Should You Get a Reverse Mortgage?

You can't turn on the TV these days without seeing some worn out actor or former politician pitching reverse mortgages as if they they are a great deal for seniors. Well, maybe.

Some big lenders have pulled out of the reverse mortgage business--Wells Fargo and Bank of American, but plenty of other lenders remain, so if you want one, you'll have no trouble finding a lender.  Why? Because they are highly profitable for the lender, but perhaps not such a good deal for the borrower; they have steep up front fees.

Only get one if you:

• Have equity in your home and no way of paying your bills other than selling your home and living on the proceeds
• Can pay the property taxes and home owners insurance bills from now until you die with or without the money you're getting from the reverse mortgage.

With a reverse mortgage, only available to those 62 years young, you get to cash out most of your equity and keep your house.  The bank pays you the value of your house either in a lump sum or fixed monthly payments both of which are based on formulae taking into account your home's current value, current interest rates and your age.

Since you don't pay back a reverse mortgage, you don't have to prove income--the reverse mortgage is your future income.  If you take the lump sum and spend it, you get to stay until you die, but if you don't pay your property taxes the bank will and then they'll foreclose.  If you don't pay your insurance, the bank will buy a policy for you and expect you to pay for it, but if you can't, the bank will seek permission from HUD to foreclose.

So before you sign up for a reverse mortgage, make sure you'll be able to pay your property taxes and insurance in the future and allow for inflation, as they always go up, not down.  Here, along the South Carolina coast, expect substantial increase in windstorm and flood insurance.

A reverse mortgage can be a blessing if your retirement income isn't enough, just be sure you can always pay your taxes and insurance no matter what.

Current Mortgage Rates for Grand Strand Borrowers

Here's what one local lender is offering, but always shop around:

30yr fixed 4.125% purchase; 4.375% refinance

20 yr fixed 3.875% purchase; 4.125% refinance

15 yr fixed 3.25% purchase; 3.50% refinance

10 yr fixed 3.00% purchase; 3.25% refinance

Mortgage Interest Rates Move Higher

According to the Mortgage Bankers Association, for the week ended May 31st, the average contract interest rate for a 30 year fixed rate mortgage was 4.07% the highest since April 2012.  

Pre-Approval versus Pre-Qualified....

If you were taking a home buying class, the first thing you would talk about is getting pre-approved by a lender.  Unless you're in the fortunate position of being able to pay for your new home up front, you will have to borrow money. 

When the real estate market was slow, the sense of urgency to get financing was not very high. Buyers figured they could take their time to find a home and then they'd firm things up with their lender. Now the market is starting to improve,  but financing remains difficult to get, so the first thing a serious buyer should do is line up their financing.  This means getting pre-approved to borrow a certain amount, not just being pre-qualified.

There is a big difference.  A pre-qualification is just an initial step, typically a phone conversation about your overall financial picture. The lender may discuss income, debts, and go over different payment options, but it should not be confused with a firm pre-approval.

In order to grant a pre-approval letter,  a lender will probably complete a formal application, pull the buyer's  credit report and collect specific documentation such as pay stubs, W-2's and tax returns. This will allow them to better define your maximum price range and that that they can make the loan.

Being pre-approved will make you a stronger buyer and allows you to move quickly if needed. In an active market, you never know when you'll find the home for you, but when you do, you should act quickly.  If you have to wait while you get your financing in order, you may lose the home to other buyers.

Another benefit to being pre-approved is that real estate agents will take your interest more seriously and be willing to devote their time and money to helping you find a home. Many top agents require their clients have a firm pre-approval letter before they will show property. The same with sellers.  A buyer who can demonstrate that they can actually buy the house is more likely to have their offer accepted and is in a stronger negotiating position.

Good bye to Adjustable Rate Mortgages?

The Feds have changed the rules for adjustable rate mortgages making it harder for buyers to qualify and probably forecasting the end of ARMs.

