Financial Hardship in a Reverse Mortgage

Protecting Loved Ones From Financial Hardship

Because many consumers do not understand the long-term financial impact of reverse mortgages, the CFPB is issuing an advisory to help reverse mortgage borrowers. The advisory highlights three ways consumers who are the borrowers on the loan can help plan so that their surviving heirs are not harmed:

Verify who is on the loan: If two borrowers took out the reverse mortgage, they should check with the reverse mortgage company to make sure its loan records are accurate.

Plan ahead for the non-borrowing spouse: For consumers who took out a HECM reverse mortgage in the name of only one spouse before August 4, 2014, they should contact their loan servicer to find out if the non-borrowing spouse may qualify for a repayment deferral. If not, they should make a plan in the event the borrowing spouse passes away first. Couples with enough remaining equity could consider taking out a new reverse mortgage, but they will incur new loan fees. Some surviving spouses may also be able to pay off the reverse mortgage, or take out a traditional mortgage, perhaps with another family member. Many will need to plan for where they will live after the home is sold to repay the loan. If the loan was originated after August 4, 2014, new changes to the HECM program will allow the non-borrowing spouse, meeting certain conditions, to remain in the home.

Plan ahead for other family members living in the home: Consumers should make sure any children or other family members living in the home know what to expect when the reverse mortgage is due. If those members want to keep the home, the borrower should contact their reverse mortgage company to have them explain their options. They can also contact a HUD-approved housing counselor to explore their options.

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Top Complaints About a Reverse Mortgage

It is important that one understands how a reverse mortgage works and know what can and cannot be done. There sometimes is confusion between what one believes a reverse mortgage can do and the way the reverse mortgage functions. For example, many consumers, for example, struggle with understanding how quickly their loan balance will go up and their home equity will fall.

The top complaints about reverse mortgages include:

Distress about the inability to add new borrowers to an existing loan: Reverse mortgages prohibit spouses, heirs, and dependents from taking over the loan. This is because loan amounts are, in part, calculated using a borrower’s age and the loan repayment is triggered when the last borrower moves out or dies. This can be a problem for surviving spouses and children. Family members complained about not being able to be added to the loan so they could keep the home.

Frustration with runarounds when trying to pay off the debt: When the borrower dies, heirs can sell the home, repay the loan balance, or pay 95 percent of the property’s assessed value. Consumers complain that loan servicers do not provide a clear process to allow them to settle the debt.

Struggles with foreclosure due to issues with property taxes and homeowners’ insurance: Reverse mortgages require no monthly mortgage payments but borrowers are still responsible for property taxes and homeowner’s insurance. Nearly 10 percent of reverse mortgage borrowers are at risk of foreclosure because they have failed to pay these expenses.

Define a Reverse Mortgage?

A reverse mortgage is defined as a special type of home loan that allows older homeowners to access the equity they have built up in their homes and defer payment of the loan until they pass away, sell, or move out. The loan proceeds are generally provided to the borrowers as lump-sum payments, monthly payments, or as lines of credit.

Most reverse mortgages today are federally insured through the Federal Housing Administration’s (FHA) Home Equity Conversion Mortgage (HECM) program, which means they must comply with the related regulations.

Here are some ways a reverse mortgage can help you:

Tenure

Receive equal monthly payments as long as at least one borrower lives in, and continues to occupy the home as your principal residence.

Term

Receive equal monthly payments for a fixed period of months that you choose. The amount of equity, and the number of months you choose to be paid will determine the amount of each payment.

Line of Credit

You can also use a Reverse Mortgage as a Home Equity Line of Credit (HELOC), taking unscheduled payments or installments, at any time, in any amount you choose, until the line os credit is exhausted.

Modified Tenure

Maybe you want a hybrid, or combination of one or more of these options? A modified tenure option allows a combination of a line of credit, plus scheduled monthly payments, for a s long as you remain in the home.

Modified Term

Similar to a modified tenure, a modified term allows you to structure a combination of a line of credit, plus monthly payments, for a fixed period of months determined by you.

