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Why do Reverse Mortgages have Insurance?

Question from our Reader:

Is it common for Reverse Mortgages to include an additional monthly fee for “Mortgage Insurance”?
What companies do not charge for Mortgage Insurance?

Hi Ronald,

The lenders do not charge for the Reverse Mortgage Insurance; HUD does on the Home Equity Conversion Mortgage (HECM or “Heck-um”) which is an FHA or government insured program. At this time, there are very few proprietary or private programs available that do not require this insurance as most disappeared when the market experienced all the difficulties in 2009 and 2010. The programs that have come out since the collapse of the market are mainly for Jumbo or high balance loans and I think you will find that the cost with the insurance is still typically less than what these programs have to offer.

The government insurance is what makes the program work. It protects borrowers, lenders, heirs and even the folks who buy the securities backed by the loans. Without the insurance, the viability of the program is very questionable and that is borne out by the fact that most of the programs that were not FHA-insured disappeared when the market collapsed and there are very few that have returned and those that have offer borrowers very few options and at higher rates.

Borrowers who do obtain the proprietary programs, typically because of the loan sizes and property values, currently have fewer programs
available to them. I am only aware of 2 proprietary programs at this time, both are fixed rate requiring a full draw of the funds available and both have interest rates in excess of 7% (greater than the HECM rates plus the insurance renewal of 1.25% of the outstanding balance). There are no guarantees on these programs by HUD, so growing balance lines of credit that they can access at later times would not be guaranteed and therefore borrowers would be open to the risk that something might happen to the lender before they accessed all of their funds, causing their line to close prematurely. Therefore, the fixed rate full draw option on the private programs is the only way to ensure that all funds are available to every borrower.

So Ronald, forgive me for taking so long to answer what is a quick question, but the HECM loans plus the insurance are still below the rate that accrues on the proprietary or private offerings that are available and I wanted to be sure you understood that this insurance protects you on future draws as well as gives you the availability of programs that offer a reverse mortgage line of credit, monthly payments, a full draw or a combination of these features instead of just the one lump sum that the private programs offer. If you need the higher balances that the private programs can give, they are the only way to get them but if not, even with the insurance, the HECM program still gives you more options.

Sources:
About Reverse Mortgage Insurance Premiums
HUD.gov
Upfront Mortgage Insurance Premium

Things To Consider When Performing A Title Search

There are numerous things to consider when performing a title search. The value of the property is necessary to know before making a purchase. The previous history of ownership is also important for individuals who do not want to make a bad investment. Making a decision about the number of owners can also help a person to decide whether or not the investment is going to be worthwhile in the long run. The history of the property can also indicate the likelihood of being able to do business in a location as the property is intended for professional purposes. For more information a person has before purchasing property the user will be for them to make the best investments with their real estate investment money.

Property Value
If a person is interested in doing a investigation into a piece of property, understanding the value of the property is important before quitting and an initial offer. If a person is going to perform a title search in vic, they will need to be working with a company that is reputable and can give me information which is up to date and legitimate. The research methods used by a company to determine the value of property is also an important part of the consideration in terms of which company to utilize the services of when having the search completed. The relevance of the information is also essential for evaluation purposes. If the information is updated on a regular basis it will be seen as credible and can be utilized to make financial decisions. The ability to make financial decisions which are going to be the emphasis for long-term investments is important for the majority of individuals who are not knowledgeable about the real estate market.

Ownership History
Understanding the ownership history as a free is also essential to making intelligent decisions regarding real estate. If there are a lot of people making the investment and the property only to turn it over quickly people should consider the possibility that there’s something wrong with the land itself. Having a surveyor or other professional individual investigate the problems with the property prior to making an investment is essential for individuals were looking to do business on the property. This will also enable people to make the best decisions as it relates to understanding the zoning laws and regulations regarding a certain area. The more knowledge people have about the specifics expected from them when making an investment in a certain area me easier it will be for them to make decisions regarding it for long-term planning necessary when purchasing property.

No deposit home loans as a viable option for new homeowners in Australia

When moving out on your own, you’ll generally start out renting, perhaps renting a room in a friend’s house, sharing an apartment shared with one or more other people, or if you’re really lucky and find a good deal, a place that’s all your own. But while renting has many advantages like being able to move at any time, contract modification options, or not having responsibility for appliance repairs, there’s also something to be said for owning your own home. Home ownership is a dream for many renters, simply because home ownership, while often cheaper in the long run (and certainly more rewarding), can also be quite expensive at the offset. Typically buying a home requires that you provide a down payment on the home itself, and then there are closing costs and moving costs to consider. For many prospective buyers, home ownership winds up being delayed or put off altogether, due to the high cost of a down payment.

