Reverse Mortgage FAQ

The HECM or home equity corporation mortgage is actually an FHA reverse mortgage. It is used to withdraw on the equity of your home. This type of mortgage is especially popular with senior citizens because they can draw on the equity of their home for life’s unexpected events such as car repairs or medical expenses. If this sounds like something you need you can contact the Council on Aging or go to their website and download the booklet free of charge. After reading the information you can decide if this is right for you.

 What is the definition of a reverse mortgage?
Reverse mortgages are specialized home loans that turn your home equity into real cash. The difference between this type of loan and a tradition mortgage or even second mortgage is that you do not have to pay the loan back until you no longer live at the home or move to another home and the primary residence becomes the secondary residence. You can also use the money for closing costs and fees associated with purchasing another primary residence.

Who qualifies for a reverse FHA or HECM mortgage?
First you must be a homeowner and be at least 62 years of age and either have a very low mortgage balance that can be paid off with the proceeds from the reverse mortgage or have your home paid off and are currently living in the home. You also must be currently receiving information from a HECM counselor free of charge or paying a very low fee.

Can anyone apply even if they did not buy their home with an FHA loan?
Anyone can apply for HECM regardless if they purchased their home through FHA or not.

What types of homes qualify?
Homes that qualify can either be single family homes or homes with 2 to 4 units and at least one of them occupied by the individual that is applying for the loan. Other types of homes that are available are HUD homes and premanufactured homes.

What are the differences between home equity loans and reverse mortgage loans?
With the traditional home equity loans you must be employed and be able to make payments on the principal. Reverse mortgages pay you plus there is no principal to pay every month. You also have to pay property taxes on reverse mortgages as well insurance and other associated costs including insurance premiums.

Can the home be left to heirs?
The main thing to remember is that a HECM loan must be completely repaid before the home can be passed along to heirs. There is no debt of any kind that is passed along to heirs to repay. Should the borrower die it is the responsibility of the spouse to repay the HECM loan so that the house can be released to the appropriate family members. A HECM loan is cash that is borrowed according to the equity of the home which is why it must be paid back in full so that the home is free and clear.

source: 20smoney.com

First Time Homebuyer? Try Your State Housing Authority

One of the best kept secrets about mortgages is the great deals that home buyers—especially first time home buyers—can get on a mortgage from their state housing finance authority. In fact, according to a national survey last year by NeighborWorks America 70% of U.S. adults are unaware of down-payment assistance programs available for middle-income homebuyers in their community.

State housing finance authorities are state-chartered organizations established to help meet the affordable housing needs of their residents. Most housing finance authorities (or HFAs) are independent entities that operate under the direction of a board of directors appointed by each state’s governor.



There are more than 2,400 programs available across the country from state HFAs. For qualifying buyers, they offer first and second mortgages at below market rates, down payment and closing cost assistance, grants and credits to help with monthly mortgage payments, homeownership education and more.

Borrowers with debt payments that are too high to qualify for a conventional loan may be more successful with an HFA loan. Like FHAs, HFAs are exempt from the new ability-to-pay rule that took effect last year, known as the QM Rule.

The programs available through HFAs vary from state to state.  For a directory, you can go to https://www.ncsha.org/housing-help.

In Connecticut, for instance, HFA loans are underwritten by approved lenders. If you live in Connecticut (where, incidentally, Total Mortgage is a participating lender) you should contact your loan officer to learn more about the 38 programs available to home buyers and homeowners from the Connecticut Housing Finance Authority. These include:



The Homebuyer Mortgage Program. 

This is for first-time homebuyers (who have never purchased a home or had an ownership interest in a residence in the past three years) who meet minimum credit, income, and employment standards.

CHFA sets income limits for every town in the state based on local income levels and household size. See CHFA income limits to find out if you qualify.

 Down Payment Assistance.

CHFA also offers loans up to $3000 for first-time buyer who have difficulties raising the cash for down payments and closing costs.

Targeted Areas.

The Connecticut Housing Finance Authority (CHFA) suspends many of its mortgage eligibility rules for homes purchased in areas of the state targeted for revitalization. These “targeted areas” have been recognized by the federal government as likely to benefit from an increase in homeownership.

The cities of Bridgeport, Hartford (except for Census Tract 5245.02), New Haven (except for Census Tract 3614.02), New London, and Waterbury have been designated as targeted areas. Also, portions of Ansonia, Danbury, Groton, Meriden, Middletown, New Britain, Norwalk, Norwich, Stamford, Torrington and Windham have been designated as targeted areas.

Other Programs for Buyers and Owners.


CHFA also offers its residents:

• Mortgage programs for military, police, and teachers
• Homeowner’s Equity Recovery Opportunity (HERO) Loan Program for buying and rehabbing distressed properties
• FHA rehab programs
• HFA Preferred Loan Program for first-time home buyers who qualify for low cost mortgage insurance coverage
• Homeownership Mortgage Program for eligible tenants of publicly assisted housing
• Home Of Your Own Mortgage Program (HOYO) for disabled residents
• Mobile/Manufactured Home Mortgage Program for those purchasing a mobile manufactured home in a state-licensed mobile home park.