Lump Sum

You can receive a single payment up to the maximum allowed, with no payments for as long as you live in the home.

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How a Reverse Mortgage Saved a Foreclosure

A senior citizen homeowner owned a home and got behind in their mortgage payments. Subsequently, a notice of default was issued by the lender and foreclosure proceedings were started. The homeowner had been living in his home over 25 years and have paid down considerably his mortgage but with retirement and a sudden increase in medical expenses he was not able to pay his mortgage.

Here were the challenges:

  • Senior was in foreclosure on his current home.
  • He wanted a home in a better area.
  • Senior had limited equity to re-buy after the distressed home was sold.
  • Bad FICO scores, bad mortgage history & limited retirement income
  • Current home had deferred maintenance.

Even though the foreclosure strained his credit and purchasing power, he was able to sell his home to avoid foreclosure and walk away with the equity he had acquired all those years. Then then turned around and used half that equity as a down payment on his new home. He financed his home using a reverse mortgage on the new home thus avoiding making any monthly mortgage payments on his home. He put the other half of his equity in savings and investment accounts. He lives much more comfortable with the piece of mind that he will never need to worry about losing his home and has the extra monies for his retirement.

This was the outcome:

  • Senior was bailed out of foreclosure
  • Upgraded his home in a nicer area
  • Doubled his purchase power
  • Eliminated his monthly mortgage payments
  • Senior can enjoy a worry free retirement

Many do not know that a person over the age of 62 can purchase a home using a reverse mortgage. Using a reverse mortgage for purchase works the same way one would use to buy a home with a traditional mortgage. It’s quite simple.

We specialize in helping seniors with HECM for purchase and we guide our clients to obtain a reverse mortgage and help them find a home that will fit their needs and lifestyles. If you would like more information or have questions about this program, please call me, Diego Loya 714-989-6040 and I will be more than happy to assist you.

 

Google Project Sunroof Lets You Calculate Solar Savings

Google Project Sunroof is a new tool that lets you calculate your home’s solar power potential. Now you can compare what you are paying currently with your utility versus installing solar panels on your home and you can compare the cost.

Project Sunroof, a tool that calculates your home’s solar power potential using the same high-resolution aerial photos Google Earth uses to map the planet. After creating a 3-D model of your roof, the service estimates how much sun will hit those solar panels during the year and how much money the panels could save you over the next two decades.

Project Sunroof also simulates the shadows that typically cover your home on any given day and it tracks local weather patterns.The service relies on public utility rates in your area.

Project Sunroof is currently helping people save with solar in the following cities:
San Francisco Bay Area, Fresno CA and Greater Boston MA.
More cities and areas to come. Hopefully Orange County and Los Angeles will have Project Sunroof tool soon.

How do Mortgage Credit Certificates Work?

Mortgage-Credit-CertificateThe Mortgage Credit Certificate Program is a fantastic way to maximize tax credits when taking out a mortgage to purchase a home. The Mortgage Credit Certificate also known as MCC is available in Orange County, Los Angeles County and the Inland Empire. Scott Schang of Broadview Mortgage in Long Beach explains why you should take advantage of the Mortgage Credit Certificate.

Homebuyer Tax Credit

A Mortgage Credit Certificate, commonly known as MCC, is a dollar for dollar tax credit similar to the first time homebuyer tax credits we saw in 2008 and 2009, that will directly reduce the amount of taxes you will have to pay, or get refunded at the end of the year.

The math for MCC programs is the same all over, but I’m going to specifically focus on the The State of California MCC offered through the California Housing Finance Agency (CalHFA).

The CalHFA Mortgage Credit Certificate is a tax credit program that offers a federal income tax credit, which can reduce your federal income tax liability. This credit creates additional net spendable income which you may use toward your monthly mortgage payment.

Dollar for Dollar Tax Savings

Most homebuyers know that one of the greatest benefits of homeownership is the tax deduction you receive from paying interest on a mortgage loan.