Fortunately for prospective home owners, there are such things as no-deposit home loans, though you’ll need to know where to look for them. It pays to let banks know right away that you want a no-deposit loan, so that if they do not have such a loan available, they can let you know right away – and thus you’ll both avoid wasting time and resources.

Banks and other lenders in Australia such as Homestart are able to provide no-deposit home loans that also have low interest rates. But despite these low rates, no-deposit loans are not always easy to find. So when you do find them, it’s important to fill out application paperwork accurately, and provide all requested documents. Saving on the cost of a down payment is a worthwhile investment, since having more money to start out with and just a monthly mortgage loan payment to make is always a good deal to have. So if you find yourself in a position of wanting to buy a home but not having savings or a personal loan from a family member or a friend to use for a down payment, do your best to seek out a no-deposit home loan.

Managing debt by expanding your assets

Previous articles have discussed various aspects of debt management, including changing one’s approach to debt. Those changes can included reducing the total amount of debt, reducing the number of debts, looking at different financing options, and understanding the difference between a positive debt that leads to long term positive financial results, and negative debt that only produces expensed and creates no benefits.

One of the golden rules of debt is related to the last distinction of a positive or a negative debt. A positive debt incudes debt that is finances an asset that produces income that exceeds the costs of debt service and the other costs associated with that asset. An investment in an apartment building that produces a positive cash flow each month is an example of a positive debt.

Another kind of positive debt would include an educational loan that allows someone to find employment that produces a higher income, even after taking the educational debt payment into account. These very same debts could become a negative debt if the investment has a negative cash flow or if the educational loan doesn’t lead to a job or a pay raise.

While managing or reducing debt can be a primary financial goal, sustainable financial stability is much more likely to happen when you have assets working for you. Your assets can range from cash in a savings account or other low-risk paper asset, or a business or real estate investment that provides a positive cash flow every month.

If you don’t have any assets at all, it is probably smartest to start with a low risk asset like a savings account or precious metals. If you are going to use some kind of paper asset, it may be best to put it into an account that is not easily accessed to keep you from being tempted to spend it quickly.

Precious metals may fit into this kind of strategy, since you can’t just take a silver bar or a gold coin 1 oz gold american eagle to the store and use it like a common currency. You have to first take it to a coin dealer and exchange it for regular money before you can spend it. Gold and silver have an additional advantage as it can be used as a hedge against currency fluctuations and inflation.

Even if your debts are far larger than your assets, having even a tiny amount of assets to your name could do wonders to make you feel better about your financial situation and your prospects for the future.

Analyzing The Making Home Affordable Program created by Obama

The Obama administration created the Making Home Affordable program in 2009 to help homeowners who were threatened by foreclosures from the housing market crisis. The homeowners were underwater, and their mortgage costs were more than the falling housing values. They could not sell their homes without being in debt to the banks. Many of them had lost their jobs and were trapped in foreclosures because the banks had refused to make loan modifications.

The Making Home Affordable program consisted of two components: the Home Affordable Refinance Program and the Home Affordable Modification Program. Republicans did not support the program claiming it led to deficit increases. They argued that the homeowners should have been held responsible for the signed mortgage contracts.

HARP allowed qualified homeowners who had mainly kept up with payments to refinance Fannie Mae and Freddie Mac loans into fixed-rate, 15- or 30-year low-interest mortgages. Four million homeowners were expected to qualify for the program, but by mid-2011, only 900,000 had successfully used it.

HARP was reformatted into HARP 2 by November 2011 with major changes that included no loan-to-value ceiling, no credit score requirement, faster underwriting and less restrictions as long as one was current on their mortgage. HAMP had been fashioned for those homeowners who had experienced a financial hardship, their mortgages exceeded 31 percent of their income and they were at risk of foreclosure.

Through early 2012, there has been a better response to the more flexible HARP 2. It appears that improved publicity has brought in more homeowners and, importantly, more responsive lenders. Major banks, feeling possible profit losses, had been initially slow to process HARP.

