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Fix and Flip Process and Programs

A couple steps to help you with your fix and flip

You keep hearing the term Fix and Flips.   You see it on TV and they make it look so easy.  Is it really?

Obviously, you need to avoid buying a money pit.

Working with professionals will ensure that the improvements you are considering will be worth it in the end to improve the value of the home. You don’t want to over-renovate the home for the area so avoid renovations that just won’t be worth it in the end.

But how do you afford to do a renovation? When you purchase the home you will need sufficient funds for the down payment and closing costs.

It could be difficult to qualify for additional financing when you have just purchased a home and these options can also be expensive.

The great news is that there is an affordable solution – there are insured mortgage programs that will allow you to borrow up to 10 percent of purchase price for improvements to a maximum of $40,000. The property value must be less than $1 million.

Here are the steps that you need to take:

Step One: Get Pre-Approved

Obtain a mortgage pre-approval to determine your maximum approval amount.  There are special programs for Fix and Flip, and Fixer Uppers.  These programs are typically for investors, and not consumers that are looking to occupy the home.  These programs can allow for lower down payments and fund available for the renovations.  But keep in mind rates and fees are typically higher than normal conventional loans.

Step Two: Find the right property

Find a home and have a general idea of what renovations need to be done as well as their cost.

The purchase price plus the renovation cost cannot exceed your maximum approval amount for a mortgage. Lenders will request written quotes to be provided, detailing the work to be done, as well as the cost.

Step Three: Be prepared with Renovation Quotes

Once your offer is accepted, you will need to provide the accepted purchase offer, as well as the quotes for the improvements, to your mortgage broker.

A financing request will be sent to the lender which includes the cost of the renovations.

Step Four: Begin Renovations

Once you take possession of your home, you can begin the renovations. The Lender will instruct the escrow or attorney to hold the additional Renovation funds, until the lender confirms the works has been completed.

Fixing a home can be an exciting adventure.  Make sure you have the right professionals that can assist you with the process.

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What color is your credit score?

Nationwide Mortgage nonprime

Do you have a poor credit rating because of financial problems you have had in the past?

Perhaps you went through a bad divorce or you owned a small business that went bankrupt or a consumer proposal.

You might have lost your job and ended up defaulting on your loans and credit cards.

There are many circumstances that could have caused you to have poor credit.

This does not necessarily mean that obtaining a mortgage to purchase a home is out of the question and regardless of the circumstances speaking with a mortgage broker could help you with a course of action toward owning a home.

Does this mean your only option is a hard money loan?  What about non prime loans?  What are they and how can they help me?

Ensuring that you take the right steps whether you have bad credit or even no credit is very important. There may be some options available to you but they will come with a cost.

Here’s a guide to what we are going to take a look at to determine what options might be available for mortgage financing.

  • Check your credit score — You can do this yourself at either www.equifax.ca or www.transunion.ca or if you contact a mortgage broker, they can check it for free. Your credit score will be somewhere between 300 and 900. If you have a credit score below 600 most of the major bank lenders in Canada will not consider you for mortgage financing and you will be looking at an alternative mortgage lender. If you have gone through a bankruptcy or consumer proposal recently, the options available may include private lenders.
  • Save for a larger down payment — If you have good credit, then you can purchase a home with as little as a five per cent down payment, but with credit issues you need to be prepared to provide more equity. Lenders are going to require somewhere between 20-25 per cent down payment.
  • There will be fees — Be prepared to pay some fees to arrange a mortgage with either an alternative or private lender on top of the standard closing costs.
  • Rates — You will not qualify for the best rates that are currently being advertised, but if you make all of your payments on time and work on repairing your credit, then most likely you will qualify for better rates at renewal time.
  • Income and employment — A lender is going to review your history of employment and income to ensure that you are able to make your payments. Is your income confirmable? (Declared on your tax returns with your taxes paid up-to-date). This is particularly important for the self-employed applicant. Do you have employment stability?
  • Current debts — Carrying high balances on unsecured credit cards or having a high car payment could also affect a mortgage decision. Alternative lenders will want to ensure that you can afford your current obligations to prevent the potential of future default on a mortgage payment.
  • The property you are purchasing — This is a very important factor for private lenders lending to clients with bad credit. They will want to have a full appraisal completed on the property to ensure that it is marketable and worth the investment they are making in the mortgage.

There are options available

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Reverse Mortgage: Should You Use Your Home Equity To Get More Retirement Income?

Many Boomers today are facing an unpleasant future. Their golden years were supposed to be fun, relaxing and carefree, but now reality has set in, and they find themselves financially unprepared. Many didn’t save enough during their working years because they planned to sell their homes and live off the equity by moving to more affordable locales. The problem is that two-thirds of the average retiree’s net worth is in the form of home equity at a time when more are wanting to retire at home rather than selling and moving to Florida, Arizona or other warm climates.

Many may be tempted to explore the reverse mortgage option as a way to increase their retirement income. Doing so means the elimination of a mortgage payment, assuming payments are still being made, and the ability to receive a portion of your homes equity. Reverse mortgage recipients are then able to use the money for anything. Some may choose to blow it on a new car or motorhome, while others may wisely use it to supplement their income in retirement. Still, others may need it to pay for medical care or costly home repairs.

For divorcing couples, a reverse mortgage may allow one spouse to stay in the home while giving the other spouse funds to find a new home. A “for purchase” reverse mortgage option is also available for those interested in purchasing another retirement home. Essentially using the home equity to fund the purchase of a new home. Keep in mind that the loan will come due when the last surviving borrower either passes away, sells the home or leaves the home for more than 12 months due to illness.

How much you will be able to borrow with a reverse mortgage will depend on your age (or the age of the younger spouse), the value of your home and current mortgage rates. Assuming a five-percent interest rate, a 62-year-old borrower could potentially qualify for an initial payout of about 52% of the home’s value. This is capped by the Federal Housing Administration limit of $636,150.

There are sometimes substantial up-front costs to obtain a reverse mortgage so you will likely want to plan on staying in your home for several years to help offset those costs. If you don’t spend the money you’ve pulled out you can prepay the loan balance without penalty whenever you like. This sounds easier to do than it probably will be in reality. Few people take reverse mortgages who don’t need the money. If they wanted to pay back the full amount taken, without selling the property, most wouldn’t have the substantial assets needed to do it.

There are a variety of reverse mortgage payout options. Which one is best for you will depend on your financial needs and goals. During the first two years, you can borrow the maximum amount for which you have qualified. A line of credit will offer the most flexibility. You can tap into this on an as needed basis or keep it in reserve in case money is needed for expenses.

For borrowers who need income now, you can choose fixed monthly payments. This can be in tandem with an additional line of credit. There are three ways you can take these fixed reverse mortgage payments.

Reverse Mortgage Term Payment– provides a fixed monthly payment for a certain period of time. If you take the term payments, you will not receive any payments beyond the term. This could be a good option for older seniors who needed extra money for in home care.

Reverse Mortgage Tenure Payment- provides a fixed monthly payment. Amounts will be based on your age assuming a life expectancy of 100. Payments will remain in force until the borrower dies, sells or leaves the home for another reason. Payments will continue even if your loan balance grows beyond the total value of your home.

Modified Tenure Payment and Modified Term Payments- These types of reverse mortgages combine either payment type mentioned above with a line of credit. You will have the benefit of a guaranteed base income combined with the benefit of access to a growing line of credit.

Lump Sum Reverse Mortgage– When used properly, this can be the best option for some retirees. On the other hand, when used badly this can turn into a disaster. Because this is a one and done deal, if you take the lump sum and spend it, you are essentially out of options. You will be out of money. At that point, the only option would be to sell your home if you need further funds to live.

Only choose this option if you are comfortable handling large chunks of money, using it for specific large expenses (that you can afford) like long-term-care insurance, a needed home renovation or paying the taxes on a Roth IRA conversion. Taking the lump sum without a spending plan will not likely end well.

Terms Vary – Shop Around

Before pursuing a reverse mortgage, discuss it with your financial planner and tax professional. You’ll want to have a plan for how to use the money and how it will fit into your overall retirement plan. Make sure your financial planner is working as a fiduciary and not earning a commission for selling you the reverse mortgage. Put more plainly, you want to make sure you are getting unbiased advice.

