Using a Reverse Mortgage to Purchase a Home

Tuesday, July 5th, 2016

The other day, a client came into my office and asked me about a using a reverse mortgage to purchase a property. They said they had heard some negative things from relatives but had recently seen articles that painted a very different picture.  They asked for my opinion. I told them that it is critically important to hire a trusted mortgage advisor. We set about to get the facts and become educated on using a reverse mortgage for purchase.

reverse mortgage

We made contact with Reverse Mortgage Planner Kent Montavon from Fairway Independent Mortgage Corporation. He and his business partner Bill Niehus help buyers and homeowners exclusively with reverse mortgages. They arrange reverse mortgages that are called Home Equity Conversion Mortgages (HECM). It turns out that, for folks over 62 years of age, reverse mortgages could become a “go to” product for purchasing or refinancing a home. Here is what I learned:

Mortgage Availability Widening

Tuesday, June 3rd, 2014

Alaris Properties, Real EstateIf you’re shopping for a home or planning to refinance your mortgage, you may be thinking: “Isn’t getting a home loan already a lot tougher than it used to be?”

You may have heard that new mortgage rules issued by the Consumer Financial Protection Bureau (CFPB) took effect at the beginning of the year. The basic purpose of the new rules, which resulted from the Dodd-Frank Act passed in 2010, is to help make sure the borrower can afford to repay their mortgage. For the most part, not a whole lot has changed.

In fact, this year we’ve seen mortgage availability widen for the most part and Wells Fargo just recently announced that they were casting an even wider net for borrowers. The nation’s largest residential mortgage lender (and Colorado’s biggest bank by deposits), for example, lowered its minimum credit score for loans from 660 to 620.

Waiting Periods Waived

Monday, September 30th, 2013

The Great Recession that started in late 2007 forced many responsible Colorado homeowners into mortgage loan default and/or bankruptcy. Because of this, the Federal Housing Authority (FHA) realized that credit histories don’t always reflect a person’s true ability or willingness to pay on a mortgage, and on August 15, 2013, announced its shortening of the mandatory waiting periods for homeowners with a black mark on their credit.

This means that if you have experienced a foreclosure, short sale, bankruptcy, etc., you now only have to wait 1 year instead of 3 years before you can apply for an FHA mortgage.

Here is a link to the actual FHA Mortgagee Letter (the document number is 13-26).

Mortgage Forgiveness Debt Relief Act

Thursday, January 10th, 2013

Under normal circumstances, debt forgiven as a result of a short sale or mortgage modification would count as income for tax purposes. Lenders send out 1099s to account for the amount of the debt they have forgiven.

However, the Mortgage Forgiveness Debt Relief Act (Act) that was passed in 2007 states that mortgage debt that is forgiven (for instance in a short sale) can be excluded from income, with certain limits, so long as the taxpayer qualifies under the Act. In 2008, Congress extended the Act through 2012. Because of the “fiscal cliff”, many were worried whether the Act would be extended again; however, as part of the American Taxpayer Relief Act of 2012, the Mortgage Forgiveness Debt Act was extended to December 31, 2013.

It’s important to note that the American Taxpayer Relief Act extends dozens of other tax cuts that were scheduled to expire. Check with your tax professional to see if you may qualify under the Mortgage Forgiveness Debt Relief Act and how you may be able to take advantage of other tax cuts included in the American Taxpayer Relief Act.

Mortgage Standards Stop Tightening; Lending Soon To Loosen?

Monday, August 20th, 2012

Fed Senior Loan Officer SurveyAs another signal of an improving U.S. economy, the nation’s biggest banks have started to loosen mortgage lending guidelines.  As reported by the Federal Reserve last quarter, no “big banks” reported stricter mortgage standards as compared to the quarter prior and “modest fractions” of banks reported easier mortgage standards.

The data comes from the Fed’s quarterly Senior Loan Officer Survey, a questionnaire sent to 64 domestic banks and 23 U.S. branches of foreign banks.  The survey is meant to gauge, among other things, direct demand for consumer loans and banks’ willingness to meet this demand.  Not surprisingly, as mortgage rates fell to all-time lows last quarter, nearly all responding banks reported an increase in demand for prime residential mortgages where “prime residential mortgage” is defined as a mortgage for an applicant whose credit scores are high; whose payment history is unblemished; and, whose debt-to-income ratios are low.

Mortgage Guidelines Resume Tightening Nationwide

Thursday, May 3rd, 2012

Senior Loan Officer SurveyDespite an improving U.S. economy, the nation’s banks remain cautious about what they will lend, and to whom.  Last quarter, by a margin of 3-to-2, more banks tightened residential mortgage lending standards for “prime borrowers” than did loosen them.

A “prime borrower” is defined as one with a well-documented credit history, high credit scores, and a low debt-to-income ratio.  The insight comes from the Federal Reserve’s quarterly survey of its member banks.