By the end of 2010, a quarter of all homeowners were underwater. Real estate researcher Zillow reported that at the end of the first quarter this year, 15.7 million people were underwater, representing one of every three homeowners. Foreclosures have been served on 2.5 million homes and 4.5 million homeowners had stopped paying mortgages.

The Obama programs began tenuously and in a contentious atmosphere of heavy criticism from Republicans who did not want to allow funding. Costing nearly $50 billion, the programs are expected to help some two million homeowners by year’s end and possibly many more.

Why now might be a good time to get a mortgage

Deciding if getting on the property ladder is the right thing to do in these confusing economic circumstances can be a stressful time, particularly if you are a first time buyer.

Lenders have been reluctant to give out mortgages to the extent they did during the housing boom, making it difficult to obtain finance to get started on the property ladder.

The housing market has stalled, yet house prices are still predicted to fall further during 2011, making this year an appealing time to try and make those first steps.

If you are unsure what you are able to borrow given your personal circumstances, a mortgage calculator will help you work out what you can afford to borrow and comfortably pay off.

Deciding to buy is always a risk and you will have to make the decision to buy now and risk further price falls, although if you plan to live in the house for a long time, falling prices will pose less of a risk.

Predicting the right time to buy is only part of the equation. You still need to find out if you will be able to secure a mortgage and this will depend on both the current market and your personal financial circumstances.

Before you start contacting lenders, check out a mortgage calculator to help you decide what size and type of mortgage is affordable for you and then what type of house you can purchase for that price.

Mortgage lending has been at an all time low in the last year as lenders have become much more conservative and risk adverse, but if you are able to meet some strict criteria, you may be able to secure a mortgage.

A good credit history and a substantial deposit, of at least 10%, but ideally up to 25%, will go along way to making you more attractive to mortgage lenders.

The tricky decisions don’t stop there. If you are fortunate enough to secure a mortgage with a combination of a good deposit and positive credit history, you then need to decide whether a fixed rate or tracker mortgage is right for you. A mortgage calculator will help you compare repayments.

There may be costs that are not mortgage related, but that you may have to pay up front. While the typical borrower may rely on their their standby cash in their checking or savings account, using a pay day loan service may be useful, but only if you intend to pay off the loan very quickly.

Even though the base rate is currently at an all time low of 0.5%, making a tracker mortgage seem attractive, these low rates are not likely to remain forever. You will need to consider at what point a rising interest rate make it a struggle for you to pay off your mortgage.

It may be a more financially comfortable option for you to opt for a fixed rate mortgage and be certain of what your monthly repayments are going to be.

You will pay more, but it may be the difference between being able to keep up repayments, or defaulting on your mortgage should interest rates soar in the future.

The credit crunch has made mortgage lenders much more conservative than during boom times when you could get a mortgage with no deposit.

Criteria are much stricter, but if you are in a good financial position, it should not be impossible to find a good deal on today’s market.

Of course everyone’s circumstances are different, so good independent financial advice is crucial to ensuring you embark on a mortgage you can realistically afford.

How much can you afford to pay for a house?

Today’s housing market may not be going well for those looking to sell, but buyers have an opportunity to find all kinds of deals that make home-ownership affordable. There are several different factors that you should take into consideration when you attempt to make a home purchase.

The House Payment
The amount that you are going to pay every month for your home is the most critical number when it comes to finding out how much you can afford to pay for a house. This number comes from several other figures all working together to give you the monthly payment. As you work with mortgage calculators, take a close look at this figure to determine whether or not home-ownership is a possibility.

The Cost of the House
Whether you have retained the services of a realtor or plan to look around yourself, the overall amount that a home costs will figure into whether or not you can afford it. The more you research, the more you will find that there is a range in price that you can afford.

The Down Payment Amount
Do you have money set aside for a down payment? The down payment will reduce the amount of money that you need to finance for home-ownership. You will need at least a part of the down payment to be used as interest money when you place an offer on a home.

The Loan Terms
Financing a home is a critical part to the ownership process. Think about whether or not you are going to set up a loan for fifteen or thirty years. The payment will be higher with a fifteen year loan, but you will be able to pay it off sooner. Most people choose to finance for thirty years in order to be able to afford a bigger home.

Private Mortgage Insurance
If you don’t have at least twenty percent of the cost of the home as a down payment, you typically need to pay private mortgage insurance. This is something that will be added into your mortgage payment, so be sure to take it into consideration when planning.