A lender can help give you the basic information about what amounts you may qualify for with a reverse mortgage. Keep in mind that you may receive different terms, rates and amounts from different lenders.

Ideally, you’ll want to get at least three quotes. Make sure each proposed reverse mortgage shows a selection of margins and also illustrates how your choices affect the up-front cost and net payouts. The Federal Housing Administration (FHA) allows lenders to charge an origination fee equal to the greater of $2,500 or 2% of your home’s value (on the first $200,000 of value), plus one percent of the amount over $200,000, with a cap of $4,000 for homes valued between $200,000 and $400,000. The cap increases to $6,000 for home worth more than $400,000. Lenders are allowed to charge less, of course.

You will also likely be responsible for a range of other fees for third-party services.  These include services such as an appraisal, title search, insurance and inspection which can easily run another $2,500 or more. Costs will vary by location and value of property and you’ll be able to pay up-front costs from the loan proceeds or pay them out of pocket.

Generally, lenders charge a fixed interest rate on lump-sum payouts whereas most other types of payouts come with a variable interest rate. Typically, you will see rates tied to an underlying index such as the LIBOR plus a margin, which can often range from 2.5% to 4%. Most often the higher the margin the lower the original fee. You may also be able to negotiate a credit against the closing costs in return for a higher margin.

Loan officers are sometimes paid by the amount that you initially borrow. This could lead them to recommend taking more money sooner or pushing the lump sum option even when a tenure payment may be more beneficial to you. This is when the fiduciary financial planner comes in to help you pick the best option for your specific needs.

Your Responsibilities with a Reverse Mortgage

The terms of the reverse mortgage will require you to maintain the home. You will still be responsible for paying property taxes, which for many is a major portion of their “mortgage payment.” Homeowner’s insurance, homeowner’s dues or condo dues will still be your responsibility as well. Not complying with these requirements will mean you run the risk of defaulting on your reverse mortgage. If lenders assume you won’t be able to handle these costs, they will set aside funds from your payout, in an escrow account, to pay those bills on your behalf.

Having the reverse mortgage in the name of one spouse can cause some additional challenges down the road. Once the borrow leaves the home, due to death or another reason, the lender must ask an eligible non-borrowing spouse or committed partner to stay in the home. This can leave survivors in a financial crunch as they will need to continue to maintain the home and pay required expenses. But, they will no longer be able to take money out of the reverse mortgage.

The good news is you can’t owe more than the value of your home when it is sold to repay the reverse mortgage. Once you have passed, if your home sells for more than you owe, your heirs will be allowed to keep any leftover equity. If your heirs should want to purchase the home back from the reverse mortgage company when you pass, they can potentially refinance the reverse mortgage or repay the outstanding debt or 95% of the home’s appraised value, whichever is less.

What you need to know to get a Reverse Mortgage

There are eligibility requirements to obtain a reverse mortgage. Borrowers must be at least 62 years old, be named on the title of the home and reside there at least half the year. Your qualified payout amount will depend on your age, as well as the current interest rates and the appraised value of your home. Currently, the maximum payout is $636,150 but some lenders will offer larger “jumbo” reverse mortgages. Generally, the younger you are, the lower the payout will be relative to your home’s value.

You must also receive financial counseling to ensure that you can meet your obligations as a reverse mortgage borrower. To find a housing counselor certified by the Department of Housing and Urban Development (HUD) call 800-569-4289.  Sessions will normally run $125 to $250 and can be done in person or over the phone.

If you still have a mortgage, you will need to pay it off from the reverse mortgage loan or other sources. You won’t be allowed to withdraw more than 60% of your principal limit in the first year. The only exception to this is if you needed more to pay off existing mortgage debt or make repairs that are being required by the reverse mortgage lender. Reverse mortgages are insured by the FHA, and at closing, you will have to pay an initial FHA mortgage insurance premium equal to 0.5% of the appraised value of the home assuming you take less than 60% of the value in the first year. Keep in mind that insurance premiums jump to 2.5% if you take more than that 60% number.

While no principal or interest payments will be due while you are still alive and living in the home, you will be accruing annual mortgage premiums at a rate of 1.25% per year. This is based on the amount you borrow and interest charges will accrue on any outstanding balance. You may think these things do not matter but, if you talk to anyone who has tried to get out of their reverse mortgage, all the little details are extremely important.

Reverse mortgages are sometimes marketed as a solution to all of a senior’s money problems. They may also sound like a way to more fully enjoy retirement. However, they can be complicated and hard to understand. The fees and interest can eat up a substantial portion of a homeowner’s equity. For many older adults, there are better solutions to financial struggles.

A real estate attorney that I know, who shall remain nameless, stated “99% of people who think they want a reverse mortgage shouldn’t get one. It’s a very rare occasion when these are right for the person.” With that in mind, think long and hard before signing on the dotted line. Explore your other potential options and make an informed decision.

By David Rae, Forbes

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5 Mistakes to Avoid Getting Rejected for a Mortgage

Amassing a big pile of cash for a down payment–to apply for a mortgage is a daunting task. First-time buyers often rightly pause as they begin to grasp the meaning of the phrase, “mortgaging your future.”

If you can get over that hurdle, you could be well on your way to the seven out of eight mortgage applications that get approved. A pessimist might observe that that means the application has a one-in-eight chance (12.5%) of being rejected.

True enough, but you can reduce the chance of rejection by avoiding a handful of mistakes that have a virtually immediate negative impact on your credit score. The experts at Realtor.com have come up with a list of five mistakes you can easily avoid to make sure that your application is one of the seven that gets approved and not the one that gets rejected.

1. Use your credit cards

One way to establish creditworthiness is to use the credit you have. That doesn’t mean to pile it on, but use the cards you have and pay them on-time to build up a credit history. If you really don’t want to do that, some lenders will look at your history of rent payments and other regular bills that you have.

2. Don’t open new credit cards near the time you are applying for a mortgage

According to Realtor.com, opening a new credit card account can cost you up to five points on your credit score. That may be enough to disqualify you for a mortgage. Also, don’t spend a lot of cash (or use credit on existing cards) before you get the mortgage and moved in.

3. Don’t miss a payment on a medical bill

If you’ve run up some big medical bills, work with the doctor or hospital to develop a payment plan you can live with. Defaulting on a medical bill typically results in the provider referring your account to a collection agency and the agency can refer your status to the credit reporting agencies.

4. Don’t change jobs

Most mortgage lenders want to see at least two years of consistent income before approving a loan. There are exceptions, of course, but sticking with the job you have until the mortgage is approved is a better choice if at all possible.

5. Don’t lie on the mortgage application

This should be obvious. In the first place, if you do stretch the truth, it can be prosecuted as mortgage fraud, a federal crime. Second, mortgage lenders do their homework and chances are you’ll get found out, and there goes the mortgage. While it might seem quaint these days, honesty is the best policy when it comes to getting a mortgage.

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Seven Essential Elements of Trust Deed Investments

  1. Knowledge, experience, and integrity of the Mortgage Loan Broker through whom the transaction may be made or arranged.

Before placing your trust and money with an MLB, you would be wise to contact:

(1) the Bureau of Real Estate (CalBRE) to determine if the MLB and his or her loan representatives are properly licensed, how long each has been licensed, and whether any of the licenses have been disciplined; and

(2) the local Better Business Bureau to ask if any complaints have been lodged.

  1. Market value and equity of the property and the security for your loan.

  2. Borrower’s financial standing and credit worthiness.

  3. Escrow process involving the funding of the loan or the purchase of the promissory note.

  4. Documents and instruments describing, evidencing, and securing the loan or purchase of the promissory note.

  5. Loan servicing provisions, authority and compensation.

  6. Recovering your investment when the borrower fails to pay.

Reviewing, analyzing, and understanding the seven essential elements of trust deed investments should assist you in
evaluating the risk involved. Trust deed investments can provide an excellent return but remember, the risk of a trust deed investment is yours. Therefore, you may wish to discuss the investment with an Mortgage Loan Broker and/or other qualified professional before committing your funds.

Reference: Guy Puccio, James Nordell and George Pfeiffer, Esq. (2014).  Brochure,  Trust Deed Investments. What you should know.  California Bureau of Real Estate.  Prepared by Parklway Land, Inc.

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Information about FHA Loans and Relevant Facts to consider

FHA loans

What do you need to know?

