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Pros and Cons of Reverse Mortgages

April 29th, 2010

Reverse mortgages have fans and critics. These home loans allow people 62 and older to borrow against the equity in their property. Here are some of the pros and cons for reverse home loans.

Pros of Reverse Loans

It can be difficult to cover all your financial obligations if you don’t have enough money coming in each month. Many seniors use reverse mortgages to supplement their income. Some advantages of these loans are:

  1. Money borrowed doesn’t have to repaid until you move or die. There are no monthly payments as with a traditional mortgage loan.
  2. You can use reverse mortgage proceeds for any purpose, including medical bills, debt, or home repairs. The money can be received as a lump sum, through installments, or as a line of credit.
  3. The amount you can borrow increases as you age and as your home value rises. A reverse mortgage counselor can help figure out how much you might be able to borrow.

Cons of Reverse Home Mortgages

Reverse loans have some drawbacks you should be aware of:

  1. Borrowing money this way can decrease the inheritance you leave behind for you kids. If leaving a home or other assets to your heirs is important, consult with an estate planner to decide if a reverse mortgage is a good move.
  2. Reverse mortgages use negative amortization, so the balance grows over time. People who receive the money through a line of credit could have the option of paying back some of the money as they go along to cut the balance owed.
  3. There are limits to how much you can borrow with a reverse loan. Currently, the limit for a Home Equity Conversion Mortgage (HECM) is $625,000.

Reverse Mortgage Counseling

Reverse mortgage loans should be considered carefully and used as a last resort for finding a new income stream. Before applying for a loan you must receive counseling from a Department of Housing and Urban Development-approved counselor.

A counselor can review your finances and determine if there are alternatives to reverse loans that may be more helpful. Search for information on reverse loan counselors in your area at the HUD Web site.

Compare Reverse Loans

It’s important to get as much information about reverse loans as you can before starting the application process. Compare different loan offers to decide if borrowing money this way is right for you.

Deadline for Home Buyer Tax Credit Looms

April 23rd, 2010

The government’s tax credit for home buyers must be claimed by the end of the month. So if you are dragging your feet on signing a purchase contract, get moving.

Is Your Mortgage in Place?

Under federal guidelines you may be eligible for the tax credit if you sign a contract by April 30, and close on a home by June 30 of this year. If you need a home loan to buy, you need to have that in place so you can make a solid offer for a home.

Military Extension

However, members of the military, foreign service, and intelligence community who qualify have until April 30, 2011, to sign a contract, and until June 30, 2011, to close on a home purchase.

According the Internal Revenue Service:

Members of the uniformed services, members of the Foreign Service and employees of the intelligence community are eligible for this special rule. It applies to any individual (and, if married, the individual’s spouse) who serves on qualified official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.

Extension Seems Unlikely

With positive news out this week about a gain in home sales attributed in large part to the government’s tax credit, you may be wondering if there are plans to extend the credit for everyone else. That’s not likely, according to housing experts.  

“It’s time for the housing market to stand on its own two feet,” a spokesman for the National Association of Realtors told the Wall Street Journal.

Working Overtime to Negotiate Deals

With the April 30 deadline looming, it’s not surprising that many people are scrambling to get deals in place.

Vicki Cox Golder, president of the National Realtors Association, said in a statement:

Realtors are working harder than ever to negotiate transactions, arrange services and complete paperwork. Because many repeat buyers need to sell their current home first, many will be purchasing later without the tax credit but now have the benefit of a more buoyant housing market.

Getting a Mortgage without Tax Credit 

Even if you miss the tax credit deadline, home prices are affordable in many areas and current mortgage rates are still low.

Use a loan calculator to run the numbers and see if it makes sense to buy a home even if you miss the deadline for the tax credit.

Mortgage Help for the Unemployed

April 16th, 2010

Are you unemployed and need help with a mortgage loan? Get in line. Many homeowners have been frustrated with unsuccessful attempts to get help with troubled home loans.

Recent changes in the government’s Home Affordable Modification Program (HAMP) are aimed at allowing borrowers who have been laid off and are underwater on mortgage loans to receive modifications.

Help with Mortgage Loans

The Obama administration’s plan includes local housing agency intiatives, homebuyer tax credits, mortgage loan modifications, refinancing, and community development programs. Depending upon a borrowers situation, they may receive assistance with remaining in a home or relocating to more affordable housing.

HAMP has helped more than 4 million homeowners refinance mortgage loans. Another million are saving an average of $500 a month due to mortgage modifications.

Help for Unemployed

So exactly how can the changes to the program help if you are unemployed?

  1. Depending upon your situation you may qualify to have mortgage payments reduced for three to six months while you hunt for a new job.
  2. If you don’t find employment or find a job with less income, you could be considered for a permanent mortgage loan modification or HAMP’s alternatives to foreclosure program.
  3. Mortgage loan servicers may receive incentives for writing down your principal. They also are being encouraged to extinguish second liens, which could help borrowers who want to complete short sales.
  4. Mortgage servicers may receive incentives for improving communication with borrowers.

