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Nobody hesitates to take out a mortgage to buy their home. So what is the controversy around Reverse Mortgages all about?
Honestly, I don’t know. In the right situation, the benefits certainly outweigh the drawbacks.
A reverse mortgage is simply a tool that may allow you to stay in your home, rent free, while using some of your money that bought that home in the first place. That being said, like any major financial decision, you want to do your homework before you determine if it is the right tool for you.
Below you'll find two things to like, one thing to hate, and five things you need to know about reverse mortgages.
A reverse mortgage gives you the ability to use home equity for “extras” such as an annual vacation, new car or home improvements. This flexibility comes from the ability to take out equity as a lump sum, fixed monthly payments, a line of credit, or any combination thereof.
2. Non recourse financing
This simply means the total amount owed can never exceed the current value of the home. When the home is sold, after paying off the reverse mortgage, remaining proceeds go to you and your estate.
1. Sleazy sales tactics
If someone is trying to talk you into taking money out of your home to buy a financial product that will pay them a commission (such as an annuity), run for the hills.
Most people recommending such strategies are not financial planners. They are salespeople; one trick ponies, whose trick benefits them, not you.
There are times where it may make sense to use home equity to pursue other investments, but these strategies contain additional risk, and should only be used by sophisticated investors who fully understand and can afford the consequences.
Be aware of:
1. Moving after taking a reverse mortgage
Like any mortgage, there are origination fees and expenses incurred when taking a reverse mortgage. With a reverse mortgage rather than paying for these things out of pocket, the fees are just added to the balance of the loan. You want to amortize these expenses over the longest period possible.
If you plan on moving in the next 2-4 years, look for less expensive ways to borrow money before using a reverse mortgage.
2. Keeping the home in the family
Upon your death (or the second person to die if you are married) the reverse mortgage will have to be repaid. If there is not enough cash in your estate then your heirs may have to sell the property to pay off the loan.
If your intention is to keep the property in the family, you’ll want to make sure heirs will have the ability to pay off the loan, or refinance the property based on their credit application. Look out for yourself first though. Keeping the home in the family may be nice, but if a reverse mortgage could give you the extra income you need to be comfortable then maybe that is what you should do.
3. Status of the real estate market
The amount of money you receive depends on your age and the appraised value of your home. Taking a reverse mortgage when the real estate market is in a slump means you’ll qualify for less.
On the other hand, if you take a reverse mortgage when the market is booming, then later decide to sell your home in a down market, you may have little equity left.
4. Ownership responsibilities
You always retain title (ownership) of the home. Thus, you are responsible for taxes and insurance and must keep the home well maintained. This works the same way as any mortgage. If you don't pay your taxes, you'll be in trouble.
5. Eligibility for medicaid
Any proceeds you receive from a reverse mortgage are tax free - which is great. However funds received will count as an asset or as income and may affect your eligibility for Medicaid. Proceeds will not affect Social Security or Medicare Benefits.
By Dana Anspach Updated August 19, 2016
Several factors determine your rate such as; credit score, down payment, type of property, type of loan, type of occupancy, loan amount and county you live in or are looking to purchase. In this blog, I will just concentrate on the loan amounts as they relate to rates.
There are basically two categories of loans that will determine your rate and loan program:
Conforming Loan: Loan amounts not exceeding $510,400 for Single Family Residence.
High Balance Loan: Loan amounts greater than $510,400, not exceeding $765,600 for Single Family Residence.
A loan amount exceeding $765,600 for Single Family Residence is called a Jumbo loan which is a totally different category and has its own sets of rules.
There are 4 types of properties for residential loans - SFR, 2 Units, 3 Units, and 4 Units. The amount of loan limit is increased according to the number of units. Below is a table of the 2020 Loan Limits for LA and Orange Counties:
|LOAN LIMITS FOR LOS ANGELES COUNTY & ORANGE COUNTY|
|Property Type||Conforming||High Balance|
These loan limits apply to Conventional, FHA and VA loans. So when rate shopping, remember Conforming Loan Rates and Pricing are lower than High Balance Loan Rates and Pricing.
Find out how rates are doing today. Hit my email button and request today's quotes.
Closing costs are fees associated with your home purchase that are paid at the closing of a real estate transaction. Closing is the point in time when the title of the property is transferred from the seller to the buyer. Closing costs are incurred by either the buyer or seller.
What fees can you expect at closing?