They've instituted an ability to repay rule, effective January 2014, requiring lenders to evaluate whether a borrower can repay if the loan adjusts upwards.  Unlike fixed rate mortgages which have the same interest rate and payment over the life of the loan, ARMs fluctuate with interest rates, usually being pegged to LIBOR, a world wide reference rate computed in London.

Instead of qualifying buyers with an ARM's low introductory rate, the lender will be required to use the loans loan's "fully indexed rate" or LIBOR plus the lender's margin.  This will make it harder for some buyers to qualify,  but once they do it's less likely they'll be forced out of their home if (really when) interest rates rise.

One thing for sure, interest rates will eventually go up,  it's just a matter of when and how far--how can I be so sure, easy, they can't go much lower unless we start paying banks to hold our money....

So why bother with an ARM?  An ARM with a low introductory rate might make sense if you know you will be moving around the end of the introductory period; otherwise a fixed rate mortgage is likely to be a better deal for the long term.

Want To Get A Mortgage In 2013?

Ah, remember the good old days, say just a few years ago, when all you had to do to get a mortgage was ask and then fight off the mortgage brokers?  If you haven't applied for a mortgage in the last year or two, get ready now for the new reality: Credit standards are tight and that's an understatement.

Lenders these days are engaging in "defensive underwriting".  While the Federal Housing Administration (FHA) allows borrowers with credit scores under 700 and down payments of just 3.5% to buy homes, that doesn't mean that you can get a loan on these terms.  Lenders are scrutinizing property appraisals, income tax returns and bank statements for any flaw, no matter how small that could be used to force them to buy back a loan.  Did you sell grandfathers pocket watch on ebay and make a one time deposit of a few hundred dollars to your checking account? Be prepared to explain where the money came from, with documents.  If your bank statement says there are seven pages, don't throw away the last three even though they contain nothing but the terms and conditions of your checking account; the lender will want them all and for at least the previous three months.

What to do?  If you're even thinking of applying for a mortgage in the next year or so, start getting ready now.  Pull your credit report from all three credit bureaus and carefully review them.  If they are less than perfect, now is the time ask for corrections and do so by old fashioned letter, not phone calls and emails and keep a copy of everything.  It's usually not a good idea to close credit accounts you don't use, you might even consider using them occasionally. If you carry a balance month to month on your credit cards, get it down to less than 20% of your over all credit line and pay on time. Resist the urge to open new accounts at stores just to get a discount on a purchase; old credit is better than new credit.

Next assemble your last three years of tax returns and look for anything that might raise a question with a lender and gather the documentation now to substantiate the return.  The same with bank accounts, review the last year at least for abnormal deposits, you'll need to explain them.  Unlike credit accounts, closing little used savings and checking accounts might help, certainly you'll have less paper to submit and explain.

The bottom line: if you want to get a mortgage these days, you must be prepared to submit the most trivial financial documents and explain them, your credit report must be as clean as you can make it and be ready to explain any negative information with documentation.  Start now.

The Shadow Market in 2013

The real estate market across the county came alive in late 2012 with home sales and housing starts up strongly.  Prices are doing better, too.  But skeptics still point to sizable overhang of properties headed to foreclosure--the so called "shadow" inventory--that they say will erode the market's recent gains.  Maybe.  

While the shadow inventory remains high, it may not choke off the strength we're seeing.  There are several reasons, first the number of homes in foreclosure is shrinking, down from a peak of 4.7 million nationally in 2009 to 3.4 million at  the end of 2012. The discount at which foreclosures sell has narrowed significantly, from around 24% in 2009 to 7% now. Inventories of new homes for sale are tight and the number of listings of previously owned homes is at an eleven year low. 