If you have never owned a home, you may be currently filing a 1040 EZ tax form and only taking standardized tax deductions. Once you own a home, you will most likely start itemizing your deductions to realize even greater tax savings at the end of each year.

Mortgage interest is one of the most powerful tax deductions that qualified tax payers can deduct from your net taxable income at the end of the year.

You will always want to consult a tax professional to fully understand tax deductions and itemization opportunities. I am neither a tax consultant, nor tax professional. I am only sharing publicly available information that can be found with little effort online.

Ok, with the disclaimers out of the way, let’s get down to the business of keeping more of your hard earned dollars in your pocket!

How to Calculate Your Tax Savings

First, let’s calculate what your tax deduction would be by simply buying your home.

Loan Amount: $300,000

Interest Rate: 4.5%

Yearly Interest: $13,500

Now, we are going to take advantage of a 20% Mortgage Credit Certificate so that we can realize this tax savings today.

Here’s what that looks like:

Yearly Interest: $13,500 x 20%

= 20% MCC: $2,700

*Maximum MCC tax credit that can be used in any given tax year is limited to $2,000 if the MCC credit is greater than 20%. Consult your CPA or accountant for details. Also see: IRS Tax Form 8396

After subtracting the MCC tax credit of $2,700, you now have $10,800 that you can deduct from your net taxable income on your yearly federal tax return.

Mortgage interest is used to reduce your taxable income, and in some cases can keep you from pushing up into the next higher tax bracket. This is just one of the incredible benefits of homeownership.

Now it’s time to put our MCC tax credit of $2,700 back on the table. As you’ve noticed, by deducting the MCC credit amount from your total mortgage interest deduction, you have a lower mortgage interest deduction, right?

So you’ve increased your net taxable income by $2,700. If you’re in a 15% tax bracket, that just cost you $405 that you will either have to pay, you will not get back when you file your federal tax return.

Bummer, right? Not at all.

This $2,700 is a dollar for dollar tax deduction that you get to use when your taxes every year that you own this home. For instance, if owe $3,000 in federal taxes at the end of the year, you apply the Mortgage Credit and you now only owe $1,000.

If you have overpaid your taxes, and are expecting a refund at the end of the year, you just increased your refund by $2,000!

Not such a bummer after all, right? A $400 investment that gives you a return of $2,700 is not bad at all! In addition to putting more money in your pocket, you are earning equity on your home every day that you drive up that driveway, and that puts money into your retirement plan!

Again, I would like to stress, you should always consult a tax professional to fully understand tax deductions and itemization opportunities. I am neither a tax consultant, nor tax professional. I am only sharing publicly available information that can be found with little effort online.

This is Just the Beginning

We have only just scratched the surface of the benefits and savings you will realize when using a Mortgage Credit Certificate. I cannot possibly cover all of the benefits in a single article, so this will be more of a series.

Stay tuned for other articles that will cover:

First time homebuyer requirement
Military Veteran exceptions
Income and sales price limits
Using MCC to lower your debt to income ratio (DTI)

Working with an Experienced Realtor

With over 15 years experience in real estate, I have helped my clients succeed with their real estate needs. I can answer, or find the answer to most of your real estate questions. There is a lot to know in real estate and you may just have a question. I can give you the answers and know how to fight through the hurdles of complicated situations that others may not have the experience, or patience to figure out.

If you would like to explore buying or selling a home in or around Orange County, or if you would simply like to see what I can offer you or ask questions, shoot me an email directly, or give me a call anytime.

Please call me, Diego Loya 714-989-6040 and I will be more than happy to assist you.

This article originally posted on Find My Way Home.

A Reverse Mortgage for Purchase Success Story

A baby boomer in Orange County recently turned straw in to gold by the use of the Reverse-Mortgage-for-Purchase Program. The homeowner was on the fence about listing her home until the Realtor explained that the Reverse-Mortgage-for-Purchase Program could increase her purchase power. She could more than double her net proceeds from the sale of her current home and eliminate her monthly mortgage payments. She never dreamed this was possible and thought she’d have stay in place and continue to struggle making her mortgage payments.