FHA loans have less rigorous standards than conventional loans

  • A borrower’s credit score for an FHA loans must be at or above around 580, which is considerably lower than a conventional loan.
  • One pays a lower down payment on an FHA loan, where conventional loans are at a 5% to 20% down payment. FHA loans are 3.5% to 10%. Specific percents for  down payments are determined by borrowers credit.
  • The FHA does not necessarily require credit history.
FHA loans have less rigorous standards than conventional loans The borrower's credit score for an FHA loans must be at or above 580, which is considerably lower than a conventional loan. There is a lower down payment on an FHA loan, where conventional loans can be at a 5% to 20% down payment, FHA loans are 3.5% to 10%. The specific percent will be determined by the borrowers credit.

Credit scores needed for down payments

Requirements

  • Fixed rate of interest.
  • FHA requires mortgage insurance when borrowers pay down less than 20% on the loan. FHA loans require the borrower to pay an upfront premium and an annual premium mortgage insurance. The borrower pays the upfront as the borrower gets the loan, and they pay an annual payment every month. The upfront is typically 1.75% of the loan amount, and the annual payment is typically .85% of the loan amount.

Cash repair FHA loans

  • The FHA has a special loan for borrowers to make cash repairs to their homes.

About the lenders

  • Borrowers recieve their home loans from FHA approved lenders, so some lenders differ on their rates and costs for the same loan.
  • If there was a default or a loss on the loan, the FHA would cover it, so that the lender would be safe.

 

 

 

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Fix and Flip Mistakes 10 Ways to Avoid Them

Fix and Flip tips

Buying properties at under-market prices, then undertaking required repairs/upgrades and finally profitably flipping them sounds like a pretty good plan, right? Unfortunately, especially for new players in the Real Estate Investment (REI) world, problems can add up fast if you are not very careful. Profits on paper can turn into real world losses, in a heartbeat, without proper preparation. The single biggest mistake that newbie fix and flippers make is not comprehending or underestimating the cost of rehab work. Also, if you would like to fix and flip while overpaying for the property to start with, you can find yourself in the hole even quicker.

Whether it be an undetected damaged roof, a missed cracked foundation or not checking the (broken) air conditioning system (because you bought the house in the winter time), a whole variety of potentially expensive issues can arise after a property is put under contract or purchased. However, by then it may be too late.

Here are some of the top pitfalls to avoid on the road to fix’n flip real estate riches.

Be prepared for surprises.

While it is true that some properties you fix and flip will really only need cosmetic fixes (paint, minor clean up, etc.) most properties that are out there and can make for a great fix and lip are ones with low prices and are in need of much more work than just “surface” work. For example, reselling the property to a normal retail buyer means it has to pass a formal housing inspection to confirm the entire property is up to current building code requirements.

  • That means you maybe cannot get by with minimum fixup. What may be required are real repairs that include major issues such as mold or mildew problems, pest infestations, outdated plumbing or electrical that might need upgrading. Any of these things can send your “real” purchase price soaring. Going over budget on the initial purchase price (including all repair and upgrade costs) can leave you with no profit when you go to sell the property.
  • It is instructive if not imperative to start with what the (highest) ceiling price is for the area in which property is located, before bidding on any of them. Next take a very close look at THAT price vs. the price of the property you are considering as a purchase + the anticipated improvement/fixup costs + your anticipated profit; adding up those three factors allows you to ascertain the maximum purchase price you can justify paying.

Work “backwards” from that point to determine expenses, carrying costs and most important, net profit.

  • You should have firmly in your mind what minimum net profit you are looking for, which is a function of the how much you can sell the property for, and still hit your target profit number.
  • Always build in some extra funds for unexpected costs.
  • But,if the numbers don’t work, then walk away from the deal.

Do NOT Skip the inspection.

Assuming you have time, bring in a competent inspector, contractor, experienced handyman and at least do a drive-by of the property and view as much as you can inside and out. When possible, get into the property itself in advance of the offer and take a very good look around, in order to prepare for an efficient fix and flip.

Don’t limit your research to just the property you are acquiring.

  • Be sure to research the neighborhood as well. For example, if your “sure fire” investment property is in a neighborhood in decline, the overall value of the post-rehab property may fall way short of your pre-rehab profit expectations.

Don’t pre-pay contractors or others in full in advance.

Pay them, in installments, when certain pre-determined milestones are met. For any large project, you should create and maintain a detailed “draw schedule”. The contractor collects the draws or “progress payments” when certain phases or parts of the project are finished.

Failure to rent the property out, if the sale takes a long time.

During the months it takes for escrow to close, the rehab to get finished, and the resale to get underway, market conditions can shift. It is better to make a small profit for a few months, while trying to sell the property. Rather than letting it sit there empty, make some profit while you have to make payments to the lender month after month after month.

Avoid 100% DIY (Do It Yourself) Fix and flip projects.

To many REI-ers give themselves credit for skills they may lack. For example, unless you are a licensed realtor, you may not want to try the sell the property yourself. The paperwork alone can drown you in detail. Same goes for trying to do all the repair work yourself. Your time might be better spent on your “core” knowledge areas (flipping houses vs. painting) It is possible to retain a lower cost with high quality talent to accomplish such tasks for you.

Ignore the “70 Percent Rule” at your own risk.

It is a basic, tried and true formula in the REI biz that you should take your ARV (After Repair Value), multiply it by 0.7 and subtract your repair cost estimate. That is the maximum amount you should be paying for a property—no exceptions. This is considered a sacred  rule because it will keep you safe from overspending on rehab and winding up with a property you can’t sell for a profit.

Avoid taking on too big of a fix and flip project on your first deal.

A modest clean up or cosmetic fix up is one thing. But then there are projects that may include flooring, insulation, landscaping, stucco, doors, windows, kitchen cabinets, counter-tops, etc. Not only do such rehabs eat up a lot of money, they take a lot of time to accomplish. When you are using hard money financing, time is literally money. Buying properties that need too much work is a quick way to turn a profit into losses.

Figure out your financing before you jump in.

There are great loan programs for Flippers.  You can get up to 90% loan to value and up to 100% of your covered in a loan.   Always ask if there is a prepayment penalty, and what the draw fees are.  Is there a pre-payment penalty for early payoff.  Button up your financing before you make an offer.  It will reduce the stress of the loan.

Credit to Tod Snodgrass, 

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3 Easy ways to improve your credit score.

Credit Score Tiers

Credit Score Tiers to Improve your Credit Score

Want to know how to improve your credit score? Most credit scores, including FICO scores, operate within the range of 300 to 850. The credit tiers generally look like this:

Flawless : 800 +
Excellent : 750 – 799
Good : 700-749
Fair: 650 – 699
Poor : 550 – 599
Terrible : 500 – 549
Wow : 499 and below

 

If you wish to improve your credit score and you are ready to refinance or purchase a property now then there are Non-Prime Loan Programs that can help you with that.  But regardless, here are three ways you can work towards building your credit score.

1. Pay your bills on time

Maybe this should go without saying.  But delinquent payments, even if only a few days late, and collections can have a major negative impact on your FICO Scores.   If you have missed payments, get current and stay current. The longer you pay your bills on time after being late, the more your FICO Scores should increase. Older credit problems count for less, so poor credit performance won’t haunt you forever.

Setting up an on-line bill paying system that can pay your minimum balance due, or ideally the whole balance if you can manage that.  Otherwise have a system of where you open your mail, where you put your bills, and when you pay them.

Late Payments and Collection Accounts

Be aware that late payments and paying off a collection account will not remove it from your credit report.  It will stay on your report for seven years. If you can’t make your payments on time contact your creditors or see a legitimate credit counselor.  This won’t rebuild your credit score immediately, but if you can begin to manage your credit and pay on time, your score should increase over time.

2.  Manage your Credit Balances

Keep balances low on credit cards and other “revolving credit”. High outstanding debt can affect a credit score.

Pay off debt rather than moving it around.

The most effective way to improve your credit scores in this area is by paying down your revolving (credit cards) debt. In fact, owing the same amount but having fewer open accounts may lower your scores.

  • Don’t close unused credit cards as a short-term strategy to raise your scores.
  • Don’t open a number of new credit cards that you don’t need, just to increase your available credit.  This approach could backfire and actually lower your credit scores.