Last quarter, of the 54 responding banks :

  • 0 banks tightened mortgage guidelines considerably
  • 3 banks tightened mortgage guidelines somewhat
  • 49 banks left guidelines basically unchanged
  • 2 banks eased mortgage guidelines somewhat
  • 0 banks eased mortgage guidelines considerably

By contrast, in the quarter prior, not a single surveyed bank reported tighter residential mortgage guidelines.  The period from January-March was a step backwards, therefore, for the fledgling U.S. housing market.  Overall, getting approved for a mortgage is tougher than it used to be. Banks enforce higher minimum credit score standards; ask for larger downpayment/equity positions; and require higher monthly income relative to monthly debt obligations.  It’s one reason why the homeownership rate is at its lowest point since 1997.

Loans For Underwater Homeowners : HARP 2.0 Now Available

Tuesday, April 17th, 2012

Making Home AffordabieThe new, revamped HARP program is now available in Colorado and nationwide. It was officially released Saturday, March 17, 2012 by Fannie Mae and Freddie Mac.  HARP is an acronym.  It stands for Home Affordable Refinance Program.  HARP is the conforming mortgage loan product meant for “underwater homeowners”. Under the HARP program, homeowners in Evergreen can get access to today’s low mortgage rates despite having little or no equity whatsoever.  HARP is expected to reach up to 6 million U.S. homeowners who would otherwise be unable to refinance.

HARP is not a new program. It was originally launched in 2009.  However, the program’s first iteration reached fewer than 1 million U.S. households because loan risks were high for banks, and loan costs were high for consumers.  With HARP’s re-release — dubbed HARP 2.0 — the government removed many of HARP’s hurdles.

In order to qualify for HARP, homeowners must first meet 3 qualifying criteria.

FHA Mortgage Insurance Premiums Increasing April 9, 2012

Thursday, April 5th, 2012

FHA MIP increasingPlanning to use an FHA-backed mortgage for your next home loan? You might want to get your application in gear today.

Beginning next week, the Federal Housing Administration (FHA) is changing the way it charges mortgage insurance to U.S. homeowners. For the fourth time since 2010, FHA mortgage insurance premiums are rising for all FHA-backed homeowners.

For FHA Case Numbers assigned on, or after, Monday, April 9, 2012, there are two planned changes.

First, FHA Upfront Mortgage Insurance Premiums (UFMIP) will increase by 75 basis points to 1.75%, or $1,750 per $100,000 borrowed. Upfront Mortgage Insurance Premium is paid at closing, and typically added to an FHA borrower’s loan size.

The current UFMIP rate is 1.000 percent.

Second, annual FHA mortgage insurance premiums are rising. All new FHA-backed loans will be subject to a 10 basis point increase in annual mortgage insurance premiums, costing homeowners an extra $100 per $100,000 borrowed per year.

FHA To Raise Mortgage Insurance Premiums April 1, 2012

Saturday, March 10th, 2012

FHA MIP Changes April 1 2012Beginning April 1, 2012, the FHA is once again raising mortgage insurance premiums (MIP) on its newly-insured borrowers throughout Colorado and the country.  It’s the FHA’s fourth such increase in the last two years.

Beginning April 1, 2012, upfront mortgage insurance premiums will be higher by 75 basis points, or 0.75%; and annual mortgage insurance premiums will be higher by 10 basis points per year, or 0.10%.  For borrowers with a loan size of $200,000, the new MIP will add $1,500 in one-time loan costs, plus an on-going, annual $200 increase in total mortgage insurance premiums paid.  All new FHA loans are subject to the increase — purchases and refinances.

The FHA is increasing its mortgage insurance premiums because, as an entity, the FHA is insuring a much larger percentage of the U.S. mortgage market than ever before.  In 2006, the FHA insured 2 percent of all purchase-money mortgages.  In 2011, that figure jumped to 18 percent and unfortunately, as the FHA has insured more loans, it’s number of loans in default have climbed, too, forcing the FHA to boost its reserves.

Revamped HARP : Unlimited Loan-to-Value And Same Great Rates

Friday, February 10th, 2012

Making Home AffordabieThe government’s new, revamped HARP program is 6 weeks from release.  Homeowners in Colorado and nationwide are gearing up to refinance.  HARP is an acronym that stands for Home Affordable Refinance Program.  HARP is the government’s loan product for “underwater homeowners” that can make current mortgage rates available to households which would otherwise be unable to refinance because the home lacks equity.

This is a big deal — especially today.  Mortgage rates are at an all-time low and millions of U.S. homeowners have been unable to take advantage.  HARP aims to change that.

HARP originally launched in 2009.  Its first iteration failed to reach a meaningful percentage of U.S. homeowners, however, because costs were high and loans were high-risk.  With its re-release, the government has removed the hurdles to HARP, putting refinancing within reach for millions of U.S. households.  To qualify for HARP, homeowners must first meet 3 qualifying criteria.