The Truth Behind Reverse Mortgages

Fueled by an escalating number of Americans who are reaching their retirement years and finding that Social Security benefits are not enough, reverse mortgages are becoming more popular than ever. The loans, which allow seniors 62 and older to tap the equity in their home, do not have to be repaid until the owner dies or sells the home. For this reason, reverse mortgages are appealing, especially for people with small nest eggs.

The FHA's Home Equity Conversion Mortgage (HECM) is the most popular reverse mortgage program and is federally insured. All reverse mortgages are regulated by the Department of Housing and Urban Development (HUD), which requires recipients to obtain a certificate from a credit counseling agency before gaining approval from the lender.

Even with these safeguards, some eligible consumers are hesitant to take advantage of the reverse mortgage opportunities because of negative stories they have read or heard.

To explain what reverse mortgages are all about, here are some clarifications:

Fiction: A reverse mortgage is no better than a traditional home loan.

Fact: Unlike a conventional home loan, a reverse mortgage requires no monthly payments. Instead, it is a loan against your home that you are not required to pay back as long as you live there. The loan is repaid from the borrower's estate or the eventual sale of the home when the last surviving borrower no longer lives in the home. You can receive the money through a lump sum, monthly payments or a line of credit. To qualify, consumers must own and live in the home, and be 62 or older.

Fiction: A person 62 or older might have a difficult time qualifying for a reverse mortgage.

Fact: There are no income or credit requirements for a reverse mortgage. There is also no risk of default, and borrowers can receive payments and remain in their homes until they die or are no longer physically or mentally able to reside there. The amount you can borrow in a reverse mortgage is determined by your age, your home's value and interest rates. The older you are, the more you can borrow.

Fiction: The lender will own your home.

Fact: The bank never takes over the deed unless there is a default. Defaults can occur if the taxes and insurance are not paid current.

Fiction: Only the poorest of homeowners can benefit from a reverse mortgage.

Fact: Today, many homeowners with more expensive homes are turning to reverse mortgages to eliminate larger payments and free up cash in order to invest, travel, pay for college educations among other expenses.

Fiction: If the homeowners outlive the equity in their house, then they have to pay the mortgage or leave their house.

Fact: Once a reverse mortgage is executed, the residents can never outlive their equity, and the home can not be taken from them. On each reverse mortgage there is an upfront mortgage insurance premium paid to ensure that that never happens and the bank doesn't lose their money either.

Fiction: If, through a reverse mortgage, I receive more than my home is worth, my heirs or the estate will be responsible for overages.

Fact: Reverse mortgages are non-recourse mortgages, meaning that the heirs or the estate will never be responsible for any over payouts to the residents.

Fiction: Reverse mortgages cost significantly more than other types of home loans.

Fact: Typically, a reverse mortgage costs approximately one percent more than normal forward mortgages. Compared to most conventional mortgages with monthly payments, reverse mortgages can cost much less in origination fees.

If you have any other questions, or to apply for an FHA insured Reverse Mortgage, please contact your LoanShark Representative.

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The All in One Purchase / Rehab Loan from FHA

Second mortgages and home improvement loans have become nearly impossible to get. The credit crunch has all but eliminated these programs from even the strongest banks. LoanShark has the solution. It is a seldom used loan program insured by FHA called the 203K Streamline.

The 203K Streamline offers the borrower the ability to combine their purchase money loan with enough additional funds to rehab a worn down property in need of a little TLC.

So, if you have ever found a home that you loved everything about except the kitchen, or the bathroom, or it had really ugly carpet.  Well, there is a solution for you.

Most homebuyers would prefer to finance the cost of replacing carpet, updating a bath or kitchen, painting, replacing the furnace etc., rather than using high interest credit cards or hard-earned savings to pay for these updates? 

The benefits of using this loan is that a buyer can buy a home that needs a little bit of updating and finance the cost of any repairs and updates in with their mortgage.  This loan can only be used for properties that are going to be owner occupied either single family or 2-4 units.  The minimum amount of repairs/updates required to use this loan is $5,000. 

Some repairs that are eligible with the 203K loan include:  roofs, gutters, downspouts, HVAC systems, replacement flooring/carpet, minor remodeling such as kitchens, baths, painting, appliances, handicapped accessibility, basement refinishing.  Yes, a buyer can even purchase new appliances!  (All the work must be completed by licensed contractors)
For additional information or to apply for an FHA 203K loan contact your local LoanShark representative today.