After she sold her current home, she purchased another using a reverse mortgage instead of a traditional loan. She only put down $295,000 of the $395,000 she had left over in net proceeds after the sale of her previous home. The Reverse-Mortgage-for-Purchase picked up the difference on a new $600,000 home, she retained $100,000 from the net proceeds of her previous home, and now will never have a monthly mortgage payment for the rest of her life. That’s a Win-Win Situation!

If you either have enough cash in the bank and are renting, or enough net proceeds (equity) from the sale of a home that could be used as a down payment along with a Reverse-Mortgage-for-Purchase, please call or email us. It shouldn’t take more than a few minutes to find out all your options.

We specialize in helping seniors with HECM for purchase and we guide our clients to obtain a reverse mortgage and help them find a home that will fit their needs and lifestyles. If you would like more information or have questions about this program, please call me, Diego Loya 714-989-6040 and I will be more than happy to assist you.

Truth and False of a Reverse Mortgage

There has been a lot said about reverse mortgages, true and false. That being said, reverse mortgages have changed and grown through the years. The reverse mortgage of today is not the same as 5, 10 plus years ago. Today reverse mortgages are refined, detailed and the HECM Home Equity Conversion Mortgage is FHA insured. The HECM is the government’s FHA version of a reverse mortgage and is the most popular because of it’s standard regulation, ease of use and popularity among lenders. Most reverse mortgages today are HECM reverse mortgages.

Misconceptions about Reverse Mortgages

Here are some truths about today’s reverse mortgage.

  1. A reverse mortgage is a mortgage. Just like any mortgage, if you do not follow the terms you risk losing your home.
  2. One misconceptions about reverse mortgages is that the borrower gives up the title to their homes. Borrowers maintain ownership until the home is sold and their lender repaid, just like a traditional mortgage.
  3. If a person has the means to repay their lender without selling the home, they may pass on the home to their children or heirs. If not the children or heirs can either purchase the home with a refinance, sell the home and keep the proceeds or do nothing and walk away.
  4. Reverse mortgage fees are almost identical to taking out a regular FHA mortgage loan. There are costs and the borrower will be expected to pay an origination fee, closing costs, mortgage insurance premiums, and sometimes servicing fees. Borrowers will also be expected to pay interest on any amount they borrow. What many people fail to realize is that these costs are typically rolled into the loan. THERE IS NO OUT OF POCKET COSTS UNLESS THE BORROWER DECIDES TO PAY FEES UPFRONT. Unless a person wants to pay certain fees upfront, they will not be expected to pay these fees prior to taking the loan. Talk to the loan officer about the fees that will be charged. Lenders will be required to disclose all of this information in the application process. There is also mandatory counseling each borrower must take prior to taking on the reverse mortgage that will touch on fee disclosure.
  5. The application process is similar to applying for a regular loan but a little less. To qualify for this type of loan, borrowers are expected to apply, have their home appraised, and attend a counseling session. The loan process does take a decent amount of effort on the borrower’s part. Fortunately, in many cases, the benefits are worth the effort.
  6. Applicants for reverse mortgage are REQUIRED to attend an approved counseling session. While this might sound intimidating, these sessions enlighten borrowers and help them understand the loan process. Counseling is required to protect consumers, not to complicate the loan process.

Many seniors are starting to take advantage of a reverse mortgage. The funds received through a reverse mortgage are tax-free and can be extremely helpful to seniors with limited cash. Even after evaluating certain reverse mortgage pitfalls, many consumers choose to further pursue a loan.

A reverse mortgage can provide seniors with the funds necessary to pay large medical bills or simply increase their standard of living. It may even be used to pay off an existing mortgage loan and reduce a person’s monthly expenses. Regardless of the potential reverse mortgage pitfalls, there is no denying that these loans benefit many seniors.

