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

What is an FHA loan?

In 1934, the long road to recovery began for the U.S. economy. For the housing market, this meant the creation of the Federal Housing Administration (FHA) loan.

The loans issued under this program are insured by the federal government, decreasing the risk of loss for lenders. With its less stringent rules, more borrowers were able to qualify, which gave a boost to the housing market.

Much has changed since 1934, but the FHA loan has basically remained the same. Here are eight things to know about this government-backed mortgage.

1. Down payment as low as 3.5%

Unlike most conventional mortgages, which require 5-20% down*, the FHA loan can have a down payment requirement as low as 3.5%. This makes it much easier for lower income borrowers to purchase a home. There are even government-assisted programs available that offer grants for down-payments.

*Fannie Mae and Freddie Mac now offer a conventional mortgage program that requires 3% down.

2. Perfect credit isn’t needed

When making any large purchase, your credit score is an important number. When it comes to FHA loans, a credit score of 580 or higher will get you a down payment around 3.5%.

If you have a credit score between 500 and 579, you’ll have to put at least 10% down. For those with credit scores under 500, unless you qualify for “nontraditional credit history or insufficient credit”, you will probably not qualify for an FHA loan.

Also, if you have ever made an appearance on the governments’s Credit Alert Interactive Verification Reporting System (CAIVRS), you will have to clear your name to become eligible for an FHA loan.

3. Financial relief is possible

If the borrower is struggling to make their mortgage payments due to a legitimate financial hardship, the lender can choose to offer a temporary period of forbearance, a loan modification, or a deferral of part of the loan balance.

4. Lender must be FHA-approved

While the FHA does insure the loans, they don’t lend them, so borrowers must find an FHA-approved lender. Just like with conventional loans, lenders will offer different interest rates and fees on identical loan types.

5. Two-part mortgage insurance is required

All FHA loans require two mortgage insurance premiums. There’s an upfront premium, paid once the borrower receives the loan, which is 1.75% of the total loan amount.

Then there is the annual premium, whose title is somewhat deceiving as it’s paid on a monthly basis. The length of the loan, the amount borrowed, and the initial loan-to-value ratio (LTV) all affect how much a borrower will have to pay.

6. Funds for a fixer-upper are available 

The FHA’s 203k loan is geared specifically toward buyers who plan to purchase and renovate their home. Structural alterations, modernization and improvements to the home’s function, a roof replacement, and septic system repair are all eligible projects, along with many others.

7. No closing costs are possible

Closing costs are another upfront fee that can be challenging for some borrowers to pay. Recognizing this fact, the FHA permits sellers/builders/lenders to offer deals around closing costs.

8. Loan could be assumable

FHA loans can be assumable, meaning a buyer will purchase the home and take on the mortgage of the current owner. Everything is the same: the rate, the repayment period, the principal balance.

In the right circumstances, this process can be simpler and less costly than getting a new mortgage. It’s particularly attractive when rates are rising.

If an FHA loan sounds like the option for you, click here and get started today.

source: totalmortgage.com

Why Your Mortgage Lender Asks for More Than Is Required

It’s no secret that there is a lot of confusion surrounding mortgages. One of the main gripes is that requirements aren’t the same across different banks and lenders.

See why every mortgage lender will disappoint you for more on that.

Unfortunately, it’s very difficult for lending standards to be uniform from bank to bank because of the complexities of mortgage financing.

First off, no two borrowers are the same, so just because your neighbor got approved over at Wells doesn’t mean you will.



The same goes for properties – like snowflakes, no two are exactly the same…well, maybe some tract homes are, but their locations aren’t.

There are also many different types of loans, including those backed by the government, such as FHA and VA, and those quasi-backed by the government, such as Fannie Mae and Freddie Mac.

For the record, that latter group of mortgages is also backed by you, the taxpayer, thanks to the reckless lending that took place before the latest mortgage meltdown.

The risk appetite of lenders is also quite variable.

Overlays Add to the Confusion

On top of this already confusing situation is the prevalence of credit overlays, which are additional requirements individual banks and lenders put in place above what is asked of them when receiving a guarantee from Fannie, Freddie, and Ginnie Mae.