On the demand side, sales of new homes are up strongly and sales of previously owned homes are likely to follow. Investor buying has slowed in most areas as well. Mortgage rates remain at historic lows for those who can qualify and are likely to stay low for the next several years. Banks have become more adept at handling foreclosures and realize it's not in their interest to dump large numbers of houses on the market.  They do more short sales now, where they allow the home owner to sell for less than the mortgage owned--faster and less costly for the bank.  

It's going to take years for housing is back to normal, but as long the recovery continues, however slowly, the shadow market should have little effect.

10 Lessons Learned as Housing Recovers

Headlines abound: The Housing Bust is over… 

Housing has hit bottom and is turning around.  Realtors, homeowners, renters, and all Americans are sighing with collective relief.  If they're correct.

But first we need to pause and consider what we've learned in the last few years:

1  The economy is global.  The mess in Europe has to be resolved for the U S to see a sustained economic recovery and sustained housing recovery.

2 The folks in Washington D.C. must get their act together, work together and begin to resolve the economic issues facing the nation.  Fiscal cliffs, increased government spending and borrowing from China to support that spending do not bolster consumer confidence or boost the economy. 

3 The economy cannot recover without housing. Good News: the stock prices of the major U. S. home builders are up and they are beginning to build again. That puts Americans to work and guess what, if you have a job, that's the first step to buying your  own house.   

4 Homeowners confidence in the economy is directly related the value of their own homes.

5 Everyone needs shelter, but not everyone needs to own their shelter.  The American dream of owning your own home may not be appropriate for everyone.

6 High home ownership rates are important but they must be sustainable.  Owners must be able to afford their homes in the long run.

7 Home prices go UP and go DOWN.  If home prices have bottomed, they're likely to remain stable for some time.  Increases for the foreseeable future are likely to mirror the rate of inflation for most areas, but there'll be exceptions of course.

8 The process of purchasing/financing a home is more complicated now than ever before and will remain so. Sound  mortgage underwriting is critical.  Prospective buyers must be prepared for a detailed application process to get a mortgage. Expect every fact and every document to be verified. 

9 Home equity should not be used for ordinary living expenses.  We're not likely to see the days of taking out equity every few years.  

10 Financial reserves for families, companies, and countries are necessary.

What is important is that we remember what happened as we prepare to write the future.  Most importantly, we should also have a sense of accomplishment that we endured these life lessons.

There are seasons in the weather: spring, summer, fall and winter.  So there are in economic cycles.  It is great to be at the thaw of winter and the budding of spring.

Help For SC Home Owners Facing Foreclosure

Need help with your mortgage?

The S.C. Homeownership and Employment Lending Program has given about $26 million in aid to South Carolinians facing foreclosure since January 2011, but that's not even 10 percent of the $295 million it was given by the U.S. Treasury after South Carolina became one of five states to qualify in 2010 for the Obama administration's "Hardest-Hit Fund," based on high unemployment rates


Aid per home is capped at $36,000, meaning the program still has the resources to help you or someone you know.


The program has been endorsed by most of the large lenders in the state, including Citibank, Bank of America and Wells Fargo.


Applicants must meet at least one of several criteria: being unemployed, underemployed, dealing with the death of a spouse or facing unforeseen health issues.

The program is a nonprofit division of the SC state Housing Finance and Development Authority.

For more information: www.scmortgagehelp.com

But hurry,Whatever money SC HELP has left after 2017 must be returned to the U.S. Treasury.

.

Harvard: Home Sales Finally Poised to Improve

Harvard: Home Sales Finally Poised to Improve


Click the link above to read the article...

FHA TIGHTENS LENDING AGAIN!

Beginning April 1, borrowers with on going credit disputes totaling more than $1000 will not be able to get a mortgage insured by the Federal Housing Administration.

This is a significant tightening for the FHA; previously there was no requirement that disputed credit account be paid off--before this rule a direct endorsement underwriter could determine if any of the borrower's debts should have an impact on the FHA's approval.

Now a borrower must either pay off the outstanding balance or document a payment arrangement that the lender must submit to the FHA before closing.  The payment arrangement will be counted into the debt-to-income ratio for the new home loan.