Closing costs vary widely based on where you live, the property you buy, and the type of loan you choose. Here is a list of fees that may be included in closing. The list is inclusive of fees you may see, but it’s not likely that your loan will include all of the fees listed here.
- Application Fee:This fee covers the cost for the lender to process your application. Before submitting an application, ask your lender what this fee covers. It can often include things like a credit check for your credit score or appraisal as well. Not all lenders charge an application fee, and it can often be negotiated. (We do not charge this fee)
- Appraisal: This is paid to the appraisal company to confirm the fair market value of the home.
- Closing Fee or Escrow Fee: This is paid to the title company, escrow company or attorney for conducting the closing. The title company or escrow oversees the closing as an independent party in your home purchase. Some states require a real estate attorney be present at every closing.
- Courier Fee: This covers the cost of transporting documents to complete the loan transaction as quickly as possible.
- Credit Report: A Tri-merge credit report is pulled to get your credit history and score. Your credit score plays a big role in determining the interest rate you’ll get on your loan.
- Escrow Deposit for Property Taxes & Mortgage Insurance: Often you are asked to put down two months of property tax and mortgage insurance payments at closing.
- FHA Up-Front Mortgage Insurance Premium (UPMIP): If you have an FHA loan, you’ll be required to pay the Up Front MIP of 1.75% of the base loan amount. You are also able to roll this into the cost of the loan if you prefer.
- Flood Determination or Life of Loan Coverage: This is paid to a third party to determine if the property is located in a flood zone. If the property is found to be located within a flood zone, you will need to buy flood insurance. The insurance, of course, is paid separately.
- Home Inspection: You will likely get your own home inspection to verify the condition of a property and to check for home repairs that may be needed before closing. This is paid out of pocket once you get into escrow.
- Home Owners Association Transfer Fees: The Seller will pay for this transfer which will show that the dues are paid current, what the dues are, a copy of the association financial statements, minutes and notices. The buyer should review these documents to determine if the Association has enough reserves in place to avert future special assessments, check to see if there are special assessments, legal action, or any other items that might be of concern. Also included will be Association by-laws, rules and regulations and CC & Rs.
- Homeowners’ Insurance: This covers possible damages to your home. Your first year’s insurance is often paid at closing.
- Lender’s Policy Title Insurance: This is insurance to assure the lender that you own the home and the lender’s mortgage is a valid lien, and it protects the lender if there is a problem with the title. Similar to the title search, but always a separate line item.
- Lead-Based Paint Inspection:Covers the cost of evaluating lead-based paint risk.
- Loan Discount Points:“Points” are prepaid interest. One point is one percent of your loan amount. This is a lump sum payment that lowers your monthly payment for the life of your loan. (We do not charge points unless you choose to buy down the rate or loan program you choose requires it).
- Owner’s Policy Title Insurance: This is an insurance policy that protects you in the event someone challenges your ownership of the home. It is usually optional.
- Origination Fee: This covers the lender’s administrative costs. It’s usually about 1 percent of the total loan but you can sometimes find mortgages with no origination fee.
- Pest Inspection: This fee covers the cost to inspect for termites or dry rot, which is required in some states and required for government loans. Repairs can get expensive if evidence of termites, dry rot or other wood damage is found.
- Prepaid Interest: Most lenders will ask you to prepay any interest that will accrue between closing and the date of your first mortgage payment.
- Private Mortgage Insurance (PMI): If you’re making a down payment that’s less than 20% of the home’s purchase price, chances are you’ll be required to pay PMI. If so, you may need to pay the first month’s PMI payment at closing.
- Property Tax: Typically, lenders will want any taxes due within 60 days of purchase by the loan servicer to be paid at closing.
- Recording Fees: A fee charged by your local recording office, usually city or county, for the recording of public land records.
- Survey Fee: This fee goes to a survey company to verify all property lines and things like shared fences on the property. This is not required in all states.
- Title Company Title Search or Exam Fee: This fee is paid to the title company for doing a thorough search of the property’s records. The title company researches the deed to your new home, ensuring that no one else has a claim to the property.
- Transfer Taxes: This is the tax paid when the title passes from seller to buyer.
- Underwriting Fee: This also goes to your lender, covering the cost of researching whether or not to approve you for the loan.
- VA Funding Fee: If you have a VA loan, you may be required to pay a VA funding fee at closing (or you can roll this fee into the cost of the loan if you prefer). This is a percentage of the loan amount that the VA assesses to fund the VA home loan program, however some borrowers are exempt from this fee. The percentage depends on your type of service and the amount of your down payment. Here is a breakdown of the cost of the VA funding fee.