3.  Make Sure Your Credit Report is Accurate to improve your credit score

Everyone has three credit reports, one from each of the 3 major credit bureaus: Experian, Equifax and TransUnion.  Since your credit scores are based on the data in your credit reports if you have a mistake on your credit report, your credit score will reflect that mistake.

You’re entitled to a free copy, once a year, of all three of your credit reports under the Fair Credit Reporting Act. These reports can be accessed via AnnualCreditReport.com, the government-mandated site run by the major bureaus.

Once you have your credit reports in hand, here’s a quick checklist of questions to ask yourself to help you spot potential errors:

  • Is all of your personal information accurate?
  • Are your credit accounts being reported?
  • Late or missed payments listed that you remember making on time?
  • Accounts or applications for credit you don’t recognize?
  • Items from decades ago still appearing on your report?

If you are considering Refinancing or Purchasing a home, then let’s start off with a quick inquiry that does not require you to share any sensitive information.

[zohoForms src=https://forms.zohopublic.com/noelle19/form/MasterInquiry/formperma/51bG251711G01112Gf5mA6Dgh width=100% height=600px/]

 

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Reverse Mortgage Securities Total $7.1 Billion in 2013 to Date

Issuance of reverse mortgage securities

$7.1 billion was totaled for the first three quarters of 2013, so with 757 pools issued, according to mortgage information by New View Advisors. For the first nine months of 2013, there are now 11 active issuers of reverse mortgage securities, New View notes, with American Advisors Group (AAG) as the newest entrant.

Issuing 14 pools for nearly $288 million,

American Advisors Group represents 4.05% of total reverse mortgage securities issuance. AAG is currently No. 6 for dollar volume in the nine-month rankings compiled by New View.

RMS continues to reign as the No. 1 issuer, with a total of 179 pools for $2.3 billion issued year to date.

The company issued 57 pools for $589.7 million in the third quarter, raising its lead over No. 2 issuer Urban Financial, so Urban sold 44 pools for $495.2 million in the third quarter.

As of the third quarter of 2013, RMS accounts for 32.74% of all issuance and Urban represents 25.53%, respectively.

Live Well Financial, Generation Mortgage and Nationstar held their positions. As they were number three, four and five issuers, representing 13.80%, 9.64% and 6.23%.

While the number of reverse mortgage securities pools issued in the third quarter was nearly identical to the previous quarter, 257 compared to 256, dollar volume declined 13% to $2.2 billion.

This causes lower origination volume. The increase of smaller “tail” issuance occurring as servicing, and borrower draws and MIP. So, Home Equity Conversion Mortgages (HECMs), notes New View. So, “Despite the downward origination trend, ongoing tail issuance, negative amortization and existing new issuance continues to outweigh payoffs,” said Michael McCully, partner with New View. “This has a positive impact on liquidity in the sector.”

Of the third quarter issuance, $950 million, or 43%, was fixed rate. So, year to date, fixed rate reverse mortgage securities represent approximately 60%, or $4.2 billion, of total issuance.

In the first half of 2013, the figure was $3.3 billion, representing 67% of total issuance.

By Jason Oliva

February 13th, 2016.


 

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Retirement Just Got Harder: The FHA Sets New Limits on Reverse Mortgages

Reverse mortgage retirement is something everyone should be able to understand, including the new FHA limits on them.

Bad news for seniors:

Reverse mortgages just got much less attractive. Starting Sept. 30, new regulations will make it more difficult and more expensive to take advantage of the government’s reverse-mortgage program.

What is a reverse mortgage?

The concept is fairly self-explanatory. With a mortgage, you make monthly payments to a lender. So, with a reverse mortgage, you receive payments from a lender. The loan doesn’t have to be repaid until you die, sell the house, or establish another primary residence.

Reverse mortgages are available to people 62 or older. The money can be used as retirement income, to pay for medical bills, for home improvements, or even to pay off your current mortgage. You are converting part of your home equity into cash. As with any loan, you will pay interest on the amount borrowed.

New limitations

After two years with rates at historic lows, the Federal Housing Administration is attempting to mitigate insurance losses by imposing new restrictions on federally insured reverse mortgages.

Here are the changes taking effect this fall for reverse mortgage retirement:

  • First-year limit. A homeowner may now withdraw only up to 60% of the eligible sum during the first year. If, for example, a person receives a reverse mortgage of $300,000, only a withdrawal of $180,000 is possible in year one.
  • Smaller loans. Before the new rules, borrowers could take out as much as 61.9% of their home’s value — the limit depended on your age, your home value, and the interest rate. That same evaluation applies, but on average, borrowers will be able to take out about 15% less than they used to.
  • Fee changes. Previously, the upfront fee to take out a standard reverse mortgage was 2% of the property’s value. The upfront fee to take out a saver reverse mortgage — which limits you to a smaller amount you can borrow against your equity — was 0.01%. Now, the upfront fee will be 0.5% across the board. Folks who take out more than 60% of their home’s value will pay a 2.5% insurance premium.
  • Financial assessment. Lenders will now be required to analyze their borrowers’ ability to keep up with tax and insurance payments before issuing a reverse mortgage. So, lenders will look at income sources and credit history to determine the borrower’s creditworthiness. If a lender decides you may not be able to make your payments, you will be required to set aside money.

The changes are intended to make people more careful about how they fund their retirement.

So, the FHA wants borrowers to take out only what they need and what they can afford. The program strives to be less a safety net for financial emergencies and more a longer-term financial-planning tool. Of course, these changes present additional challenges to the already expensive process of retirement.

By Mike Anderson, NerdWallet, and The Motley Fool

February 10th, 2014. Reverse mortgage retirement

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5 Reverse Mortgage Tips

If you would like to be informed about reverse mortgage tips, this is the article for you.

If you’re in your 60s and own your home, chances are you’ve heard about reverse mortgages—or will soon. Reverse mortgages allow you to tap the equity in your home. But they have risks and can be costly. Here are five reverse mortgage tips to consider:

1. Weigh all your options.

Whether you need money to pay bills or just want some extra cash, a reverse mortgage should be a last resort. Other options include selling your house and downsizing, or renting while carefully investing the sale proceeds. You could also take out a home equity loan or line of credit. If credit cards are the problem, consider consolidating that debt. If paying real estate taxes or home maintenance costs are the problem, look into local government assistance programs that can help. But, you have many options. So ask your state agency on aging about less risky, lower-cost ways to address your needs.

2. Understand the risks, costs and fees.

Even though you won’t be making any interest payments as long as you live in your home, the interest rate matters. If you decide to move, you’ll have to pay back the reverse mortgage plus compounded interest. The same is true if you have to leave your home for more than 12 months. Ask about all costs and fees, including any prepayment penalties.

3. Recognize the full impact of your decision.

While you typically don’t have to pay taxes on the proceeds of a reverse mortgage, the income or lump sum you receive could affect your eligibility—or your spouse’s eligibility—for various state and federal benefits, including Medicaid. Depending on the state, a reverse mortgage may not enjoy the same home-equity protection that would otherwise apply if you have a health emergency and need to enter a nursing home that you can only pay for by liquidating assets. Finally, consider that a reverse mortgage is generally not the right choice for those who want to leave their homes to their heirs.

4. Get independent advice about reverse mortgage tips.

Reverse mortgages are such complicated transactions. The federal government requires borrowers to meet with HUD-approved counselors before getting a federally guaranteed loan. Confirm that any counselor recommended by your lender is truly independent. You can do this by asking whether he or she receives any funding from the lender or the mortgage industry.

While most loans are federally guaranteed, lenders also offer proprietary loans that are not. Even if you’re applying for a proprietary loan, it’s a good idea to get advice from a trusted financial adviser who has no interest in either the reverse mortgage or any investment you plan to make with the proceeds. In any event, before you agree to a reverse mortgage, consult with legal and tax professionals who know the consequences of reverse mortgages for residents of your state and who aren’t connected in any other way to the transaction or the lender.

5. Be skeptical of reverse mortgages as part of an investment strategy.

Be very skeptical if someone urges you to get a reverse mortgage to make an investment or purchase an insurance product or a security—particularly if they are promising high returns. In essence, they’re encouraging you to speculate with your home equity. You may need for more critical purposes down the road. If you can’t afford to get a low return or the loss of your home, you shouldn’t be investing with your home equity funds.

