Finance Blog

Mortgage 101: What You Need to Know about Reverse Mortgages

For many senior citizens, reverse mortgages offer financial security during their golden years.

Due to upheavals in the stock market during the past two decades, as well as the fact that many employers no longer offer pension plans, many Americans face retirement with significantly less money than they had planned. Most senior citizens who own their homes have a significant amount of equity in their homes, but hesitate to tap into it with home equity lines of credit because they do not want to get tied into monthly payments. For many of these senior citizens, reverse mortgages may provide a lifeline for a financially secure retirement.

The Facts about Reverse Mortgages

Reverse mortgages allow seniors to access the equity in their homes without the burden of having to make monthly loan payments as long as they live in their home. The most popular type of reverse mortgage is the Home Equity Conversion Mortgage Program (HECM), which is a program administered by the US. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA).

To qualify for a HECM reverse mortgage, some of the requirements you must meet include:

  • The borrower(s) must be 62 or older
  • The borrower must go through counseling with a HUD approved counselor
  • The borrower must meet other lending requirements.

In order to protect the spouses who are not included on the deed of their homes, HUD has instituted protections so they will not have to make payments in the event the individual who secures the reverse mortgage dies.

To learn more about reverse mortgages, contact a local mortgage broker today.

Key Pointers for Getting a Mortgage with Less than Perfect Credit

Due to the recent drop off in mortgage applications, lenders are starting to loosen their lending requirements.

With so many reports in the news about the stringent lending requirements put into place after the 2007-2008 mortgage market meltdown, many prospective buyers have sat on the sidelines. The reluctance of many would be homebuyers to submit an application for a home loan is due to low credit scores. Comparatively speaking, people have lower credit scores today than they did in the mid 2000’s due to job losses and wage cuts during the Great Recession.

With the Slowdown in the Mortgage Market, Smaller Lenders are Reducing Their Rates

Since banks and private lenders only make money when they extend mortgage financing to home borrowers, the slack in the mortgage applications has prompted them to loosen their standards. This means that people who have credit scores in the fair to poor range (550 to 699) are now finding they are having their mortgage applications approved. By manually underwriting loans, smaller banks and private lenders are able to give more weight factors other than credit scores.

Some examples of these alternative underwriting standards include:

 

  • One year of on time rent and utility payments

 

 

  • Credit problems due to a period of unemployment during the recession

 

 

  • Mortgage payments similar to rental payments

 

Another way to overcome a poor credit score is to pay a higher down payment than what is traditionally required for a home loan.

To find out how you can secure a mortgage for your dream home, even with less than perfect credit, contact an independent mortgage broker today!

 

Mortgage 101: Avoid Debt Traps When Saving for a Down Payment

Saving money for your new home purchase is much easier if you avoid these common mistakes.

If you do not qualify for a no money down VA or USDA mortgage, chances are you will need to save money for a down payment as well as your closing fees. In addition, you will also need to have some liquid assets available for an emergency fund. Since many people suffered financial hardships as a result of the Great Recession, some individuals have credit problems and have turned to rather expensive means to improve their scores. Here are some common debt traps people fall into and some alternatives.

Avoid High Interest Loans and Credit Cards

When money is tight and emergencies arise, sometimes it is easy to turn to the first available source of cash. For some people, this may be a high interest payday loan, while for others, they might use a high interest credit card. Both of these solutions tend to turn into problems because the interest rates and fees make it difficult to pay off the loans. A more useful alternative is to try to secure a loan from a small local credit union, which will be much less expensive and much easier to pay off.

Use Caution with Debt Settlement Companies and Debt Consolidation

Many times debt settlement companies and debt consolidation agencies can cause your credit score more harm than good. In addition, many plans devised by these agencies extend the amount of time you make payments, which increases your interest expenses. If you are having debt problems, a non-profit consumer credit counseling agency is a much better option.

To learn more about how to prepare for homeownership, contact a local mortgage broker today!

Mortgage 101: Why Buying a Home May Make More Sense than Renting

Since the housing crisis in 2008, an increasing number of people have opted to rent than buy a home, even when purchasing a home makes more sense.

