The Basics:
A "reverse" mortgage is a loan against your home that you do not have to pay back for as long as you live there. No matter how this loan is paid out to you, you typically don't have to pay anything back until you die, sell your home, or permanently move out of your home. Homeowners 62 and older who have paid off their mortgages or have only small mortgage balances remaining are eligible to participate in HUD's reverse mortgage program. The property must be your principal residence. The program allows homeowners to borrow against the equity in their homes in a variety of different ways. (What is HUD? The Department of Housing and Urban Development is the Federal agency responsible for national policy and programs that address America's housing needs, that improve and develop the Nation's communities, and enforce fair housing laws.)
Obtaining a traditional loan (a "forward" mortgage) requires that the lender check your credit/income to see how much you can afford to pay back each month. But with a reverse mortgage, you don't have to make monthly repayments. Your income generally has nothing to do with getting the loan. You could have no income and still be able to get a reverse mortgage. With most home loans, if you fail to make your monthly repayments, you could lose your home. Reverse mortgages do not have monthly repayments, so you can't lose your home by failing to make them. You can turn the value of your home into cash without having to move or to repay the loan each month. The cash you get from a reverse mortgage can be paid to you in several ways:
All at once, in a single lump sum of cash
As a regular monthly cash payment to you
As a "credit line" account that lets you decide when and how much of your available cash is paid to you
As a combination of these payment methods
Another feature is that the money paid to you is not taxable. This is because it is not income, it is a loan! The amount of cash you can get from a reverse mortgage depends on the program you select and - within each program - on your age, home, and current mortgage rates. With a reverse mortgage, you are taking the equity out in cash, so your debt increases and your home equity decreases.
Reverse mortgages allow you to use debt to turn your equity into income. You are reversing the deal you used to initially buy your home. Then, you had income and wanted equity. Now, you have equity and want income. There are also no limits on the value of homes qualifying for a HUD reverse mortgage. However, the amount that may be borrowed is capped by the maximum FHA loan limit for each city and county. It varies from $172,632 in rural areas to $312,895 in many major metropolitan areas (and even higher in Alaska, Hawaii & the U.S. Virgin Islands) depending on local housing costs. The size of reverse mortgage loans is determined by the borrower's age, the interest rate, and the home's value. The older a borrower, the larger the percentage of the home's value that can be borrowed.
Friday, November 17, 2006
Wednesday, April 19, 2006
New Credit Score
There is a new credit score called the "VantageScore", developed by the three major credit bureaus, Equifax, Experian and TransUnion, to compete with Fair Isaac's scoring models (FICO), which is currently in use.
Many lenders are reluctant to begin using this new scoring method until more is learned about the product and how it will be adopted within the industry. Until this is determined, most lenders will continue to use their current credit score philosophy, based on the Fair Isaac scoring models provided through credit bureaus today.
According to Advantage Credit President Ron Litt, it could take years to move away from using FICO based scores, "While the new system has potential for improving consistency of scoring from top to bottom, most lenders, Government Sponsored Enterprises (Fannie Mae and Freddie Mac), the U.S. Department of Housing and Urban Development and the Federal Housing Association would have to retool their existing technology, retrain staff and make other significant investments to accommodate the change. Without immediate participation from these groups, adoption could be slow."
Litt also discussed the new score's level of acceptance by the industry. "Advantage Credit and other resellers can offer the new scoring model almost immediately, but the existing credit scores are so embedded that an effective change could take years," he said.
Many lenders are reluctant to begin using this new scoring method until more is learned about the product and how it will be adopted within the industry. Until this is determined, most lenders will continue to use their current credit score philosophy, based on the Fair Isaac scoring models provided through credit bureaus today.
According to Advantage Credit President Ron Litt, it could take years to move away from using FICO based scores, "While the new system has potential for improving consistency of scoring from top to bottom, most lenders, Government Sponsored Enterprises (Fannie Mae and Freddie Mac), the U.S. Department of Housing and Urban Development and the Federal Housing Association would have to retool their existing technology, retrain staff and make other significant investments to accommodate the change. Without immediate participation from these groups, adoption could be slow."
Litt also discussed the new score's level of acceptance by the industry. "Advantage Credit and other resellers can offer the new scoring model almost immediately, but the existing credit scores are so embedded that an effective change could take years," he said.
