Many retirees are facing dwindling incomes from their battered investments, which explains why applications for "reverse mortgages" have risen nearly 50% in the last two years. It sounds like a great option: a lender essentially gives you a cash advance on your home's equity, which doesn't have to be paid back until you either move or "move on."
There are drawbacks hidden in the details, however. Although recent legislation has raised maximum allowable home values, the formula for determining how much you'll get includes other factors like your age and current interest rates. Your current mortgage balance and the loan's fees are then subtracted from that number.
Although loan origination fees have been capped at $6,000, the monthly mortgage insurance premiums and service charges could push the total cost of the loan up to twice that much. If you think you might move anytime soon, this just doesn't make sense.
While anyone 62 or older may qualify, it's the youngest who run the biggest risk with a reverse mortgage, because you may very well outlive the life of your payments. When that happens, the equity you would have fallen back on has disappeared.
It's best to seek other alternatives first, with your best option being to make your move now and downsize to a smaller home, pocketing the equity from your sale for the future.
Showing posts with label home loan. Show all posts
Showing posts with label home loan. Show all posts
6/4/10
5/20/10
Rent That Builds Equity
Applying for a home loan today sure isn't what it used to be. Buyers who would have qualified just a year or two ago are now facing rejection, but all hope is not yet lost. If you find a home you love offered by motivated sellers, your real estate representative may be able to negotiate a lease-to-own option.
Usually, a portion of the monthly rent paid goes into escrow, where it accumulates for the eventual downpayment. It's a fairly painless way to save up money so you can get the home you want now, even if you can't put enough down to qualify for financing. Within an agreed amount of time, usually three to five years, you will have then saved enough to secure a loan and complete your purchase.
Simply paying rent is like throwing your money away, but a rent-to-own option actually helps you build equity while you’re making your monthly payments (like a mortgage!). Many sellers find this arrangement attractive too, because it generates regular income for them in a still recovering housing market.
You might be wondering why a real estate agent would even bother to offer a lease-to-own option instead of an outright purchase, but in these cases, the agent is often paid a rental commission, and then a sales commission once the transaction has completely closed with a purchase.
Usually, a portion of the monthly rent paid goes into escrow, where it accumulates for the eventual downpayment. It's a fairly painless way to save up money so you can get the home you want now, even if you can't put enough down to qualify for financing. Within an agreed amount of time, usually three to five years, you will have then saved enough to secure a loan and complete your purchase.
Simply paying rent is like throwing your money away, but a rent-to-own option actually helps you build equity while you’re making your monthly payments (like a mortgage!). Many sellers find this arrangement attractive too, because it generates regular income for them in a still recovering housing market.
You might be wondering why a real estate agent would even bother to offer a lease-to-own option instead of an outright purchase, but in these cases, the agent is often paid a rental commission, and then a sales commission once the transaction has completely closed with a purchase.
10/23/09
Know Your Options
If any of your friends or family have recently applied for a home loan, you've probably heard that lenders are nervous, with tough new rules and demands for stacks of paperwork. Good mortgages are still out there, but you should be prepared before applying.
First, understand how your credit score impacts the interest rate charged on your loan. If your score is 720 or higher on the scale of 850, you will qualify for the best rates. If it's between 700 and 719, you could expect 0.375% added to that rate, while a score between 680 and 699 might add 0.5%.
Next, determine how much you have available for down payment, and how that will affect your loan's terms. A "conforming loan" (that would be purchased by Fannie Mae or Freddie Mac) will require a minimum 10% down payment.
However, if you don't have that much to put down, you can investigate a Federal Housing Administration (FHA) or Veterans Administration (VA) loan. These government-backed loans are targeted towards those with lower credit scores and only require a 3.5% down payment.
You can even use this year's First Time Homebuyer Tax Credit to help pay closing costs, buy down the interest rate, or add to your minimum down payment. Just have employment, banking and tax records organized, and be patient while overworked lenders review your application.
First, understand how your credit score impacts the interest rate charged on your loan. If your score is 720 or higher on the scale of 850, you will qualify for the best rates. If it's between 700 and 719, you could expect 0.375% added to that rate, while a score between 680 and 699 might add 0.5%.
Next, determine how much you have available for down payment, and how that will affect your loan's terms. A "conforming loan" (that would be purchased by Fannie Mae or Freddie Mac) will require a minimum 10% down payment.
However, if you don't have that much to put down, you can investigate a Federal Housing Administration (FHA) or Veterans Administration (VA) loan. These government-backed loans are targeted towards those with lower credit scores and only require a 3.5% down payment.
You can even use this year's First Time Homebuyer Tax Credit to help pay closing costs, buy down the interest rate, or add to your minimum down payment. Just have employment, banking and tax records organized, and be patient while overworked lenders review your application.
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