By Gerri Walsh

February 10th, 2014.

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Mortgage Delinquencies Down 10% in 2013, Vary by State

Mortgage delinquencies decline

In 2013 Mortgage delinquencies declined 10% on a year-over-year basis despite a slight uptick in December. (According to Black Knight Financial Services’ Mortgage Monitor data). But, they are varying widely by state.

Mortgage lates were up 0.26% in December 2013 compared to the previous month. There is a total U.S. loan delinquency rate of 6.47% for loans that are 30 or more days past due, but not in foreclosure.

Notwithstanding the small upstick in credit lates and delinquencies to close out the year, the overall trend for 2013 was one of improvement, down 9.85% from 2012. (Black Knight Financial Services) notes, with the lowest level of “seriously delinquent” inventory since 2008.

As of the end of December, there were 3.24 million properties that were 30 or more days past due, not in foreclosure. Nearly 1.3 million properties were “seriously delinquent” at 90 or more days past due. Approximately 4.5 million properties were 30 or more days delinquent or in foreclosure.

Mississippi, New Jersey, Florida, New York, and Louisiana are the states with the highest percent of non-current loans. (According to December 2013 Mortgage Monitor). Conversely, the five states with the lost percentage of non-current loans are Montana, Colorado, Alaska, South Dakota, and North Dakota.

Black Knight Financial Services’ Data and Analytics division generates month-end mortgage performance statistics. This is derived from its loan-level database that represents approximately 70% of the overall mortgage market.

The Financial Assessment expected in coming months for the Home Equity Conversion Mortgage program may include information about past delinquencies, among other relevant financial history. This indicates a borrower’s willingness or capacity to pay loan obligations. HUD recently announced it will release guidance on the Financial Assessment in February.

By Alyssa Gerace

January 29th, 2014.

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How To Do a Reverse Mortgages

Reverse mortgages were originally designed so that seniors who own their homes or have considerable equity in their homes can free up cash for living expenses without selling their homes.

 

To qualify for a reverse mortgage, you must:

-Occupy the home as a principal residence for more than six months of the year.

-Be at least 62 years old.

-Pay off any debt against the home before obtaining the reverse mortgage. Or, use an immediate cash advance from the reverse mortgage to pay it off.

The amount that can be borrowed is based on your age, the equity in the home and the interest rate charged by the lender. You will retain title to your home and be responsible for taxes, repairs and maintenance. If you do not fulfill these responsibilities, the loan could become due and payable in full. The loan becomes due with interest when you sell your home, move, die or reach the end of the loan term.

There are three types of reverse mortgages:

-FHA-Insured

-Lender Insured

-Uninsured

With all three, interest on the loan amount adds to the principal balance each month. There will also be loan origination fees and closing costs with each. The loan is not taxable. When the loan term expires, you will either need to pay back the loan or sell your home and move.

Before you can close on a reverse mortgage you will be required to take counseling at the local office of the US Department of Housing and Urban Development (HUD) or a HUD approved housing counseling agency. This is a free service of HUD and it will give you a good education regarding the various types of reverse mortgages and whether a reverse mortgage is right for you.

A reverse mortgage can be a good choice but they are not right for everyone. You may wish to consult with your attorney and/or financial adviser to see if it makes sense for you.

By Dale Athanas

January 27th, 2014.

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How to Retire Early

For many Americans, the idea of an early retirement is pure fantasy — many surveys suggest that a good portion of us are convinced we’ll never be able to retire at all. But what if retirement saving isn’t quite as insurmountable an obstacle as you think?

The idea that retirement — even early retirement — is within anyone’s grasp is a big part of the appeal of a popular personal-finance blog called “Mr. Money Mustache,” written by a 39-year-old man named Pete, who lives with his wife and 8-year-old son in Longmont, Colo. (The blog recently had 417,000 monthly unique visitors, and has had a total of 4 million unique visitors since it launched in April 2011.)

Pete, who prefers not to divulge his last name to protect his family’s privacy, retired when he was just 30. His wife retired with him, and for the past nine years they’ve been stay-at-home parents. Their investment income supports their lifestyle, but they also work when they want, on their own terms.

Want to retire early? Mr. Money Mustache says it’s time to rethink our spending.

One secret to their success? They live on very little for a family of three: about $25,000 a year. They own a car, but mostly bike. Dining out is an occasional luxury. And shopping for stuff? That’s best avoided. But their philosophy goes beyond mere scrimping, says Mr. Money Mustache. It’s about enjoying life with less.

MarketWatch asked Mr. Money Mustache about his philosophy on spending, how he retired early, and his take on retirement planning. Our Q&A is below. And if you’re wondering about the name?

“Mr. Money Mustache is meant to be a bit of a character — a financial superhero,” Pete said. “He’s me, but a slightly bossier and more opinionated version of me. I find that people gladly obey the commandments of Mr. Money Mustache, even while they would scoff if plain old Pete, the former software engineer, stepped up and started giving them advice.”

How old were you when you decided to try to retire early, and how long did it take you to get to the point where you could retire?

It was a gradual process. I brought some frugal instincts along with me from childhood, so I always tended to save a bit of money rather than spending it all. My wife has been a pretty reasonable spender since the time we met, as well. So I graduated from college in 1997, we eventually moved in together, and, after several years of full-time work, some cash was starting to build up in our investment accounts, and we wondered if there was something useful we could do with it.

Sometime around 2002, we decided we wanted to be parents eventually, and that it would be great if we could retire from our relatively demanding careers in the tech industry before any babies came along. This really increased our motivation to spend less and invest more, and we cranked things up. At the end of 2005, our savings were sufficient to generate passive income that we could theoretically live off forever, so we quit the regular jobs and have been winging it ever since. And we now have an amazing 8-year-old-boy.

How did you decide how much money was enough to retire?

Based on a long-lasting hobby of reading books on stock investing, I realized that you can generally count on your nest egg to deliver a 4% return over most of a lifetime, with a good chance of it never running out. In other words, you need about 25 times your annual spending to retire. So we tracked our spending and our net worth, and when we hit the magic number we declared ourselves “retired.”

Did you have a written retirement plan in place early on, or more of a ballpark figure you were trying to save up?

We did most of the saving before we knew all that much about early retirement. But once the picture became a bit clearer, we had a clearer goal. For the last few years, the mantra was “$600,000 in investments, plus a paid-off house.” This is enough to generate $24,000 of spending money, which goes quite far if you have no rent or mortgage to pay.

How important is it for people to have a written retirement plan, in your opinion?

It doesn’t matter to me if it’s written, verbal or mental. But I do encourage people to open their minds to how real and possible an early retirement can be. It isn’t a vague, fluffy concept like, “someday,” “never” or “when I’m 65.” Retirement (or financial independence) simply means that you have your living expenses covered by nonwork income. In the worst case, this requires 25 to 30 times your annual spending, socked away into investments. If you’re eligible for a pension or Social Security, it’s even easier.

Do you work with a financial planner or manage your finances on your own?

I have always enjoyed managing my own finances. On the blog, I maintain a good-natured battle with the financial-planning industry in general, because they focus too much on retiring at a very old age with many millions in savings — just so you can continue to spend $100,000 a year until you die. It is much more efficient to get a handle on your materialism and spending so you can live more happily on a fraction of that amount, which can shave 20 years or more from the time you need to keep commuting in to that office.

How crucial is it, in your opinion, for people to have a monthly or annual spending plan or budget?

This really depends on your personality type. I’ve never had a spending plan or a budget at any point in my own life. Instead, it was a simple set of values to apply just before I make any purchase or commit to any expense: “Is this the best possible use for this chunk of money, if my goal is creating lifelong happiness for myself?”

Since I valued freedom and financial strength, this automatically ruled out quite a few purchases. For example, as a young man I was a major car enthusiast. But I didn’t run out to borrow money to buy an Acura NSX, because I valued having that money for other things more than I valued a fancy car. Nowadays I can finally afford a car like that without even borrowing, but I am happy to discover that the desire has disappeared.

Some people might think so much cost-cutting is akin to living like Scrooge and not having any fun. How would you respond to that?