 Don’t Forget to Stay Educated

It’s important for new buyers to seek homeownership education. It’s often a requirement for down payment programs and it gives buyers confidence with the home buying process, financing options, including down payment programs, and budgeting.

Take a moment to find out what’s available to you. Don’t assume you won’t qualify. Millions in mortgage and down payment assistance is available through state HFAs every year.

source: totalmortgage.com

Refinancing Redux: What Happens the Second Time Around?

Given persistent low-interest rates, some homeowners are asking if it’s worth it to refinance a second time before rates creep back up. Counting all types of refinances, Freddie Mac, the government-sponsored mortgage outfit, says the average loan refinanced in the first quarter of 2015 was about 5.6 years old, and homeowners cashed out a total of $7.6 billion.

Is it really advantageous to go through all that paperwork just to save a little bit each month? Here are five things to consider before any “redo-refinancing.”

1. Assess Your Penalty

Unlike the first time you refinanced, dipping back into the pool can come with special penalties. While you likely won’t have a no prepayment clause, the industry isn’t really set up for back-to-back refinancing. If you refinanced within the past 60 to 90 days, double check for any red flags. For example, an FHA Streamline refinance requires 60 days with the previous loan before you can refinance again.

2. Calculate Your Potential Savings

With any refinancing, it’s important to have a crystal-clear view of what you will save overall, not just in monthly payments. The general rule of thumb used to be that you refinanced when current interest rates fell two points lower than your loan. Today people are refinancing for less, so you really need to read the fine print. Some homeowners also refinance for a higher monthly note so they can pay off their loans faster.

3. Understand All Costs and Fees

You can’t get a decent picture of refinancing — once, twice or beyond — unless you understand every single cost and fee, like mortgage-recording taxes. Refinancing can reduce your principal owed, but it can also maintain the same loan amount. If you plan on moving any time soon, this is also a key consideration. Chances are you won’t recoup the costs unless you plan on sticking around.

4. Gather Documents

No matter how many times you choose to refinance, you still have to have all the paperwork ready to go. Required documents usually include driver’s license, pay stubs and tax returns. Unique situations, such as self-employment, may prompt a need for additional paperwork.

source: totalmortgage.com

How to Get Rid of Your PMI

Private mortgage insurance (PMI) can help you buy a home without a big down payment, but it’s expensive in the long run. An online PMI calculator reveals that a $300,000 house purchased with a $10,000 down payment can stick you with an extra $277 in PMI payments each month. That adds up quickly: in five years, you’ll have shelled out an extra $16,620.

Fortunately, there are ways to save on PMI costs. Before you buy your dream home, consider your PMI exit strategy to save big in the long run.

1. Avoid an FHA

The best way to avoid paying PMI is to make a 20 percent down payment on your home so that you don’t need it at all. Failing that, you should do your best to stay away from FHAs. Because they’re intended for riskier borrowers, you end up paying PMI for the life of the loan, regardless of how much equity you’ve built.

If you’re an otherwise well-qualified borrower looking for a low down payment option, take a look at a conventional loan. Recent changes over the last year have made it possible for borrowers to put as little as 3% down, and once you have built up enough equity (generally 22% of the loan) you can cancel the PMI.

2. Make Extra Mortgage Payments

By paying extra on your mortgage each month, you’ll be increasing your equity at a faster rate than if you just paid the minimum. Any extra payment you make goes directly to paying down your principal, and you’ll save by not owing additional interest on that portion of your mortgage. Once you owe less than 78-80% of the original value of your home, you can call your bank and request they cancel the PMI charges. The sooner you can pay down your debt, the sooner you can get rid of PMI payments.

3. Re-Financing Your Mortgage

Keep an eye on the housing market in your neighborhood and on mortgage rates from other lenders. If home values have gone up since you bought your house, you may have more equity than you think. Think of it this way: if your $300,000 home is now worth $400,000, you have an extra $100,000 in equity. If the amount you owe on your mortgage comes to under 80 percent of the new appraised value, you can refinance your mortgage to get a new loan with no PMI. Just make sure your new interest rate isn’t too high and you’ll come out ahead.

With a little planning and discipline, you can take advantage of these tips to reduce or even eliminate your PMI costs. The savings can be enormous, so it pays to crunch the numbers and get focused on the goal of kissing your PMI goodbye.

source: totalmortgage.com

How to Get A Mortgage With No Down Payment

Without adown payment doubt, the biggest hurdle first-time home buyers face is saving for a down payment. It makes sense that reducing or increasing the amount needed for a down payment has a direct and immediate impact on demand, more than changes in mortgage rates or even home prices.

However, with recent changes in lenders’ loan offerings and new government programs designed to stimulate demand with lower down payments, it’s hard for new buyers to know what to expect.