We specialize in helping seniors with HECM for purchase and we guide our clients to obtain a reverse mortgage and help them find a home that will fit their needs and lifestyles. If you would like more information or have questions about this program, please call me, Diego Loya 714-989-6040 and I will be more than happy to assist you.

Couple Uses HECM Mortgage To Buy Dream Home

A person over the age of 62 can use a HECM, Home Equity Conversion Mortgage, to purchase a home. A HECM is a FHA insured reverse mortgage. Here is a real life example of a couple that used a HECM reverse mortgage to purchase a new home that fit their needs and dreams.

Andy and Beatrice Hollimon had endured Midwest winters for decades, and it was time to fulfill their dream of moving south.

“We owned our home in St. Louis area for quite some time, and we vacationed in South Florida the last five to six years,” Andy says. “We were looking to change locations for retirement and were zeroing in on the geographic region that we preferred.”

Andy had worked in human resources management for 40 years and later worked as an adjunct instructor and business administration department chair at Stevens — The Institute of Business & Art. He had worked hard, and they wanted to buy their dream retirement home without dipping into their retirement savings and investment income. They didn’t even think it was possible to get the type of home they ended up buying until watching a television commercial on HECM mortgages.

This form of reverse mortgage required them to put up only a portion of the purchase price, and the reverse mortgage would cover the rest. They would be responsible for the property taxes, insurance and homeowner’s association dues.

The move ended up enabling the couple to retire 10 years sooner than they thought they could (Beatrice had planned to keep on working).

“We lived in a small three-bedroom home since 1979, and it was nicely remodeled and 1,300 square feet,” Andy says. “We were planning on a smaller villa or even renting a home or something like that in Florida. But when we came down here last June, we ran across properties that piqued our interest that were larger. Some were in gated communities and some were on golf courses, but I don’t golf.”

In December, the Hollimons happily moved into their 2,000-square-foot, three-bedroom home in Lake Worth, 56 miles north of Miami.

The couple had lived since 1979 in their St. Louis home, which had three bedrooms and had reached a value of $160,000 before the subprime crisis. The house dipped substantially in value before increasing back up to $115,000 when the housing market recovered.

The Hollimons had a small home equity loan on the St. Louis home and wouldn’t be able to capture the full amount from the sale.

St. Louis Couple Uses HECM Mortgage To Buy Dream Home In Florida

Their home in Lake Worth measures 2,000 square feet, and they acquired it for a price of $275,000, some $5,000 less than the owners were seeking. To purchase the home, the Hollimons needed to put up 55 percent or about $141,000. Knowing they would get less than that from the sale of their home in St. Louis, the purchase would mean dipping slightly into their investment portfolio.

“If I would have needed to take a whole lot more in investment income, I wouldn’t have purchased that nice of a home,” Andy says. “I only wanted to deplete my investment portfolio to a certain level. I’m a frugal guy, and it broke my heart to do that much.”

They were willing to do that, however, knowing that they would never have to make a mortgage payment, and because they weren’t worried about the need to leave their home to someone when they died.

“We don’t have a large family,” Andy says. “My daughter is pretty well squared away in her home and income, and we didn’t have any interest in leaving a home to family members. They have the right to purchase it once we are out of the property, but I doubt my daughter would do that.”

Andy says that made him stop and think — since he didn’t have to worry about leaving their home to anyone, it was time for the couple to follow their desires.

“We were going to follow our dream and seek our dream location,” says Andy, who spends his retirement writing and painting. “If you have the financial ability, you have to reach for what you want. We decided to do that.”

This article originally posted on www.huffingtonpost.com/buck-wargo/st-louis-couple-uses-hecm-mortgage-to-buy-dream-home-in-florida_b_7662948.html

We specialize in helping seniors with HECM for purchase and we guide our clients to obtain a reverse mortgage and help them find a home that will fit their needs and lifestyles. If you would like more information or have questions about this program, please call me, Diego Loya 714-989-6040 and I will be more than happy to assist you.