If you tell yourself that is how it will be, then you will create your own truth and life will not be fun. But if you understand the fundamentals of what it means to be a happy person, you realize that buying more stuff for yourself has no relationship at all to how happy you are. These fundamentals include things like close relationships with other people, health, rewarding work, a chance to be creative and help others.

Work on those things and you’ll start living a much better life immediately, and soon wonder where the odd compulsion to own a yacht with a submarine came from in your old self.

Surveys suggest there are a lot of people out there who are worried about retiring, who don’t have enough money saved, who feel like they may never retire. Can you offer people in that situation any words of advice in terms of how to turn their situation around?

The quickest way to turn things around is to realize that you are in much more control than you realize. The time to reach retirement depends on only one thing: your savings rate as a percentage of your take-home pay. And this depends entirely on how much you spend. So the moment you can learn to live a less expensive life, suddenly the clouds clear up and the financial picture brightens considerably.

What would you say to someone in his 50s or 60s who maybe doesn’t have any credit-card debt, but is paying a mortgage and has about $100,000 saved for retirement? Is there any scenario where that person would be able to retire in, say, his early 60s?

That’s not a great starting point, but the turnaround can be incredibly fast once you realize where your money has been leaking out and change your life so that you can save much more of your income. Ten to 15 years is plenty of time for most people to go from zero to financial independence, so with a $100,000 head start and the kids all out of the house, this 55-year-old might be in a good place. Adding in Social Security income, the time to retirement would be even faster.

Do you think that the rule of thumb of needing about 85% of pre-retirement income in retirement is accurate, useful, dangerous, innocuous?

This is a good guideline for people who currently spend almost everything they earn, and plan to continue that habit in retirement. But for the rest of us, it is ridiculous!

A much more useful idea is to separate the idea of income from that of spending. Your income is determined by what you do for a living. But your spending should be decided based on your needs — the things and experiences that truly make you happy. As an example, my family’s needs and wants have always ended up adding to about $25,000 a year. So that’s how much we spent, whether we were making $25,000 or $200,000.

So as soon as our retirement income safely exceeded $25,000 a year, we were financially independent and we decided to retire.

I hate to get morbid, but the idea of how long one is going to live is sort of a crucial piece to a retirement plan. How are you handling this impossible-to-answer-yet-essential question? Are annuities and/or long-term-care insurance part of your long-term financial plan?

If you plan your retirement right, your expected longevity might actually have nothing to do with your planning. This is because the amount of money required to fund a 30-year retirement is almost identical to the amount to fund a person forever — an odd behavior of the equation for amortization of a large sum of money.

I’m not into annuities or any type of insurance myself, although those products do have value for some. Both of those ideas are based on statistics and probabilities, and when you do the math you can actually be safer handling things yourself. With a big enough collection of income-producing assets (stocks, rental property, etc.), your savings will easily outlive you, and probably be much larger by the time you die. This big chunk of savings also allows you to pay for unexpected expenses without rocking the boat too much — you have many years to adjust if you do hit a bump that forces you to deplete part of it for something like a medical expense.

You have said in the past that it’s important to “make your dollars work for you.” Does that mean the idea of an emergency savings account at the bank is overrated? Should people be investing more of their savings in the financial markets, via a taxable account, rather than using bank accounts?

Yeah, I’ve always questioned the idea of an emergency fund. It’s a great tool for the financial beginner who lives from paycheck to paycheck, and for whom a broken water heater would make the difference between making ends meet and borrowing via a credit card. But once you get off the ground, your credit card is a monthly buffer and your investment accounts are the emergency fund.

So I have no savings account at all, and keep just a few thousand dollars in the checking account. If a huge unexpected expense ever came up that was greater than my income, I would put it on the credit card along with all other monthly spending. Then just sell some shares of an index fund and transfer that back to the bank before the credit-card automatic payment happened at the end of the month. And I’ve still never had to run a credit-card balance in my life.

The great part is that if your spending is much lower than your income, these emergencies become very rare, because there is always a surplus, which you have to sweep away into investments each month. So if the water heater dies, you buy a new one and just invest a little bit less that month.

To what degree would you say rental income was key to your ability to retire early?

A small degree — I haven’t had the most brilliant landlord career so far, so my results have been only average. But rental properties chosen wisely can return much more than stocks, which could really speed up a savvy person’s retirement program. In my own case, I probably saved only about one year of work by using rental houses along with stocks.

Would you say it’s better to use extra savings to pay down one’s mortgage, or to invest in the financial markets?

For people in a high tax bracket, 401(k) plans in low-fee index funds win this battle pretty easily, especially if there is an employer match. For investment in taxable nonretirement accounts, it all depends on the interest rate (and if you’re pretty well-versed in investing, the stock market’s valuation or P/E 10 ratio).

Right now, with stocks expensive and interest rates very low, it’s probably a somewhat uninspiring tie, in my opinion, and you could do either. But if mortgage interest rates were 6% or more, I’d start getting more excited about paying off a house.

For people with other debts, like student loans, car loans or credit-card debt, at higher rates, I’d prioritize debt payoff even more.

It sounds as though a lot of your success has to do with cutting costs. But I know that some of my readers are really tired of hearing the “cut out the lattes” idea. What would you say to those readers?

For most people, cutting costs is by far the most powerful way to increase wealth. This is because it is easy to burn off almost any amount of money — just ask the 78% of NFL players that have financial problems shortly after turning off the cash fire hose of a pro sports career. It is also possible to cut almost any budget in half, leaving the happy latte cutter saving 50% or more of her income.

But the key to making this work is not cutting out treats — it’s eliminating your desire for those treats in the first place. Driving my 2005 Scion hatchback would be a chore if I had a desire for a 2014 BMW. But since this little Scion is more than enough car for all of my wants (and I usually ride a bike anyway), I am actually winning and living a happier life even while saving $20,000 a year in depreciation and other costs. The handy part of all this is that anyone can eliminate the desire for any of the expensive luxuries currently dominating most of our spending.

Do you have any sorts of items you love to buy and won’t give up?

That’s a tricky question, because our lifestyle does include quite a few luxuries that are fun to have around. I enjoy nice coffee at breakfast and wine many nights at dinner, and the food we eat is very high-end these days. And we live in a pretty fancy house full of nice stuff and take a lot of trips. While I enjoy all of these things, I also make fun of myself for living such a decadent lifestyle, as a reminder that none of these things are essential components of happiness. I would give them up in a heartbeat if we couldn’t afford them — for example if we were in debt or if they compromised our ability to live a free life. But since life is an adventure and there is no need to seek perfection, we dabble in all of the normal treats of American life.

You write a lot about doing things oneself — including being your own handyman. What would you say to people who feel they aren’t good at fixing things and aren’t confident enough to work on their own homes? Is home maintenance going to be a budget killer for them?

You get better at what you do. I think that every homeowner, with possible exceptions for very busy CEOs and rock stars, should be able to take care of a house and can easily learn how to do it. Outsourcing these basic chores is expensive and fussy — it often takes more time to find and supervise a contractor than it takes to do the job yourself.

The key is starting with the assumption that everything is easy, because it is. Then you just grab a book from the library and watch a few YouTube videos on the topic, and dive in. You can also attend the free workshops at Home Depot and ask for help from the handy people within your network of friends. People generally love to help others, and I spend a lot of my own free time giving free home-renovation advice and help to my own friends when they ask for it.

When it comes to spending, what about travel to foreign lands? A no-no because of the steep expense?

Travel can be as expensive or as inexpensive as you choose to make it. We do quite a bit of it these days, spending every summer in Canada and a good part of last winter in Hawaii, with other trips to quite a few other countries in recent years as well. But if you live like a local once you get there, going for the slow and authentic experience rather than flashy hotels and bungee jumping every day, it costs a lot less. One of my favorite trips was a winter driving trip from Colorado down to the Gulf Coast, where we brought along a tent and a kayak and hung out on as many beaches and waterways as we could find in the tropical belt of Texas for a month.

Why did you start your blog?

It was a 50/50 mix of inspiration and exasperation. My wife and I retired from real work at the end of 2005, but all of our friends and peers kept working around us. As their careers blossomed and earnings grew, I kept hearing these complaints about money being tight and retirement being an impossibility. But looking at their lifestyles, I could see exactly where the money was leaking out unproductively — even while they seemed to be missing it. So I decided to start the blog and share the ideas with the world, rather than annoying friends with unrequested financial advice.