Information on Funding Fees for VA Purchase Loans Only:
When the Down Payment is ≥ 10%
Regular Military: First or Subsequent Use: 1.25%
Reserves or National Guard: First or Subsequent Use: 1.5%
When the Down Payment is 5% - 9.99%
Regular Military: First or Subsequent Use: 1.5%
Reserves or National Guard: First or Subsequent Use: 1.75%
When the Down Payment is < 5%
- First Time Use: 2.15%
- Subsequent Use: 3.3%
Reserves or National Guard:
- First Time Use: 2.4%
- Subsequent Use: 3.3%
*Information source from Zillow.com
Applying for a home is like telling a story - your story. The more detailed you are, the easier it will be for your lender to take the guess work out of the way in processing your application and make a decission. Below are a list of items needed for review. You will need to provide those that apply to you.
- W-2 FORMS & FEDERAL TAX RETURNS (1040): Last 2 years are required per borrower.
- PAY CHECK STUBS: If paid twice per month copy of last 2, if paid weekly, last 4.
- BANK STATEMENTS: Last 2 months/quarters, complete pages.
- 401K / IRA: Last 2 quarter statements.
- COPY OF DRIVER’S LICENSE OR CALIFORNIA I.D.
- COPY OF SOCIAL SECURITY CARD for FHA and VA loans only.
- COPY OF DD214 for VA loan only.
- CERTIFICATE OF ELIGIBILITY - VA loan only.
If you are divorced:
- COPY OF FINAL DIVORCE DECREE including complete settlement agreement.
If you are receiving child support and/or alimony:
- COPY OF CANCELLED CHECKS OR BANK STATEMENTS for the last 12 months showing receipt of the same.
- COPY OF COURT ORDER if applicable.
If you are receiving Social Security and/or Retirement Income:
- COPY OF UPDATED AWARD LETTER
If you own rental properties:
- COPY OF RENTAL / LEASE AGREEMENT with addresses, mortgage account numbers and balances per individual property.
- FEDERAL TAX RETURNS (1040) last 2 years complete with addendums, re-signed with original signatures.
If you had a bankruptcy:
- COPY OF DISCHARGE LETTER AND COMPLETE BK SCHEDULES.
If you are self-employed, a corporation, a partnership, or receive 1099 commission or bonus income:
- COPY OF FEDERAL TAX RETURNS (1040) for the last 2 years complete with all addendums resigned with original signatures.
- SIGNED YEAR-TO-DATE (YTD) PROFIT & LOSS STATEMENT
- COPY OF CORPORATE FEDERAL TAX RETURNS (1120) for the last 2 years with original signatures (only if you are a corporate officer and/or own stock of 25% or more.
- COPY OF PARTNERSHIP FEDERAL TAX RETURNS (1065) for the last 2 years with original signatures (General Partnership only).
- COPY OF SIGNED PARTNERSHIP K-1 FORMS for all limited partnership as well as general partnerships.
If you sold a home in the last 12 months:
- COPY OF FINAL CLOSING STATEMENT
If you are purchasing a condominium or townhouse (For Your Information Only):
All these documents should be made available to you by seller or the project management through escrow.
- By-laws and Articles of Incorporation
- Master Insurance Policy
- Sufficient Fidelity Bond coverage
- Current Balance Sheet
- Current Project Budget CC&R’s
- Occupancy requirements
- Resale requirements
REFINANCE OR EQUITY LOAN REQUIREMENTS
- EVIDENCE OF INSURANCE- Front page of homeowner’s insurance policy.
- NOTES ON EXISTING MORTGAGE(S) & LENDERS.
- COPY OF LATEST MORTGAGE BILLING STATEMENT(S).
- COPY OF PROPERTY TAX ROLL (BILLING STATEMENT).
- FINAL CLOSING STATEMENT if home was purchased less than 2 years ago.
- LETTER FROM BORROWER/S stating purpose for refinancing.
VA Home Loans With Low Mortgage Rates
The VA loan was designed to offer long-term financing to eligible American Veterans or their surviving spouses (provided they do not remarry). The basic intention of the VA direct home loan program is to supply home financing to eligible veterans in areas where private financing is not generally available and to help veterans purchase properties with no down payment. As the economy improves, so do the mortgage choices available to today's home buyers and refinancing households. For those meeting eligibility requirements, a VA loan is the preferred financing option.
