the reports to hundreds of thousands of past reports to estimate the level of risk for a lender. The higher the score, the less likely the person is to be a credit risk.

How Mortgage Lenders Use Credit Scores
Each year, there are literally billions of credit decisions made by various lenders. Using FICO scores, these lenders are able to minimize their risk of a defaulted borrower, and determine fees and interest rates that help offset the risk that exists. Mortgage lenders examine a number of things when determining if they will approve a borrower and what interest rate the borrower must pay. That means that credit score is not the only determining factor for those seeking a mortgage, however given the economy and recent collapse of the housing market, credit score is becoming increasingly important to get the best mortgage.

How Understanding Credit Can Help Your Mortgage Search
The Fair Credit Reporting Act (FCRA) is a federal law that is the basis for United States consumer credit rights. FCRA guidelines what information creditors report and standardize the information to protect borrowers from false information. Despite this, credit reports can often have incorrect information that damages a person’s score. Each person is given the right to obtain their credit report from all three major reporting bureaus at no charge once per year. By understanding how credit works, and examining your credit report, a person seeking a mortgage can find and correct any errors in their report, and can also practice habits that will increase their credit score. If you are considering a mortgage or refinance, a wise first choice is to obtain your report and work to raise your score. A little can go a long way and save you thousands over the course of your mortgage.

Jun 19

Why Attaining Second Mortgages a Good Option for Self Employed People

It was much easier to attain a mortgage by self employed professionals previously based on their credit score. However, now it has turned out to be very difficult for a self employed person to attain mortgage even though he owns more than 25% of his business due to the change in the rules. The self employed person needs to present proof if income as well as a bank account that has account details of nearly three years. The other main requirements that are checked before providing the loan is the overall income of a person, and the way your tax is collected, and also whether the personal accounts are in order. Self employed mortgage Canada, companies provide clients mortgage at lowest interest rates and that is obtainable for first as well as second mortgages also.

The other important documentation a lender requires to present to attain a self employed mortgage include

€ The monetary statement of your commerce
€ Proof of the payment of GST and HST paid in full.
€ Proof of the agreement presenting proceeds of the upcoming years
€ Confirmation of being the main owner of your business
€ Private as well as Company credit scores

Need of Second Mortgage Loans

The Self employed mortgage Canada is ideal if you may possibly be competent to invest up to 80% of the evaluated value of your home whilst refinancing as well as 90% of the evaluated worth of a house you are procuring. The second credit loan is another way that would help, self employed professionals to consolidate their debt. The interest rate for attaining this credit is frequently higher than first credit, but is lesser than an unsecured line of credit. By making use of second mortgages to consolidate your debt, it would serve you to conform to other financial commitments on time and also perk up your acknowledgment score as well as permit you to meet the criteria for a credit with a major lender faster.

The four areas that need to be taken into consideration to attain a mortgage include first and foremost the equity. The chances of attaining second mortgage loan increases with the amount of equity available. Moreover, if you are purchasing a house, then you need to pay a big compensation also that reduces the peril a lender takes on normal payments for various utilities. The other three areas include the income, credit score and the property.
Important Features

You can receive competitive rates with Self employed mortgage Canada for carrying out home renovation or even for improvement of your house, purchasing a house, to consolidate your debts as well as lower the monthly payments, and finance for your individual wants. The most important feature that must be kept in mind to qualify for first as well as second mortgages definitely is to follow certain important rules, and they include keeping your accounts up to date, working hard to accomplish a steady income, and working towards having a substantial deposit, which possibly will amplify your probability of receiving a credit.

May 14

Hello world!

Welcome to WordPress. This is your first post. Edit or delete it, then start blogging!