For example, even though you technically only need a 500 credit score to qualify for a FHA loan per HUD, most lenders ask for much higher scores.

This is a common type of overlay, in fact, the most common, according to a recent survey conducted by Fannie Mae.

But instead of originating mortgages based on agency guidelines, skittish lenders are requesting higher credit scores, lower LTV limits, lower DTI ratios, and more paperwork.

Just take a look at the chart above and you’ll see that nearly half of banks that impose overlays want a higher-than-necessary credit score.

If you’re wondering why they do this, it’s for two main reasons. First, they want to make higher quality loans, which should keep their default risk low and profits high.

Secondly, they implement such overlays to reduce the chances of having to repurchase loans they sell to investors.

Call the overlays a buffer or a cushion to keep the lender at arms length from any nasty situations that may arise, even if unnecessary.  It’s like when you overpack your suitcase just in case…

Finding a Lender That Doesn’t Impose Overlays

While you might be annoyed that your lender is requiring more than Fannie, Freddie, or Ginnie require, know that not all lenders impose overlays.

In fact, only about 41% of lenders that deliver loans to the GSEs or Ginnie Mae said they apply overlays.

And most (64%) do so on a “limited basis,” meaning on 20% or fewer of their loans.

However, overlays are more common on loans acquired or originated via the wholesale channel, which includes correspondents and mortgage brokers. If it’s not happening under their roof, requirements will likely be more stringent.

For the record, large and mid-sized lenders are the most likely to apply overlays, while smaller institutions are more likely to originate based on agency guidelines.

Credit unions are the least likely to impose overlays (84% don’t), followed by depository institutions (73% don’t).

Conversely, 61% of mortgage banks are likely to ask for more than is necessary.

So if you can only qualify for a mortgage based on the agency guidelines, perhaps seeking out a smaller credit union or local bank is the way to go.

Of course, results may vary, but this does give us an idea of where it might be easier to get a loan.

source: thetruthaboutmortgage.com

Rejected for a Mortgage? Here Are Your Next Steps

There’s nothing worse than having a house all picked out, only to hear back from the bank that you’ve been rejected. You’re far from alone, though. In 2013, about 14.5% of all new purchase loans were denied by lenders, and that number climbed to 22.7% for refinances.

Where you go from here depends on many factors—why you were rejected, what your individual finances look like, etc.—but here are a few ideas you should definitely consider.

Try a different tactic

Occasionally, it is possible to turn around and apply with a different lender who has fewer restrictions. This is because some lenders tack additional guidelines onto those that are required by law, making it more difficult to qualify. On your second go around, try a local bank—they often more willing to work with individuals.

If that isn’t an option, you may want to consider applying for a different loan program. A normal 30 year fixed may be considered the standard, but that doesn’t mean it’s for you. Mortgages backed by the government—FHA, VA, and USDA loans—tend to have less strict requirements (FHA, for instance, allows a credit score as low as 580).

Work on your credit

Credit issues are one of the top reasons lenders reject loan applications. Often, people only realize their credit is a problem when the time comes to make a large purchase, but ideally, you would be keeping an eye on your credit situation well in advance.

If your problem is your credit, start by paying off as many cards as you can (but don’t close them immediately—your score takes into account how much credit you have open to you vs. how much you’ve used). Even once you’ve cleaned up your act, it can take time for your credit to recover—one to three months, or even longer if you’ve done severe damage.

Troubleshoot your appraisal

Another very common reason loans are rejected is that the appraisal came in too low, leading the bank or lender to think that the property isn’t worth the investment on their part. Sometimes a low appraisal is a fluke. Often, all you can do is move on to a different lender, or, if it happens a second time a different house.

Find a cosigner

If you’re having trouble qualify for credit, debt, or income reasons, asking a close relative to cosign the mortgage with you may be the helping hand you need.

This isn’t always recommended, though. Cosigners are legally responsible for the debt, too, which can raise their debt-to-income ratio and make it difficult for them to make large purchases in the future. Plus, money and family don’t typically mix well.

source: totalmortgage.com

Realtors’ Chief Economist Says FHA Loans Are a Rip-Off for Consumers

Last week, Zillow hosted its fifth housing forum in the nation’s capital to discuss current real estate matters.