Is It Enough?

The government’s mortgage loan modification program has hit snags along the way. Critics say mortgage loan servicers were slow to respond and not enough people have been helped, something the Obama administration has acknowledged.

Others say the recent changes in HAMP are only a stopgap since unemployment benefits are no longer going to be factored into income when deciding if a borrower qualifies for a having mortgage loan payments reduced. So far unemployment benefits could be factored into income as long as borrowers could prove the payments would last for nine months. 

Mortgages and Long Term Unemployment

“Any programs that give people breathing space while they’re out looking for work … are a positive thing,” Mark Pearce, the top N.C. mortgage regulator and a leader in national foreclosure-prevention efforts, said in the Miami Herald. However, ”This program doesn’t address the folks that are unemployed for a longer period of time.”

10 Mortgage Terms You Should Know

April 9th, 2010

Educating yourself about how mortgage loans work should happen before you end up in negotiations to by a home. The following guide discusses some common mortgage terms you should understand as you work toward becoming a homeowner.

  1. Amortization schedule shows how your monthly mortgage payment is split between principal and interest. Over time as the loan balance decreases, the amount of payment that goes toward the principal increases. Use a mortgage payment calculator to figure out an amortization schedule.
  2. Appraisal is a report that puts a value on a property. The home value is determined by looking at the features of a home, as well as looking at sales of comparable properties in the same area.
  3. Closing costs are fees associated with borrowing a mortgage loan. Some closing costs are nonrecurring fees, such the amount you pay for a title search. Other closing costs may be prepaid fees that recur over the life of the loan, such as property taxes and insurance premiums.
  4. Down payment is the amount of cash you have to pay toward the purchase of a home. This money is due at closing and is not included in the home loan.
  5. Escrow account is where money is set aside out of your monthly mortgage payments to cover property taxes and insurance. Most banks set up mortgage payments to include these fees, as well as principal and interest.
  6. Fixed-rate mortgages have monthly payments that remain the same throughout the term of the loan. It’s common for these home loans to have terms of 15 or 30 years, but other terms may be available.
  7. Home inspection is a thorough examination of a home to see if it structurally sound, in need of repair, or has other problems that need to be addressed. Always get a home inspection, even if you are purchasing new construction.
  8. Mortgage insurance (MI) is a policy that covers the lender if you default on a home mortgage. MI is required when you have a down payment that is less than 20% of the purchase price.
  9. Pre-approval occurs when a mortgage lender reviews your completed loan application and detailed financial information and has approved you for a loan of a certain amount.
  10. Mortgage rate lock occurs when a mortgage lender agrees to guarantee the interest rate for a specific period of time. Most mortgage lenders require you to pay a fee to lock in the rate.

These are just few of the mortgage terms you may encounter. Review the glossary of terms to learn more about mortgage loans.

7 Mistakes People Make When Buying a Home

April 2nd, 2010

Don’t waste time and money when buying a home. Avoid making the following mistakes when purchasing a property.

  1. Not setting a budget. Do you have caviar tastes on a crackers and cheese budget? Run the numbers on your finances before heading out to look for a home.  That way you can shop within your budget and won’t experience delays when applying for a mortgage. It’s also important to buy a home within your means. Bigger may seem better until you’re struggling to make the mortgage payments and keep the heat on.
  2. Not getting pre-approved for mortgage loans. A pre-approval letter shows that a mortgage lender is committing to give you a home loan. This puts you in a better position to negotiate a deal.
  3. Letting emotions take over. Buying a home is probably the biggest purchase you’re going to make in your life. Don’t let your emotions cloud your judgment. If you see a lot of red flags and feel uncomfortable with a deal, don’t ignore those feelings. While you may think you’ve found your dream home, there are other properties out there. 
  4. Trying to time mortgage rates. When it’s time to get a home loan, compare current mortgage rates from several mortgage lenders to find the best deal. If you’ve done everything you can to clean up your credit, and save up a nice down payment, you should qualify for a competitive mortgage rate regardless of what’s happening with the economy.
  5. Signing contracts without understanding them. Many homeowners caught up in the subprime mortgage mess claim they just didn’t know what they were getting into when they purchased property. You may not be a legal expert, but you must pay one to represent you. Hire a knowledgeable attorney who can review your contract and look out for your interests.
  6. Not getting a home inspection. Even if a house looks perfect, there are bound to be some type of problems lurking about. In fact, some new homes could even have problems that wouldn’t be found without a home inspection. Your housing contract should allow for contingencies related to the home inspection.
  7. Not taking advantage of programs that help you buy a home, such as the government’s homebuyer tax credit of up to $8,000. Many communities also have programs targeted at first-time homeowners or other information sessions.

Becoming a homeowner can be exciting and scary all at the same time. Learn as much as you can about the process and find reliable professionals for your team to make the home buying process as smooth as possible.