How to use a reverse mortgage to buy another house Realty Q&A - MarketWatch
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Monday, December 28, 2009
Monday, December 7, 2009
Quote from Monte Howard from the book "Fiscal Fitness"
Chapter 10
Step 7: Tap Your Home's Equity - You've Earned It!
Dead equity is like dead calories. It's no good for you. – Matt Rettick
Equity is all about value and ownership. When talking about a house or condo, equity is the value of the property that belongs to you, minus any mortgage due on the home. When referring to an investment, equity is that portion or share that's yours. Don't be afraid of your equity in anything. It is, after all, yours. You've worked for it; you've earned it. It's your money, your asset, your equity.
A big part of becoming fiscally fit is to understand what your equity - as in your home – can do to help you, and then how to make the right choices so that it works hard for you. Ideally, you want to make the most of your equity while keeping the safety and security of yourself and your loved ones in mind.
A reverse mortgage, available to those homeowners age 62 and above, can accomplish just that, especially when it comes to preserving affordable quality of life and remaining in your own home as long as possible.
Why Consider a Reverse Mortgage?We've all heard it dozens of times: Probably the largest purchase any of us will ever make is our home. Most people work a lifetime, tap their savings, borrow huge sums, and pay tens of thousands of dollars in interest for the privilege of home ownership. It is, after all, a huge part of the American dream. In fact, 81 percent of householders age 65 and older in 2006 owned their home (U.S. Census).
Because owning that home has taken so much effort to achieve, why not let that home make life easier for you in your retirement? A reverse mortgage can provide cash to help fix up your house or fund your care if you're chronically or catastrophically ill. It can give you the wherewithal to remain in your home for your lifetime instead of being forced into a nursing home. Conversely, it can pay for nursing-home cost, thus allowing you to avoid dependence on Medicaid and keep you in control of you life.
A reverse mortgage is a nonrecourse loan – you don't have to qualify and you don't have to repay the money during your lifetime. It's available to those ages 62 and older who live in and own their home. Even if you home isn't paid off, you could be eligible for a reverse mortgage. Remember, it's based on your equity – your ownership share. You or your spouse can't be kicked out of your home either, even after the term of the mortgage runs out.
A reverse mortgage is for life. It has no term, so no matter how long you or your spouse lives in your home, there will be no requirement to repay the reverse mortgage as long as taxes and insurance remain current. – Monte Howard (Mountain States Mortgage Centers)
Step 7: Tap Your Home's Equity - You've Earned It!
Dead equity is like dead calories. It's no good for you. – Matt Rettick
Equity is all about value and ownership. When talking about a house or condo, equity is the value of the property that belongs to you, minus any mortgage due on the home. When referring to an investment, equity is that portion or share that's yours. Don't be afraid of your equity in anything. It is, after all, yours. You've worked for it; you've earned it. It's your money, your asset, your equity.
A big part of becoming fiscally fit is to understand what your equity - as in your home – can do to help you, and then how to make the right choices so that it works hard for you. Ideally, you want to make the most of your equity while keeping the safety and security of yourself and your loved ones in mind.
A reverse mortgage, available to those homeowners age 62 and above, can accomplish just that, especially when it comes to preserving affordable quality of life and remaining in your own home as long as possible.
Why Consider a Reverse Mortgage?We've all heard it dozens of times: Probably the largest purchase any of us will ever make is our home. Most people work a lifetime, tap their savings, borrow huge sums, and pay tens of thousands of dollars in interest for the privilege of home ownership. It is, after all, a huge part of the American dream. In fact, 81 percent of householders age 65 and older in 2006 owned their home (U.S. Census).
Because owning that home has taken so much effort to achieve, why not let that home make life easier for you in your retirement? A reverse mortgage can provide cash to help fix up your house or fund your care if you're chronically or catastrophically ill. It can give you the wherewithal to remain in your home for your lifetime instead of being forced into a nursing home. Conversely, it can pay for nursing-home cost, thus allowing you to avoid dependence on Medicaid and keep you in control of you life.