The panel of reporters, real estate gurus, and policymakers discussed a number of issues, ranging from why people move to mortgage rates and affordability.

But perhaps the most controversial comment came from Lawrence Yun, the outspoken chief economist of the National Association of Realtors.

When the WSJ’s Nick Timiraos questioned whether the mortgage credit box was too tight, Yun took the opportunity to express his discontent with the FHA and its new sky-high premiums.


Are FHA Loans a Bad Deal?

He prefaced his comment by saying he might upset the lobbyists in Washington, but went ahead and said, “essentially they are ripping off the consumers,” when speaking of the FHA and its pricey premiums and fees.

Yun noted that FHA loans have historically been aimed at first-time home buyers and moderate-income buyers, so charging premiums that he refers to as “outrageous” almost warrants action from the Consumer Financial Protection Bureau (CFPB).

Sure, he was chuckling when he made that last comment, but it’s clear he’s not happy with their new premium structure, and has made it one of his priorities to whittle them back down to more reasonable levels.

The FHA has raised the upfront and annual insurance premiums multiple times over the past several years, mainly because they had no other choice but to raise capital to stay in business.

Additionally, many FHA borrowers now pay annual premiums for the life of the loan, further increasing the costs of homeownership.

That has certainly pushed the FHA loan share down in recent months, with conventional loans snagging a larger share of mortgages these days.


So When Are FHA Loans the Better Option?

In a related report from the Urban Institute, a nonpartisan think tank in D.C., the thinkers determined when FHA loans made more sense than conventional loans, and vice versa.

They assumed a purchase price of $250,000 with a five percent down payment, along with a mortgage rate of 4.29% on a conforming loan and 4% on an FHA loan.

Even with FHA premiums as high as they are today, a borrower with a loan-to-value of 95% would be better off with an FHA loan when their FICO score is below 680, as seen in the chart above.

If their credit score is above 680, they’re better off going the conforming/private mortgage insurance route.

So in that sense, the FHA is still serving that underserved portion of the population, at least with regard to low credit score and lack of a down payment.

Yes, there are borrowers who lack the necessary funds for a large down payment, but have good credit scores, and these people are essentially stuck paying more.

But that’s pretty much the consequence of having standards that were too loose prior to the housing bust. I don’t really see the FHA budging anytime soon.

A recent survey from NAR also indicated that 5.7% of originations were lost because of the higher FHA fees.

For the record, people move mainly to buy a larger home or for a new job (according to Lawrence Yun, grain of salt), and a lot of the panelists seem to think interest rates will be closer to 5% next year.

They also discussed interest-rate lock-in, which again Yun dismissed for the reasons mentioned above. Still, other panelists fear fewer homeowners will be willing or able to list their homes as interest rates rise. But only time will tell.

source: thetruthaboutmortgage.com

Mortgage Closing Rate Surpasses 60% in June

While mortgage volume might not be what it once was, it seems more of those loan applications are actually funding these days.

The latest Ellie Mae Origination Insight Report released today revealed that the “pull-through” rate topped 60% for the first since such tracking began back in August 2011.

The closing rate is the percentage of loan applications initiated in the previous 90-day cycle that have closed.

In other words, 60.7% of all loans initiated in March closed successfully, up significantly from 57.8% in May and well above 54.3% in June 2013.

So despite there being a lot less business out there, as evidenced by recent second quarter earnings reports from the likes of Chase and Wells, it seems more of it is reaching the finish line.

That’s certainly good news as banks struggle to reap profits from mortgage lending.

 The Closing Rate Has Been Steadily Rising

 

Since the beginning of 2014, the closing rate has increased fairly steadily from 54.9% in January to nearly 61% last month.

The improvement has been seen in both purchase applications and refinances, with the former hitting 63.6% in June and the latter climbing to 55.8%.

Broken down by loan type, the FHA loan pull-through rate was 57% in June, up from 53.6% in May and 51.9% a year earlier.