By Andrea Coombes

January 17th, 2014.

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Simple Estate Planning Steps Everyone Should Take Care Of

Estate planning is a difficult topic, it requires you to think about a world without you in it. No one likes to reflect on their own demise, which is why many people simply put estate planning off for another day and only get around to it when the chips are down.

It will cross your mind once in a while but because it’s a topic that’s not enjoyable to think about, you’ll put it off for another day with perhaps just a twinge of guilt.

So many things in life, however, taking care of your estate planning now is the right step, even if you don’t have any dependents. It’s a relief off of your shoulders and it leaves plans in place if the unthinkable were to happen to you.

These four items cover the needs of most people. If you have a significant net worth, you should consider talking to a lawyer for specific planning advice for your estate, but for most people, these four steps should take care of most of your estate planning needs.

Everyone should have a master information document.

A master information document is simply a collection of the information a person would need to properly close out your accounts and obtain any and all account balances that you might have. This is an invaluable tool for whoever it is that is responsible for cleaning up your estate after you pass away.

It’s easy to prepare one. All you need is a printed document stored in a safe place that people will check when you pass away. That document should include account information for every account you have open, a complete list of every benefit anyone is entitled to upon your passing, a complete list of all debts and all assets, a detailed description of how to handle any business assets you may have, a copy of your will, your living trust, and any other documents pertaining to your estate.

Everyone with dependents should have a term life insurance policy.

If you’re leaving behind anyone who relies on your income in order to keep food on the table, clothes on their back, and a roof over their head, you need to have a life insurance policy in place.

Insurance salespeople will try to get you to buy lots of types of policies, but all you need is a term policy with a term long enough so that anyone reliant on you will be independent by the end of the term. For most parents, that means a ten year or twenty year term policy. How much? It should provide at least a few years of your salary.

Everyone who wants to make sure who gets personal items when they pass should have a will.

If you have items you want for a person if you pass, you need a will that dictates the handlings. Otherwise, you’re relying on the court and your family and that puts a burden on all of them.

Make a list of any items that you want given to specific people. Then,have the rest of your estate liquidated and split among descendants or given to a charity, as per your desires. This can easily be transformed into a legal will using a service like LegalZoom.com.

Everyone with dependent children should also have a will that includes guardianship information.

Who should care for your children if you were to suddenly pass away? It can be a difficult decision, and it should be one that you discuss with the people you are considering. Most important, such wishes should be set down in a legal will.

Estate planning is an intimidating thing, but many of the steps that people need to take are very simple. They also add to your personal peace once you’ve taken care of them. If you don’t have these in place, consider time to make sure those matters are in hand.

This article originally appeared at U.S. News and World Report Money.   

December 27th, 2013

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2013- The Biggest Reverse Mortgage News Stories

1. FHA to Halt Fixed Rate Standard Reverse Mortgage Starting April 1on Jan. 30, 2013. So, the FHA said it would merge the Saver and Standard loan programs. This would eliminate the popular fixed-rate, standard reverse mortgage

Here are the top 10 most-read stories on RMD this year, according to traffic data compiled by our editorial team.

2. HUD Announces Major Changes to Reverse Mortgage Program on Sept. 3, 2013. The HUD spelled changes to the HECM program including new borrower requirements. This took effect on October 1, the same year.

3. HUD to Combine Existing Reverse Mortgage Products on Aug. 19, 2013. Prior to making reverse mortgage changes, HUD informed the industry it was considering them, following an actuarial review of FHA’s insurance fund that showed reverse mortgage loans led to an FHA shortfall in fiscal year 2012.

4. HUD Slashes Reverse Mortgage Principal Limit Factors on Sept. 4, 2013. Following the announcement of changes to the HECM program, HUD announced new reverse mortgage principal limit factors that went into effect October 1. New borrowers see about 15% less in proceeds as a result.

5. FHA Reverse Mortgage Changes Coming By Month’s End and FHA: New Reverse Mortgage Changes Coming in August—Jan 15 and July 31, 2013, lenders then tuned in to FHA’s announcements of upcoming changes throughout the year.

(From product changes to mergers and new business entrants, the reverse mortgage market has seen a wealth of news in 2013)

6. [Update] Walter Investment Management Buys Security One for Up to $31 Million on Jan. 2, 2013. Walter, which previously acquired RMS, purchased Security One in the first part of 2013, which ramped up its position in the market.

7. Former MetLife Execs Launch New Reverse Mortgage Start-Up on Feb. 24, 2013. Several former MetLife reverse mortgage executives announced a new startup, Reverse Mortgage Funding, that then later opened for business in August.

8. Nationstar Acquires Greenlight Financial for Up to $75 Million on May 7, 2013. Mortgage servicing giant Nationstar agreed to acquire Greenlight Financial as well as its reverse mortgage platform, for up to $75 million.

9. President Obama Signs Reverse Mortgage Reform Bill into Law on Aug. 9, 2013. President Obama signed into law the Reverse Mortgage Stabilization Act, authorizing the Secretary of HUD to establish additional requirements to improve the fiscal safety and soundness of the HECM program.

10. Court Rules Against HUD in Reverse Mortgage Non-Borrowing Spouse Suit—Oct. 1, 2013—In a lawsuit that has yet to be resolved, a court ruled against HUD in a suit filed by non-borrowing spouses of reverse mortgage borrowers. HUD has since appealed the ruling.

By Elizabeth Ecker

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Wife doesn’t need to fear a Reverse Mortgage

Reverse Mortgage

Let’s figure it out.

Question:

Dear Retirement Adviser,
Our home has had a reverse mortgage since 2008 when my husband turned 62 years old. We are retired and I’m now 62. I feel like I need to be added to the deed.

The mortgage lender says that it is not possible because they do not initiate these anymore and that we should refinance with another company. We talked with one company and were told it is not possible because our current interest rate is too low. Also, we would need to come up with an extra $15,000 at closing. We are both disabled and live on our Social Security checks. We have trouble paying the electricity bill.

It appears that if my husband dies I could become homeless. We are worried and don’t know what to do. Can you help?

Thank you,
— Maria Mortgage

Answer:

Dear Maria,
Your situation highlights a common problem with reverse mortgages, particularly for retired couples. At the time your husband got his reverse mortgage, the youngest person on the mortgage had to be at least 62.

It’s also timely because a federal court has recently ruled that a surviving spouse can’t be evicted from the home when there’s a reverse mortgage in place. That’s even if they are not listed on the mortgage.

AARP Foundation attorneys, acting for two surviving spouses, sued the Department of Housing and Urban Development over the issue. HUD regulates reverse mortgage loans. AARP held that HUD was in violation of federal law when it required surviving spouses not named on the reverse mortgage loan to either pay off the loan or face foreclosure when their spouse died.

So, you don’t need to refinance your reverse mortgage to protect your ability to live in the home, should your husband die first.

HUD is expected to release information in the near future that will spell out the implications of this court case. I hate to tell a person struggling to pay the electric bill that he or she should consult with a real estate attorney on the matter. But if you did, it could give you some peace of mind. It also would be a lot cheaper than getting a new reverse mortgage at a higher interest rate and paying $15,000 to close.

These regulations were revised in 2013 under the Reverse Mortgage Stabilization Act. Newer reverse mortgage loans issued since the law was implemented will include the spouse on the loan, thus formally protecting surviving spouses. Unfortunately, the changes are also expected to reduce the amount of money available to seniors from a reverse mortgage.

By Dr. Don Taylor, Ph.D., CFA, CFP, CASL

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Reverse mortgage strategy can open door to second home

A reverse mortgage is a financial agreement in which a homeowner relinquishes equity in their home in exchange for regular payments, typically to supplement retirement income.

A reverse mortgage is against a primary residence, yet the loan also works to help purchase a second home.

While the proceeds of a reverse mortgage typically help seniors to “age in place” by making their home more comfortable for their retirement years, there are no limitations on how reverse funds can be used.

One family sought to lower their monthly mortgage payment on their primary home so that they could afford the monthly payments on a recreational cabin. Instead of cashing other assets, paying the capital gain tax and plunking down the net amount as the cabin’s down payment, the couple took out a reverse mortgage, which accomplished the same goal.