A reverse mortgage is a nonrecourse loan – you don't have to qualify and you don't have to repay the money during your lifetime. It's available to those ages 62 and older who live in and own their home. Even if you home isn't paid off, you could be eligible for a reverse mortgage. Remember, it's based on your equity – your ownership share. You or your spouse can't be kicked out of your home either, even after the term of the mortgage runs out.
A reverse mortgage is for life. It has no term, so no matter how long you or your spouse lives in your home, there will be no requirement to repay the reverse mortgage as long as taxes and insurance remain current. – Monte Howard (Mountain States Mortgage Centers)
Monte Howard on Reverse Mortgages
By Lew Sichelman
WASHINGTON (MarketWatch) -- Question: I have many questions regarding the Home Equity Conversion Mortgage. How much down payment is required? Is there really no verification of income or assets? Do we have to sell our current house first (it is currently listed for sale)? Would it be possible to find a condo in a retirement development in Southern California that would be approved under this program?
Answer: You are referring to the new Home equity Conversion Mortgage for Purchase program, which was authorized by Congress in the Housing and Economic Recovery Act of 2008 that took effect Jan. 1.
Are you saving enough? Experts recommend people set aside an emergency fund equal to about six months of income -- a steep figure for those who struggle to save. The solution is to start small and make it fun, says Mackey McNeill, a personal financial specialist and founder of Mackey Advisors. MarketWatch's Andrea Coombes reports.
The program, which is aimed largely at persons 62 years or older who want to move down the housing ladder, allows seniors to sell their current residence and use a reverse mortgage to buy a new one, all in a single transaction that eliminates the need for a second set of expensive closing costs. HECM's are insured by the Federal Housing Administration.
According to Monte Howard, affinity marketing director at Atlanta-based Generation Mortgage, the down payment on the new residence is based on three factors:
The youngest purchaser's age. The older the buyer, says Howard, the smaller the down payment.
Prevailing interest rates. The lower the rate, the smaller the down payment on a reverse mortgage that comes with a fixed rate that never changes over the life of the loan. But adjustable-rate reverse loans "have a special rate factor" called "the expected rate" that is used in the down payment calculation, Howard reports.
Value. Lenders use either the property's sale price or appraised value, whichever is less, to determine the loan amount, which is then used to determine the down payment. But for properties valued above the current FHA HECM lending limit of $625,000, you'll have to come up with more cash, for every dollar in value above the limit will add a dollar to the down payment.
According to Howard, neither a purchaser's income nor credit score are factors in qualifying for a HECM. "A prior bankruptcy, for example, would not affect a prospective purchaser's ability to qualify as long as it is not a current, unresolved proceeding," he says.
But there is limited asset verification. Purchasers must demonstrate that they have the required down payment and that the money has not been borrowed. Financial gifts appear to be acceptable under certain guidelines intended to confirm that the funds are truly a gift, not an undocumented loan.
Howard also says that purchasers are not required to sell their current home prior to the closing of their reverse mortgage purchase. But they must occupy their new home within 60 days of closing. Purchasers can retain their current home as a rental property as long as they are capable of meeting the financial obligations of maintaining both homes.
And as for your final question, any condo that meets FHA requirements can be purchased through the HECM reverse mortgage program.
Q: I am 68 years old and have owned my home for 28 years. I am now in the process of refinancing to take advantage of a lower interest rate. Does the HECM include the refinancing of existing mortgages or is it for new purchases only?
A: Eric Bachman, chief executive officer at Oakland, Calif.-based Golden Gateway Financial, says most HECMs are used by seniors who want to remain in their homes. They work best when you own your home sans mortgage, or at least almost free and clear.
But you can use them to replace your current financing. And depending on your age, the property's value and what you still owe, a reverse mortgage could be a good way to generate additional income.
"If you still hold a forward mortgage on your property, a reverse mortgage can help eliminate your remaining debt while potentially creating additional funds that can be drawn as a lump sum or a monthly payment over time," Bachman says.