Tuesday, November 29, 2005
Eliminate PMI
What You Need to Know About Your Mortgage Insurance
Up to $700,000,000 per year is unnecessarily paid to Private Mortgage Insurance Companies by homeowners. If you are paying Mortgage Insurance or PMI (as it is regularly called), now is the time to check and see if you qualify to eliminate it from your monthly payment.
Below are some of the guidelines of carrying PMI.
1. You must determine the date you signed your mortgage. There are different rules for mortgages taken before July 29, 1999. These requirements are for those mortgages signed after July 29, 1999.
2. Your mortgage insurance will “automatically” drop off when your mortgage is paid down to 78% from its “original” value. That means that even if the value of your property has increased substantially, the lender is required to use the lesser of the two values.
3. Mortgage Insurance has a two-year waiting period before a lender can even consider dropping that portion of the payment. However, there are two exceptions to this rule: (In both instances-you must request that it be canceled.)
A. You have paid money towards the principal balance and have reached the 80% of the original value.
B. You have substantially improved the property (such as a room addition or a second story addition – just remodeling is not enough) and you can prove it with a new appraisal.
4. After two years, you can request that the mortgage insurance portion of your payment be dropped. However, it must meet these parameters:
A. You must provide a new appraisal. (The appraiser must be approved by your lender. The lender has the right to dispute the value.)
B. You must have a good payment history on your mortgage.
C. The Loan to Value Ratio must be 75% or less-based upon the new appraisal.
5. After five years, the same rules as #3 apply; however, the loan-to-value ratio increases to 80% of the appraised value.
6. If you have a second mortgages on your property, it will not affect your ability to get your mortgage insurance payment waived and it will NOT be considered in the loan-to-value calculations.
Each “type” of mortgage (i.e., adjustable rate, balloon, etc.) has its own set of regulations. In addition, some states have passed their own legislation, which makes canceling your mortgage insurance easier. However, I recommend that you call your lender and request their rules on what is required to eliminate it from your payment.
When you receive the letter of instructions from your lender, call me and I will help you determine what is needed and if you qualify.
Up to $700,000,000 per year is unnecessarily paid to Private Mortgage Insurance Companies by homeowners. If you are paying Mortgage Insurance or PMI (as it is regularly called), now is the time to check and see if you qualify to eliminate it from your monthly payment.
Below are some of the guidelines of carrying PMI.
1. You must determine the date you signed your mortgage. There are different rules for mortgages taken before July 29, 1999. These requirements are for those mortgages signed after July 29, 1999.
2. Your mortgage insurance will “automatically” drop off when your mortgage is paid down to 78% from its “original” value. That means that even if the value of your property has increased substantially, the lender is required to use the lesser of the two values.
3. Mortgage Insurance has a two-year waiting period before a lender can even consider dropping that portion of the payment. However, there are two exceptions to this rule: (In both instances-you must request that it be canceled.)
A. You have paid money towards the principal balance and have reached the 80% of the original value.
B. You have substantially improved the property (such as a room addition or a second story addition – just remodeling is not enough) and you can prove it with a new appraisal.
4. After two years, you can request that the mortgage insurance portion of your payment be dropped. However, it must meet these parameters:
A. You must provide a new appraisal. (The appraiser must be approved by your lender. The lender has the right to dispute the value.)
B. You must have a good payment history on your mortgage.
C. The Loan to Value Ratio must be 75% or less-based upon the new appraisal.
5. After five years, the same rules as #3 apply; however, the loan-to-value ratio increases to 80% of the appraised value.
6. If you have a second mortgages on your property, it will not affect your ability to get your mortgage insurance payment waived and it will NOT be considered in the loan-to-value calculations.
Each “type” of mortgage (i.e., adjustable rate, balloon, etc.) has its own set of regulations. In addition, some states have passed their own legislation, which makes canceling your mortgage insurance easier. However, I recommend that you call your lender and request their rules on what is required to eliminate it from your payment.
When you receive the letter of instructions from your lender, call me and I will help you determine what is needed and if you qualify.
Saturday, July 30, 2005
APR
The annual percentage rate (APR) is an interest rate that is different from the note rate. It is commonly used to compare loan programs from different lenders. The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate.
Example: 30-year fixed 8 percent 1 point 8.107% APR
The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan. The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.