During the housing crisis and Great Recession, many people put their dreams of homeownership aside because of fears of foreclosure and other financial insecurities. As demand for rental units increases, the monthly rental payments have followed suit. According to Realtor Magazine, the cost of renting a home in the United States has risen by nine percent, which local markets have seen more drastic increases during the past decade. For example, in the New York/ New Jersey market, renters can spend 42 percent or more of their monthly income for rent. If a renter has a secure job and plans to stay in the area for five or more years, it may make more sense to buy a home.

Advantages of Securing a Mortgage to Buy a Home in the Current Market

Since, in most cases, the maximum housing debt to income ratio is around 33 percent, purchasing a home may make more sense than renting, especially if you are eligible for a VA or USDA home loan, which does not require a down payment. When you use a fixed rate mortgage, you know the amount of your monthly housing payment is fixed for the long term, which is not the case when you rent. In addition, you have the advantage of building equity in your home.

To learn more about home financing and discover if you are ready to make the transition from renter to homeowner, contact a local mortgage broker to review your situation.

Mortgage News: Possible Increase in Mortgage Fees

Homebuyers who obtain mortgages secured by Fannie Mae or Freddie Mac may find the fees they pay for their loans to be higher in the future.

When most people think of the costs associated with a mortgage, the first thing that comes to mind is the interest rates for the loan. Well, in addition to other charges, banks pass on the fees the two major mortgage guarantors (g-fees), Fannie Mae and Freddie Mac, charges them to the consumer. The Federal Housing Finance Agency (FHFA), which regulates both Fannie and Freddie, has asked for feedback about increasing g-fees as a means of reducing the risk associated with guaranteeing mortgages.

Industry and Consumer Groups Oppose Fee Hikes

Needless to say, MarketWatch report that major industry groups, such as the National Association of Realtors, the Mortgage Bankers Association, and the National Association of Home Builders, have issued public statements opposing this fee increase. Their argument is that the will curtail the credit opportunities for potential buyers and decrease their purchasing power. These groups fear that by limiting the pool for potential buyers, the still fragile housing recovery will falter. In addition, the FHFA has indicted that it is considering maintaining the adverse market fees it charges in New York and New Jersey, which affects those who purchase higher priced foreclosures.

To see if your are in a financial position to secure a mortgage to maintain your purchasing power, contact a local mortgage broker to schedule a consultation.

Mortgage News: A Signal That the Time to Secure Your Mortgage is Now

During the past two weeks, news reports indicate the time to lock into a mortgage is now for buyers who want to preserve their purchasing power.

As a prospective homebuyer, two factors outside your control influence the amount of money you can spend on your new home: the range of interest rates for your mortgage and the fees associated with your loan. While your personal financial situation needs to be your primary consideration when deciding whether it is the right time to apply for a mortgage, the timing of when you actually secure your home loan allows you to take advantage historically low interest rates. Unfortunately, it appears these market conditions may be ending soon.

Fed Signals Rate Increase Likely in Mid 2015

The U.S Federal Reserve sets the benchmark interest rates the banks pay for loans, which, by extension, affects the interest rates paid by consumers on mortgages and other form of credit. Since the Global Financial Crisis, which occurred in 2008, the Fed has kept interest rates near zero in order to spur economic growth. Since most of the major economic indicators have shown improvement, Janet Yellen, the chairperson of the Federal Reserve, has signaled that the Federal Reserve may start to increase interest rates starting in July 2015, according to a report by ABC News. This suggests that home interest rates will start increasing during this time frame.

To find out if you are in a position financially to take advantage of record low home interest rates, contact a local independent mortgage broker today!

Mortgage Application Denied by a Large Bank? Try a Smaller Lender

As large banks adapt to new regulations, they are less likely to work with low income borrowers and those with minor credit issues. Small lenders are filling this vacuum.

As large lenders face increased scrutiny by regulators, they are much more reluctant to extend mortgages to low income borrowers and those with dings on their credit reports. In fact, Realtor Magazine reports industry experts anticipate mortgage originations will be down 12 percent in 2014 from the preceding year, even though mortgages rate are holding at historically low levels. The reason for the large banks low risk tolerance is to avoid repurchase demands from Fannie Mae and Freddie Mac, which act as guarantors for the majority of mortgages.