Based on the little bit of information you provided in your question, the reverse mortgage expert thinks that because of your relatively young age, a tenure payment "might be the best option."
A tenure payment is a monthly payment to you from the lender -- hence the name "reverse" mortgage -- for as long as you own your home. Better yet, because a HECM is a no-recourse loan, once it comes due you are protected from ever owing more than the fair market value of the home at the time of its sale.
WASHINGTON (MarketWatch) -- Question: I have many questions regarding the Home Equity Conversion Mortgage. How much down payment is required? Is there really no verification of income or assets? Do we have to sell our current house first (it is currently listed for sale)? Would it be possible to find a condo in a retirement development in Southern California that would be approved under this program?
Answer: You are referring to the new Home equity Conversion Mortgage for Purchase program, which was authorized by Congress in the Housing and Economic Recovery Act of 2008 that took effect Jan. 1.
Are you saving enough? Experts recommend people set aside an emergency fund equal to about six months of income -- a steep figure for those who struggle to save. The solution is to start small and make it fun, says Mackey McNeill, a personal financial specialist and founder of Mackey Advisors. MarketWatch's Andrea Coombes reports.
The program, which is aimed largely at persons 62 years or older who want to move down the housing ladder, allows seniors to sell their current residence and use a reverse mortgage to buy a new one, all in a single transaction that eliminates the need for a second set of expensive closing costs. HECM's are insured by the Federal Housing Administration.
According to Monte Howard, affinity marketing director at Atlanta-based Generation Mortgage, the down payment on the new residence is based on three factors:
The youngest purchaser's age. The older the buyer, says Howard, the smaller the down payment.
Prevailing interest rates. The lower the rate, the smaller the down payment on a reverse mortgage that comes with a fixed rate that never changes over the life of the loan. But adjustable-rate reverse loans "have a special rate factor" called "the expected rate" that is used in the down payment calculation, Howard reports.
Value. Lenders use either the property's sale price or appraised value, whichever is less, to determine the loan amount, which is then used to determine the down payment. But for properties valued above the current FHA HECM lending limit of $625,000, you'll have to come up with more cash, for every dollar in value above the limit will add a dollar to the down payment.
According to Howard, neither a purchaser's income nor credit score are factors in qualifying for a HECM. "A prior bankruptcy, for example, would not affect a prospective purchaser's ability to qualify as long as it is not a current, unresolved proceeding," he says.
But there is limited asset verification. Purchasers must demonstrate that they have the required down payment and that the money has not been borrowed. Financial gifts appear to be acceptable under certain guidelines intended to confirm that the funds are truly a gift, not an undocumented loan.
Howard also says that purchasers are not required to sell their current home prior to the closing of their reverse mortgage purchase. But they must occupy their new home within 60 days of closing. Purchasers can retain their current home as a rental property as long as they are capable of meeting the financial obligations of maintaining both homes.
And as for your final question, any condo that meets FHA requirements can be purchased through the HECM reverse mortgage program.
Q: I am 68 years old and have owned my home for 28 years. I am now in the process of refinancing to take advantage of a lower interest rate. Does the HECM include the refinancing of existing mortgages or is it for new purchases only?
A: Eric Bachman, chief executive officer at Oakland, Calif.-based Golden Gateway Financial, says most HECMs are used by seniors who want to remain in their homes. They work best when you own your home sans mortgage, or at least almost free and clear.
But you can use them to replace your current financing. And depending on your age, the property's value and what you still owe, a reverse mortgage could be a good way to generate additional income.
"If you still hold a forward mortgage on your property, a reverse mortgage can help eliminate your remaining debt while potentially creating additional funds that can be drawn as a lump sum or a monthly payment over time," Bachman says.
Based on the little bit of information you provided in your question, the reverse mortgage expert thinks that because of your relatively young age, a tenure payment "might be the best option."
A tenure payment is a monthly payment to you from the lender -- hence the name "reverse" mortgage -- for as long as you own your home. Better yet, because a HECM is a no-recourse loan, once it comes due you are protected from ever owing more than the fair market value of the home at the time of its sale.
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