Down payments 101

Many buyers think that down payments are higher than they really are. A recent national survey found that 36 percent of consumers believe that a 20 percent down payment is always required. On the contrary, another survey by RealtyTrac found that the average down payment in the first quarter of 2015 was 14.8 percent of the purchase price.

You can get a much lower down payment of 3 to 3.5 percent by using one of three government programs offered by FHA, Fannie Mae, and Freddie Mac. However, these programs require buyers to take out mortgage insurance policies, which can substantially increase borrowers’ the upfront and monthly costs.

Down payment assistance

What most buyers don’t know is that they can get a loan with no down payment at all. Some 70 percent of U.S. adults are unaware of down-payment assistance programs available for middle-income homebuyers in their community, according to a recent national survey commissioned by NeighborWorks America. Meanwhile, about 87 percent of homes are eligible for down payment assistance from 1,250 housing agencies and program providers.

In a recent study of 370 counties, the average amount of down payment help was $10,443, on average 6.84 percent of the median home sales price. Homeownership programs come in all shapes and sizes and are designed to meet the housing needs of individual communities and buyers, ranging from saving on a down payment and getting a lower interest rate and annual tax credit.

A great example of one of these programs is the Illinois Housing Development Authority’s (IHDA) new @HomeIllinois program that offers $5,000 in down payment help to credit-worthy borrowers. It’s available to first-time homebuyers, repeat buyers, and homeowners looking to refinance. Available statewide, the program also offers competitive interest rates, lender paid mortgage insurance and tax savings. Eligibility is based on income, with annual income limits of up to $94,500 for households of two or less and $108,675 for households of three or more.

Other options

One little-known homebuyer program is gaining in popularity. Mortgage Credit Certificates (MCCs) provide eligible homebuyers up to a $2,000 tax credit every year for the life of the loan. MCCs have been around for years, but now they are on the rise and they can often be used in conjunction with a down payment program.

Basically, an MCC is a tax credit program that allows eligible homebuyers to claim a percentage of the mortgage interest they paid as a tax credit on their federal income tax return. Because it is a tax credit and not a tax deduction, mortgage lenders may use the estimated amount of the credit on a monthly basis to increase the buyer’s qualifying income. The percentage of mortgage credit allowed varies depending on the state or local housing agency that issues the certificates, but the credit itself is capped at a maximum of $2,000 per year. Plus, the buyer may continue to receive an annual tax credit for as long as they live in the home and retain the original mortgage. That’s up to $2,000 per year, every year.

Buyers looking for homeownership assistance programs in their communities, including no or low down payment programs can find them at http://downpaymentresource.com/, a site that helps potential homebuyers become qualified buyers by connecting them to down payment assistance funds they may not have otherwise known existed.

source: totalmortgage.com

New Bill Touts Shared Equity Mortgage Modifications

While the housing outlook has certainly improved significantly, some 5.1 million homeowners remain underwater on their mortgages.

This means they are unable to sell their homes because they owe more than their properties are worth, and possibly barred from a refinance unless they can take advantage of a program like HARP.

While 5.1 million is a lot less than it used to be, it still represents more than 10% of all homes with a mortgage, per data from CoreLogic.

Additionally, some two million of these unlucky homeowners owe at least 25% more than their homes are currently worth.

Clearly this doesn’t provide much motivation to stick around and make costly monthly mortgage payments, especially if these homeowners can’t take advantage of today’s low rates.


Principal Reduction Today for Your Appreciation Tomorrow

Enter a new bill aimed at tackling the problems associated with underwater mortgages, like high default rates and zombie foreclosures, the latter of which results in property blight.

The so-called “Preserving American Homeownership Act,” introduced this week by U.S. Senator Robert Menendez (D-NJ) is essentially a shared equity mortgage modification program.

It’s supposed to be a win-win situation for both homeowners and lenders, giving each party motivation to modify and keep up with payments, respectively.

The way it works is fairly simple. A borrower with an underwater mortgage has their principal balance reduced to 100% of the current value, provided the borrower can make payments.

The principal reduction takes place over a period of three years or less, in increments of one-third each year. So if borrowers make timely payments their principal balance will be reduced further over time.

The mortgage rate may also be cut if the principal reduction isn’t enough to make payments affordable.

Once it comes time to sell or refinance, the bank (or investor) will received a fixed share (up to 50%) of the increase in the home’s value. This amount cannot exceed twice the dollar amount of the principal reduction.

The value will be assessed via appraisal when the borrower first enters the pilot program, and again when they sell or refinance.

The program would be available on primary and secondary homes, and borrowers would be eligible regardless of how deeply underwater they are.

The plan is to launch two pilot programs, one under the FHFA and another under the FHA.

Menendez noted that a similar program launched by a private mortgage servicer led to a near-80% participation rate and a re-default rate of just 2.6%.

That sounds pretty good, especially when you’re giving away half of your future appreciation. The question is whether this type of relief comes a little too late in the game.

But for those who really love their homes and want to remain in them, it could be a lifesaver seeing that widespread principal reduction never came to fruition.

 (photo: Jonathan McIntosh)

source: thetruthaboutmortgage.com