For conventional loans, 61.6% of loans closed in June, up from 58.7% in May and 59.2% in June 2013.

The VA loan closing rate was 58% last month, up from 56.2% in May, the first month tracking began.

Overall, closed loans had an average FICO score of 728, which was up slightly from previous months, but well below the 738 average seen in 2013.

The average loan-to-value ratio was 82%, the same as it has been all year long, though up marginally from 81% in 2013.

Closed loans also exhibited faintly higher DTI ratios, with 24/37 the average, up from 24/36 in 2013.


What Denied Applications Look Like

 

Wondering what happened to the other 40% of loans? Well, the ones that were flat out denied had an average FICO score of 686, which was lower than the 689 average in May and the 699 average for all of 2013.

So clearly lenders have become a little looser in terms of credit-related underwriting standards.

At the same time, the average LTV ratio of a denied loan was 82%, which is lower than the 84% average seen last year, though that could have more to do with fewer high-LTV HARP refinances being submitted these days.

Despite FHA loans allowing for FICO scores as low as 500, the average FICO for a closed FHA app was 672 last month, whereas a denied loan was just 640.

LTV ratios were pretty similar among closed and denied apps, but DTI ratios were markedly lower on closed FHA loans.

So keeping debt low going into a mortgage app is especially important if your income isn’t too hot.

For conventional loans, the average FICO for a closed loan was 733 in June, compared to a 695 score for denied applications.

High DTI ratios were again an issue on denied apps, whereas LTVs were pretty similar for both those approved and denied.

For the record, applications not reported as denied or closed may still be active, withdrawn, or closed due to incompleteness.

source: thetruthaboutmortgage.com

5 Unexpected Expenses for First Time Homebuyers

As my husband and I prepare to buy our first home, we’re coming to terms with how much money we really need to save.

The prices in the Southern California house market are staggering enough, but there are always more hidden expenses that you need to think about than just the cost of the house.

If you’re thinking about buying a house, you definitely want to increase your savings substantially. Will you have enough for 20% down payment? If not, you may have to look into an FHA loan which has lower down payment requirements.

If you haven’t already done so, you may also want to think about lowering your debt as much as possible. Lowering your debt makes you look like a more stable client when a lender is thinking about lending you money.

The bottom line is: if you’re thinking about buying your first home, get prepared to shell out lots of cash. You need cash for your down payment, you need cash to pay down your debt, and you need cash for a lot more things too.

Here are five unexpected expenses for first time homebuyers.

Closing Costs: Most homebuyers are aware that closing costs exist, but these days, closing costs can easily run five figures. And some lenders won’t let you roll that into your loan, meaning you need to have the cash on hand.

Two months’ Rent: Other lenders require that even after you’ve paid your down payment and closing costs, that you still have two months’ rent in cash reserves immediately available. This is to ensure that you won’t be flat broke the minute you move into your house. Depending on the size of your mortgage, this can easily be a few thousand dollars, especially if you live n the southern California area or another high-real estate city.

Property Taxes: In California, property taxes amount to 1% of the home’s sale value annually. However, there are additional taxes that can tack on cost to your annual property taxes. If you live in an area where property taxes are variable, your taxes can easily go up , costing you more over the life of the loan.

Home Insurance: You just bought a  new house, you want to protect it don’t you? Well, that’s going to cost you. Some lenders will roll in the cost of property taxes and home insurance into the loan, but it may be a better bet to purchase home insurance separately. Make sure you get several opinions and read the fine print on what your home insurance will actually protect you against.

HOA/Mello Roos: If you live in a newer California community, you may be charged mello roos, which are an additional tax in certain neighborhoods to help build up public spaces, like parks, schools, and libraries. You may also live in a Homeowner’s association, which helps maintain public spaces within the neighborhood like pools, and grassy medians. Some HOA’s even cover the outside of the home, like roofs. HOAs and Mello roos can easily add on several hundred to your monthly mortgage payment.

If you’re thinking about buying a home, make sure to look into all the additional charges of what it will actually cost to buy a home.

source: everythingfinanceblog.com