Other Loans
Do you have other loans that you are currently paying on? When you decide how much you can afford to pay for a house, you want take into consideration the other amounts that you owe and how much you pay for them each month. Over committing when it comes to a house payment can put you in a difficult situation, so be aware of other expenses.

Projected Utilities
Remember that a home purchase comes with the cost of maintaining the residence. This includes electricity, gas, taxes, homeowner’s association fees and even the cost of garbage collection. Each of these payments needs to be included in how much you can afford when it comes to a home. You don’t want to be able to afford the payment but not be able to live there because of the overall cost of running the home.
Take all of these expenses and numbers into consideration when you begin the search for a home that you can afford. This is usually a lengthy process, but the final results are well worth the effort!

30 Year Fixed Hovers around 5%

If you don’t currently own your the place you live in you may be missing out on one of the greatest opportunities in your life. Most of us are well aware that it is a buyers market and that homes are being sold dirt cheap. The other opportunity is the incredibly low prices on 30 year fixed mortgages. The last time they were even close was March of 2004 at 5.45%. If you look at the charts since 1971 this has rarely happenned and could truly be a once in a lifetime opportunity to have a low monthly payment on a loan. Even if you already have a home loan your payback period to refinance could be less than 2 years. The reason for that is you typically have to pay some fees to refinance your home. Let’s say you save $100 a month in mortgage payments by refinancing, but the fee is $2,400. Even with the lower payment it will take you 2 years to make up for the difference. If you plan on staying in your current home for more than 2 years it should certainly be considered. Over the next 30 years you would save $36,000.

$100 Homes

Last night 20/20 featured an interesting segment on homes in foreclosure. They interviewed some urban pioneers in Michigan who are rebuilding an entire neighborhood one house at a time. The homes sold for $100-$500. They were in terrible shape. Most of them were either burned and partially destroyed. While it will probably take 10’s of thousands to repair them and the area is awful the pioneers were doing something very interesting. They were building a community. Instead of trying to go it alone they found other people that wanted to renovate this area. One by one they began attracting friends and family to come join them in their quest to rebuild this area.

I have no doubt that in ten years this will be some cool, hip part of Detroit that everyone wants to visit. An interesting example of creativity during a tough patch in our economy.

VA or Military Home Loans

The LA Times recently featured a story on VA Loan Benefits. For military members coming home and looking to purchase a home there are some tremendous benefits. Without putting up any of their own money veterans can borrow up to 417k with a GI loan. The limits increase in other areas such as California and Colorado where home prices are higher than the rest of the nation. There are some pretty specific items you need in order to qualify

You Are Eligible For A VA Home Loan If:

  • You have had 90 days or more of active duty service during wartime
  • You have had 181 days or more of active duty service during peacetime
  • You were discharged for circumstances that were not dishonorable
  • You are currently active duty personnel and you meet the above service requirements
  • You are the surviving spouse of a Veteran who died during service or because of service-related injuries and you have not remarried.

You will also need to show work history and ability to make payments for the loan you are applying for. Lastly, there are three other reasons these loans are good for veterans.

No PMI Insurance is required.

VA Loans require no money down and you will see no penalty rates

VA Loans have lower rates than conventional loans.

Given the current economic environment this is a great option for those who have dutifully served our country.

Housing Price Declines 18.5% – Time to Buy?

If you are currently looking for a new home or have been on the fence about trying real estate as an investment option now could be a great time.

It is truly a buyer’s market. Home prices are low, there is a large selection to choose from and even new home prices are being driven down by builders eager to scrape up any business they can.

Even though everyone keeps talking about the credit crunch mortgage rates are extremely low. The graph below shows the interest rate of a 30 year mortgage over the last 30 years.

30yearfixed

But wait there’s more. With the passage of HR 1 up to $8,000 can be used as a tax credit for first-time home buyers purchasing between 1/1/2009 and 12/1/2009. The credit does not require repayment and will be used to reduce the purchasers income tax liability. If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser.

From an investment standpoint the picture is a bit mixed. There are certain areas where home prices have been falling, but rents have been stable. This is an ideal situation for an investor to swoop in and make large profits.

However, large metro areas have also seen drops in occupancy rates. If you take the case of Salt Lake City the
apartment vacancy rate went from 3.1% to 6.8% year over year at the end of the fourth quarter for 2008.

As long as you can get renters in you are good, but with vacancy rates rising in some areas it definitely pays to do your homework before you invest.

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