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Fannie Mae Raises Loan Limits in High Cost Areas for 2009

On March 30, 2009, Fannie Mae issued Announcement 09-08, implementing the 2009 conforming loan limits for high cost areas (loans above standard $417,000). Permanent loan limit for high-cost areas is currently set at $625,500. Permanent loan limits are being raised temporarily from $625,500 to $729,750 for loans closed by December 31, 2009.  The loan limits will revert to $625,500 January 1, 2010, unless extended by the Congress.

The temporary limit guidelines apply to loans delivered to Fannie Mae starting May 1, 2009.

The eligibility requirements for high-balance mortgage loans are as follows;

• Loans must be conventional first-lien mortgages only
• One-to-four unit properties are eligible
• Loans must be fixed-rate or adjustable rate.

Loans must meet the LTV, and minimum credit score requirements. For one unit properties with a fixed rate mortgage, (15 yr & 30 yr loans) the maximum LTV is 90% and the minimum credit score is 700. For one unit properties with an adjustable rate mortgage, ARM, the maximum LTV is 75% and the minimum credit score is 680. For second homes and investment properties, the maximum LTV is 65% and the minimum credit score is 740. Other rules apply to other categories.

All high-balance loans must meet all standard Fannie Mae eligibility requirements.

UNITS	GENERAL Loan Limits	PERMANENT High-Cost Areas	TEMPORARY High-Cost Areas
One	$417,000	$625,500	$729,750
Two	$533,850	$800,775	$934,200
Three	$645,300	$967,950	$1,129,250
Four	$801,950	$1,202,925	$1,403,400

 

For details on your communities maximum loan limits or to take advantage of this temporary loan amount increase contact your local LoanShark representative.
 

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Save Up to $200,000 on Your Next Mortgage

How would you like to own your home free and clear before your kids start college? Before you retire? Or would you simply like to save a significant chunk of change over the life of your mortgage, perhaps as much as $200,000? Consider the 15-year mortgage instead of the more common 30-year mortgage.

If you think you can't afford to pay off your mortgage in half the time (15 years versus 30 years), you may be wrong.

While the monthly payments are somewhat higher on a 15-year mortgage, the interest rate is typically a bit lower, which offsets part of the increase in the monthly payment. Also, if you are refinancing to a lower rate the difference will be easier to absorb as you are already use to paying higher payments. Most importantly, you can end up paying less than half the interest over the life of the loan. When you consider that if you borrow $300,000 for 30 years at 5% you will end up paying the lender over $579,765 ($300,000 principal loan amount and $279,765 in interest). A 4.75%, 15 year loan of $300,000 would require paying only $419,999 over the term of the loan. For most people, this is the greatest opportunity they will ever have to save a very large sum of money.

You may wonder if you could achieve the same thing by putting the difference in the monthly payment into a savings account and letting it earn interest. If you saved $723 every month without fail over a 15-year period and put it in a money market account or other account earning 2.5% interest, your money would grow to $157,705. Not bad, but it's less than what you'd save by having a 15-year mortgage.

In reality, this is not as simple as it sounds. There are complexities we haven't considered, such as the fact that by paying less interest you'll also get less of a tax deduction. However, tax deductions for mortgages are over-rated. Sure, if you're in the 28% tax bracket you save 28 cents for every dollar you pay in interest, but you're still paying 72 cents in interest to a lender. What sounds better to you: save 28 cents or save 72 cents?

The real issue is that most people will NOT exercise the discipline necessary to consistently and without fail save the difference (in this example, $723) every month and never touch it for 15 years so that it will grow to the same amount they would have saved with a 15-year mortgage.

In summary, with a 15-year mortgage versus a 30-year mortgage:

• You build equity much more quickly
  
• You own your own home in half the time
  
• You save more than half the amount of interest
  
• The rate is typically lower than the rates on 30-year mortgages and stays the same throughout the life of the mortgage

The 15-year mortgage may or may not be right for you, but it's worth considering. Contact your local LoanShark Representative to run some numbers and determine if a 15 year mortgage is right for you.

15- vs 30-year Mortgage Illustration

	30-yr @ 5.00%	15-yr @ 4.75%
Loan Amount	$300,000	$300,000
Monthly Payment	$1610.46	$2333.33
Total Interest	$279,765	$119,999
Savings	0	$159,766

 

The LoanShark