Smaller Lenders Approve Applications Large Lenders Deny

If your mortgage application has been denied by a large bank, applying for home financing from a smaller lender may be the answer to a home loan. Since smaller banks and private lenders tend not to face as much regulatory scrutiny as the “too big to fail” banks do, they are more flexible in their lending criteria than large banks. In fact, Marketwatch reports that mortgage originations from smaller lenders increased by 10 percent during the four year period 2008 to 2012. The best way to connect with a small lender who is likely to approve your mortgage application, contact a local independent mortgage broker.

Mortgage 101: Avoid Common Mortgage Errors

Simple mistakes when applying for a mortgage can be costly so it essential to work with a reputable and experienced mortgage broker.

In all the excitement experienced by first time homebuyers when they find their dream homes, it is easy for them to make small mistakes when they secure their mortgage. These oversights can wind up leaving them “house poor” due to unexpected expenses or paying more for mortgage financing than needed.

Most Common and Expensive Mortgage Mistakes

According to experts, these are some of the most common and costly mortgage mistakes first time home buyers make:

  • Failing to Monitor Credit: Many first time buyers think once they have received a pre-approval from a lender that they can relax about monitoring their credit. Some are unpleasantly surprised when their mortgage application is denied when they try to secure financing for a home. A missed or late bill payment, credit reporting error, or change in debt to income ratio can also mean higher interest rates or the need for a larger down payment.
  • Overlooking Different Mortgage Options: While many first time buyers opt for an FHA loan because of the low down payments, these loans also require costly mortgage insurance. Another option they might want to consider are VA loans, which are available to current and past members of the armed forces. These loans do not require a down payment and the lending criteria is not as stringent. For homebuyers who are purchasing a home in rural area, a USDA loan might be available.

To avoid making costly mistakes, it is best to work with an experienced independent mortgage broker who works with individuals to find the optimal home financing solution for their needs.

Dream Homes: The Challenge of Financing Unique Homes

Smaller lenders tend to offer more favorable mortgage terms for buyers who want to purchase a home that does not fit the mold of other houses in the area.

Even if you have excellent credit and a low debt-to-income ratio, purchasing the house of your dreams can be a challenge if it is unique, according to a recent article in the New York Times. Whether you are buying a historic home in a neighborhood surrounding by new homes or you want to purchase a LEED certified green home that is one of the first in your area, you may find that large institutional lenders are reluctant to offer you mortgage financing. For those who do, they may require a substantially higher down payment than if you were to buy a home that is more in line with other homes in the area.

Smaller Mortgage Brokers Help You Purchase the Home of Your Dreams

The main reason it is difficult to obtain a mortgage when you buy a unique home is that, by its very nature, it is difficult, if not impossible, to find a recently sold home to use as a comp. This make it a challenge to establish the fair market value of the home. While large lenders tend to have rigid criteria when evaluating mortgage applications, a smaller independent mortgage broker knows the local market and takes a personalized approach when determining whether to approve your application. This makes it much more likely that you’ll be able to purchase the home of your dreams.

Mortgage News Updates: Your Dream Home may be in Reach with Low Interest Rates

During the week ending August 22nd, mortgage rates hit a new low for 2014, making it possible to afford to pay a bit more for a home.

If your dream home is a bit more expensive than what your budget allows you to spend, then the latest data from Freddie Mac, as reported in Realtor Magazine, may offer you a pleasant surprise. Despite forecasts from industry experts that interest rates for mortgages were to be on the upswing, the rate for a 30 year fixed mortgage dropped to 4.10 percent during the week ending August 22, 2014. This is significantly lower than the 4.58 percent interest rate for a similar loan a year ago.

Borrowing Costs Decrease for Different Loan Types

Even if you are looking to finance the cost of your home for only 15 years, your borrowing expenses are currently likely to be the lowest right now. The interest rate for a 15 year fixed rate mortgage is only 3.23 percent, which is significantly less than the 3.60 percent rate they were last year. Even the rates for five year adjustable rate mortgages have hit bottom for 2014 at 2.95 percent.

Even with low interest rates, you need the guidance and advice of a mortgage expert to ensure you obtain the best home finance solution for your needs with the best terms possible.