- VA loans allow 100% financing - ZERO down!
- No mortgage insurance.
- Flexible underwriting guidelines.
- Up to 95% Cash Out.
- Credit score as low as 580.
- Rates are often the lowest compared to other loan programs.
If you're shopping for a loan and considering the VA loan option, here are the answers to 11 popular VA loan questions.
1. What Is A VA Loan?
A VA loan is a special type of home mortgage that's backed by the federal government, specifically the U.S. Department of Veterans Affairs (VA). VA loans offer attractive terms and guidelines because the VA guarantees repayment of a portion of the loan to the lender even if the borrower defaults.
The VA loan is another way the nation recognizes your service.
2. Who Is Eligible For A VA Loan?
Not only veterans, but also other classes of military personnel are eligible for VA loans.
The list of eligible VA borrowers includes active-duty servicepersons, members of the National Guard, Reservists, surviving spouses of veterans, cadets at the U.S. Military, Air Force or Coast Guard Academy, midshipmen at the U.S. Naval Academy and officers at the National Oceanic & Atmospheric Administration.
A minimum term of service usually is required.
3. Do I Need A Down payment To Get A VA Loan?
Most home loans require at least a small downpayment. VA loans are an exception.
Instead of making a downpayment, the VA lets you finance to 100% of the purchase price of the home you want to buy. And you never have to pay for mortgage insurance.
Borrowers who get a conventional loan or an FHA loan, insured by the Federal Housing Administration, typically must pay an extra amount every month for mortgage insurance if they make a downpayment of less than 20 percent.
4. What Type Of House Can I Buy With A VA Loan?
A VA loan can be used to buy a detached house, condo, new-built home, manufactured home or duplex, triplex or four-unit property or to refinance an existing loan for those types of properties.
The VA also lets you borrow an extra sum to make repairs or improvements to the home; or, make it more energy-efficient.
5. Can I Use A VA Loan To Buy A Home In a Foreign Country?
No, you cannot use a VA loan to buy a home in a foreign country. Only homes located in the United States or a U.S. territory or possession, such as Puerto Rico, Guam or the U.S. Virgin Islands, are VA-eligible.
6. Can I Use A VA Loan To Buy a Rental Property?
No, you cannot use a VA loan to buy a rental property. You can, however, use a VA loan to refinance an existing rental home you once occupied as a primary home.
For home purchases, in order to obtain a VA loan, you must certify that you intend to occupy the home as your principal residence. If the property is a duplex, triplex or four-unit apartment building, you must occupy one of the units yourself.
The exception to this rule is via the VA's Interest Rate Reduction Refinance Loan (IRRRL). This loan, also known as the VA Streamline Refinance, can be used to refinance an existing VA loan for a home where you currently live or where you used to live, but no longer do.
7. How Do I Demonstrate To A Lender That I'm Eligible For A VA Loan?
In order to show a VA mortgage lender that you are VA-eligible, you'll need a Certificate of Eligibility (COE), which your lender can acquire for you online, usually in a matter of seconds.
The IRRRL is again an exception. For that loan, you won't need a COE.
You'll also need to meet standard VA loan requirements including income and employment verifications, and residual income requirements.
8. Does My COE Mean I Am Guaranteed To Get A VA Loan?
No, having a COE doesn't guarantee a VA loan approval. Your COE shows the lender you're eligible for a VA loan, but no one is "guaranteed" VA loan approval. You must still qualify for the loan based on VA mortgage guidelines.
The "guarantee" part of the VA loan refers to the VA's promise to the lender of repayment if the borrower defaults.
9. My Credit Isn't Perfect. Can I Get A VA Loan?
Yes, you can get a VA loan even without "perfect credit". Many lenders use aggressive underwriting to help people who are VA-eligible receive loan approval, so you don't need perfect credit or a high credit score to qualify.
If you have at least a middling credit score plus a history of paying your bills on time, you should.
10. Can I Get a VA Loan If I've Been Denied Other Financing?
Yes, you can get a VA loan even if you've been denied for other financing.
Because the VA loan offers such flexible guidelines, you might be able to qualify even if you've been turned down for another type of home loan, including the FHA loan, a Conventional mortgage, or some other type of credit.
11. How Much Can I Qualify For With My VA Eligibility?
Let's take the guess work out of the way. Click below and let's find out.
This information is for informational purposes only and is not an advertisement for products offered by Jonathan Caguioa. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Jonathan Caguioa, its officers, parent, or affiliates.
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