“They wanted to keep their home but were concerned that their monthly obligations would prohibit them from qualifying for another mortgage on a second home,” said John Harding of Axia Home Loans Reverse Mortgage Division. “By refinancing their home with a reverse mortgage, it not only eliminated their mortgage payment but also provided the down payment funds for the cabin. Since there was no longer any monthly payment, it was easier for them to qualify for a mortgage on the cabin.”

Let’s take a look at the numbers:

Primary residence
Value: $600,000

Mortgage: $281,000

Mortgage payment: $2,114 (plus taxes and insurance)

Reverse Mortgage: $433,800

Net proceeds after paying off mortgage plus closing costs: $128,311

Cabin
Purchase price: $215,000

Down payment: $70,000

Funds needed to close: $77,000

Conventional loan: $145,000

Mortgage payment: $811 a month (plus taxes and insurance)

The strategy

The strategy will enable the Casey’s to live in  their home with no mortgage payments for the rest of their lives, or until they sell the house. It also reduces their monthly mortgage obligations from $2,114 to $811.

A reverse mortgage is a loan that enables homeowners 62 or older to borrow against the equity in their home. They can do so without having to sell the home, give up title or take on new monthly mortgage payments. One uses loan proceeds for any purpose, they take out as a lump sum, pay fixed monthly payments, establish a line of credit, or have a combination of those options.

The “expected interest rate” is a critical factor that determines how much equity an elderly homeowner is eligible to receive from a HECM.

Add a margin to the 10-year U.S. Constant Maturity Treasury rate to calculate it, which is published weekly by the Federal Reserve.

The reverse mortgage loan amount depends on the borrower’s age, current interest rates. In most cases, so does the location of the home. A reverse mortgage does not have to be repaid until the borrower moves out of the home permanently, and the repayment amount cannot exceed the value of the home.

Seniors can “outlive” the value of their home without being forced to move. The homeowner cannot be displaced and forced to sell the home to pay off the mortgage. Even if the principal balance grows to exceed the value of the property, this is so. If the value of the house is exceeding what is owed at the time of homeowner’s death, the rest goes to the estate.

A controversial topic has been the “trailing spouse” issue.

If the surviving spouse is not included on the reverse note, the surviving non-borrower spouse may not be able to pay off the loan balance or qualify for a HECM on their own to remain in the property.

The situation usually occurs when an older man marries a younger woman. The woman then chooses not to go on the reverse mortgage title. Since the age of the younger spouse dictates potential proceeds, her participation decreases the net amount.

Recently, HUD’s Office of Housing Counseling sent a notice to all HECM-approved counselors. This encourages them to take special precautionary measures when meeting with non-borrower spouses. So, they fully understand the future repercussions of not being on title to the HECM loan. The notice also recommended that counselors get a signed, individual written statement from a non-borrower spouse. This must acknowledging that he or she may have to leave the property upon the death of the borrower.

This reality is additionally important when a second home is involved. A reverse mortgage can be terrific, but if your name isn’t on the mortgage note, at least have somewhere to stay.

By Tom Kelly

November 30, 2013

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Retiring on the House: Reverse Mortgages for Baby Boomers

As baby boomers age, reverse mortgages expect to gain popularity as a means of covering living expenses. Hence, in the future, more homes passed on to children will come with a bill attached. (The balance due on these equity loans).

Federally insured reverse mortgages, officially issued as part of the Home Equity Conversion Mortgage program, are a way for homeowners 62 and older to borrow money using their home equity as collateral. One must pay the remaining proceeds balance on the mortgage, which frees homeowners from monthly payments. Interest and monthly insurance premiums are charged throughout the life of the loan. The total becomes due when the borrower dies (or permanently moves out of the home).

“A common misconception about reverse mortgages is that the lender takes an equity share in the house”. (Vivian Dye, a reverse-mortgage consultant at Atlantic Residential Mortgage in Westport, Conn). “It’s a relationship between the bank and the borrower,” she said, “and it’s the same kind of relationship as a regular loan.”

As the first lien holder on the property title, however, the lender must be repaid when the property changes hands. How the heirs handle repayment depends on how much equity is left in the home and whether they want to keep it.

Under federal regulations, after the last borrower named on the loan has died, the lender must provide up to 30 days for the heirs to decide on a repayment method.

“Heirs then have up to six months to sell or arrange financing”, said (Colin Cushman, the chief executive of Generation Mortgage). She is a reverse-mortgage originator and servicer based in Atlanta. But, he notes, as many as two 90-day extensions are allows the heirs to show they are actively trying to sell the property.

Should they wish to retain ownership, the heirs might choose to get a separate mortgage to refinance the home and pay off the reverse mortgage. Or, if there is enough equity in the home, they might choose to sell it and use the proceeds to pay off the loan.

The heirs will not be on the hook for any shortfall should the home fail to sell for enough to pay the loan in full. If the loan balance is exceeding the value of the home, the amount owed is limited to 95 percent of the appraised value.

Mr. Cushman offered an example: On a home with an appraised value of $100,000, a reverse mortgage balance of $120,000. In addition, the amount owed the lender would be $95,000. (No short sale approves for less than that amount.) Government-backed insurance on the loan would cover the $25,000 gap.

In such “underwater” situations, the heirs may instead choose a deed in lieu of foreclosure. In this case, they simply deed the property over to the lender.

Heirs should be aware that the ability to draw on the reverse mortgage ceases once the borrower dies. For that reason, Ms. Dye recommends that the family considers whether enough money is set aside for things like funeral expenses while funds are still accessible — that is, if the family discusses finances at all.

“Some people don’t even know their parents had a reverse mortgage,” said Vincent Liberti. (Estate planning and elder law lawyer in Hartford).

He frequently sees financially precarious people who haven’t planned for retirement take on a reverse mortgage as a last resort. This is in addition to those who go through the funds too quickly. It’s one of the last “tools” he recommends using.

But Mr. Cushman says his firm is trying to change such negative perceptions. With an app planning tool, “nu62,” it is shown how to use home equity strategically to meet long-term financial goals.

February 18th, 2014

By Lisa Prevost

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7 Costs That Will Decline In Retirement

Retirees have an opportunity to save money on these expenses.  Many people dream of retiring early, but hesitate to make the jump because they are worried about losing the security of incoming paychecks. But retirement might not be as expensive as you think. Some expenses are much higher for working people than retirees. Here are some costs that are likely to decline in retirement:

You don’t have to buy work clothes anymore.

There’s no need to get dressed up once you no longer report to an office. You probably won’t need to buy ties or expensive suits anymore, and there’s no reason to dress to impress. Instead you can switch to the likely cheaper clothes you feel most comfortable in.

Many work-related costs will disappear.

Your long commute and the associated transportation costs will be gone in retirement. Overpriced sandwiches are out too because you will actually have time to make the sandwiches instead of buying an overpriced combo just to hang out with a colleague in an attempt to fit in.

Stuff will wear out more slowly, and you won’t have to replace it as often.

You’ll put fewer miles on your car once you eliminate your commute, and your expensive clothes will stay nice longer because you’ll likely wear casual clothes most of the time. Even your personal laptop could last longer because you aren’t banging away at each key doing extra work at home on evenings and weekends.

Less income means lower taxes.

Those with high incomes often pay a higher income tax rate. If your income is lower in retirement than your current salary your tax bill will decrease.

Time to improve your health.

With the added free time, you will finally have time to exercise in retirement. But even the couch potatoes will benefit from less job-related stress because retirees typically get to set their own deadlines.

Time to negotiate.

Working people often pay more than they need to for things to save time. Retirees have time to search for the best deal and negotiate in order to get the best possible price. For example, my medical bills often contain errors. The reason almost always boils down to someone punching in the wrong code, which is easy to fix. Workers may be too consumed to investigate, but retirees should have plenty of time to find someone who can correct the problem.

Avoid peak travel premiums.

Many workers do their traveling and leisure activities during the same busy weekends and holidays. But why pay full price in retirement when you can potentially go to events or vacation any day throughout the year? Visiting places during the week or traveling during off-peak times that aren’t school breaks and major holidays can save you money and lead to a better and less crowded experience.

Retirement forces you to look at your expenses, so you are far less likely to throw money away on unnecessary items. While some expenses will go up in retirement, many others will decline or disappear, especially for retirees who take the initiative to cut costs.

March 11th, 2014.

By David Ning

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