The rule excludes disputed accounts from more than two years ago, along with those related to theft.  But the lender must document an identity theft or a police report on the fraudulent charges.

The unintended consequences could be severe for those in the pipeline--kicking out many buyers, perhaps as many as 50%.  Bottom line, borrowers must clean up their credit reports before applying.

FHA To Raise Fees

If you're buying or refinancing with a mortgage backed by the Federal Housing Administration you can expect their fees to increase, unless you hurry.

The agency is raising its fees in an effort to try to restore its depleted reserves, which suffered from the rising number of home owners who defaulted on their mortgages, and to try to encourage the return of more private capital to the market.

FHA loans allow for down payments as low as 3.5 percent and they often have less stringent credit requirements, which have made them soar in popularity in recent years. (The agency insures loans but doesn’t issue them.) About 40 percent of all new mortgages for home purchases in 2010 were FHA-backed mortgages.

Starting April 1, it will increase its annual mortgage insurance premium for loans under $625,500,  from 1.15 percent of the loan amount to 1.25 percent. Starting June 1, larger loan premiums will see an increase of 0.35 percent of a percentage point, bringing the total premium costs up to 1.5 percent of the loan amount.

FHA also announced it will raise their upfront mortgage premium by 0.75 of a percentage point, which will now total 1.75 percent of the loan amount.

So, a borrower with a 3.5 percent down payment with a mortgage of $193,000 can expect to pay an upfront mortgage premium alone of $3,377, compared to the prior $1,930 but it can be rolled into the mortgage. The new fees will also apply to home owners who want to refinance their mortgages.

The raise in fees is expected to bring in $1.25 billion in additional revenue to the agency through September 2013. 

The upfront increase is pretty stiff and isn't going to help home sales recover, not such a good idea if you ask me, but then they didn't.

 

FORECLOSURE vs. SHORTSALE

ISSUE

Credit Score: 

• Foreclosure will probably lower your FICO score from 250 to 300 points and will affect your credit score for 3 plus years
• With a successful short sale, only late payments on mortgage will show and after sale, the mortgage is usually reported "paid as agreed", "paid as negotiated" or "settled" with a 50 point score hit for 12 to 18 months

Credit History:

• A foreclosure remains as a public record on a person's credit history for 10 years or more
• A short sale is not reported on a person's credit history.

Current Employment:

• Employers have the right and regularly check the credit of employees in sensitive positions; a foreclosure may be grounds for reassignment or termination.  If a person is a police officer, a military member or working for a government agency such as the CIA, any security clearances will be revoked and the person reassigned or terminated.
• On its own, a short sale is usually not reported on a credit report and will likely not affect employment

Future Employment:

• Many employers require a credit check of all job applicants and a foreclosure will likely preclude hiring.
• A short sale is not reported and should have no effect.

Deficiency Judgement:

• In South Carolina, the bank has the right to pursue a deficiency judgement and chances are they will.  As foreclosed homes sell at lowers prices and the market is still declining, the result may be a higher judgement.
• In a short sale, it may be possible to convince the lender to fore go their right to pursue a deficiency judgement.  Short sales often sell close to market value, making any deficiency judgement lower.

Insurance:

• Insurance companies are now checking credit records and a foreclosure will likely boost car insurance rates and other types of insurance as well, such as a renter's policy
• A short sale is not reported and should have no effect

Loans:

• A foreclosure makes one ineligible for a Fannie Mae backed mortgage for 5 years; other types of mortgages will have a higher perhaps prohibitive rate
• A successful short sale generates a 2 year waiting period for a Fannie Mae backed mortgage and likely will not affect other loans as it's not reported.  However, if asked, a borrow should answer truthfully.

So, in every instance, it's worth it to make every attempt to work with your lender to avoid a foreclosure, no matter how difficult that may be.  Start early.