Ideally, one should be able to compare APRs from various lenders, then select the loan with the lowest APR. Unfortunately it's not that simple. Various lenders calculate APRs differently! A loan with a lower APR may not be the best choice. A good way to compare different lenders is to ask them to provide a Good Faith Estimate of closing costs. Be sure you compare the same loan program (e.g., 30-year fixed), interest rate and rate lock period. You may ignore fees that are independent of the loan, such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Pay particular attention to loan fees. The lender with the lowest loan fees will likely have the best deal.
The reason why APRs are confusing is because the rules to compute APR are not clearly defined. What fees are included in the APR?
The following fees ARE generally included in the APR:
Points - both discount points and origination points
Pre-paid interest. The interest paid from the date the loan closes to the end of the month. Most mortgage companies assume 15 days of interest in their calculations. However, companies may use any number between 1 and 30!
Loan-processing fee
Underwriting fee
Document-preparation fee
Private mortgage-insurance
The following fees are SOMETIMES included in the APR:
Loan-application fee
Credit life insurance (insurance that pays off the mortgage in the event of a borrowers death)
The following fees are normally NOT included in the APR:
Title or abstract fee
Escrow fee
Attorney fee
Notary fee
Document preparation (charged by the closing agent)
Home-inspection fees
Recording fee
Transfer taxes
Credit report
Appraisal fee
Calculating APRs on adjustable and balloon loans is even more complex because future rates are unknown. The result is even more confusion about how lenders calculate APRs.
Do not attempt to compare a 30-year loan with a 15-year loan using their respective APRs. A 15-year loan may have a lower interest rate, but could have a higher APR, since the loan fees are amortized over a shorter period of time.
Finally, many lenders do not even know what they include in their APR because they use software programs to compute their APRs. It is quite possible that the same lender with the same fees using two different software programs may arrive at two different APRs!
Conclusion : Use the APR as a starting point to compare loans. The APR is a result of a complex calculation and not clearly defined. There is no substitute to getting a good-faith estimate from each lender to compare costs. Remember to exclude those costs that are independent of the loan.
information provided from www.symphonymortgagecompany.com A site hosted by Myer's inc.
Example: 30-year fixed 8 percent 1 point 8.107% APR
The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan. The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.
Ideally, one should be able to compare APRs from various lenders, then select the loan with the lowest APR. Unfortunately it's not that simple. Various lenders calculate APRs differently! A loan with a lower APR may not be the best choice. A good way to compare different lenders is to ask them to provide a Good Faith Estimate of closing costs. Be sure you compare the same loan program (e.g., 30-year fixed), interest rate and rate lock period. You may ignore fees that are independent of the loan, such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Pay particular attention to loan fees. The lender with the lowest loan fees will likely have the best deal.
The reason why APRs are confusing is because the rules to compute APR are not clearly defined. What fees are included in the APR?
The following fees ARE generally included in the APR:
Points - both discount points and origination points
Pre-paid interest. The interest paid from the date the loan closes to the end of the month. Most mortgage companies assume 15 days of interest in their calculations. However, companies may use any number between 1 and 30!
Loan-processing fee
Underwriting fee
Document-preparation fee
Private mortgage-insurance
The following fees are SOMETIMES included in the APR:
Loan-application fee
Credit life insurance (insurance that pays off the mortgage in the event of a borrowers death)
The following fees are normally NOT included in the APR:
Title or abstract fee
Escrow fee
Attorney fee
Notary fee
Document preparation (charged by the closing agent)
Home-inspection fees
Recording fee
Transfer taxes
Credit report
Appraisal fee
Calculating APRs on adjustable and balloon loans is even more complex because future rates are unknown. The result is even more confusion about how lenders calculate APRs.
Do not attempt to compare a 30-year loan with a 15-year loan using their respective APRs. A 15-year loan may have a lower interest rate, but could have a higher APR, since the loan fees are amortized over a shorter period of time.
Finally, many lenders do not even know what they include in their APR because they use software programs to compute their APRs. It is quite possible that the same lender with the same fees using two different software programs may arrive at two different APRs!
Conclusion : Use the APR as a starting point to compare loans. The APR is a result of a complex calculation and not clearly defined. There is no substitute to getting a good-faith estimate from each lender to compare costs. Remember to exclude those costs that are independent of the loan.
information provided from www.symphonymortgagecompany.com A site hosted by Myer's inc.
Monday, April 25, 2005
Answers to questions
I am here to answer questions regarding the lending industry. From time to time I am asked questions about loan products, appraisals, strategy and all facets of lending. I will use this space to provide some answers. Ask away, have fun.
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