Reverse Mortgages

Reverse Mortgages Explained

If you are preparing for retirement, a reverse mortgage can be a good way to help you maintain an income.

A reverse mortgage is a loan for homeowners who are 62 or over and have considerable home equity. They can borrow against the value of the home and receive funds as a lump sum, a fixed monthly payment or a line of credit.

Unlike other types of mortgages, reverse mortgages are not paid back through loan payments. Rather, the entire balance becomes due when the borrower dies, moves away permanently or sells the home.

The loans are structured so the amount of the loan does not exceed the home’s value. The borrower’s estate will also not be held responsible for repaying the loan if the home’s value drops and, therefore, is not worth enough to compensate for the loan.

Reverse mortgages are a great way to give seniors access to the equity in their home, however, they are complex, and they are not the best choice for everyone. Scams involving reverse mortgages are common so seniors should use caution before signing any paperwork.

How Does a Reverse Mortgage Work?

Instead of the homeowner making payments to the lender, the lender makes payments to the homeowner.

The home serves as collateral for the loan. Therefore, the proceeds from the home’s sale goes to repay the reverse mortgage’s principal, interest, mortgage insurance and fees. Any proceeds beyond that go to the homeowner or the homeowner’s estate.

Reverse Mortgage Pros and Cons

One of the biggest advantages of a reverse mortgage it that it gives seniors access to the equity in their home without having to sell or moveout. The money they get can cover their basic living expenses through retirement. As long as they are able to keep up with property tax, maintenance and insurance, they can remain living in their houses as they get older.

The downsides of taking out a reverse mortgage are:

1)      A substantial amount of your home’s equity will be paid to interest and loan fees.

2)      You won’t have as much of an inheritance to pass on to your heirs.

3)      If you have a housemate, they won’t have the right to continue living with your after you pass away.

Finally, reverse mortgages may not be worth it if you outlive the proceeds. If you pick a payment plan that doesn’t provide a lifetime income, in time, you may not have any money left. It is for this reason that you may be better off opting for a lump sum or term plan rather than a line of credit that can be used up.

If you are a senior, a reverse mortgage can be a great way to maintain an income in your twilight years. Just know the benefits and drawbacks before proceeding.

Pros and Cons to owning Multiple Properties

Pros and Cons to owning Multiple Properties:

If you are an investor, you invest. That’s why many real estate investors are likely to own multiple properties. 

Owning multiple properties may seem like a good idea, especially if these properties are all making money. However, they also come with their share of downsides.

Read on to find out the pros and cons of owning multiple properties and what you should think about before you invest.

Benefits to owning multiple properties:

·        You are diversified; geographically, product type and tenant mix. This helps insolate you from volatility.

·        Incremental growth; you can add to your portfolio as you get more cash. This can help avoid big gaps in cashflow and reduce risk.

·        Increased Equity: The more properties you own, the more equity you will have. Your equity can help you buy other properties.

·        More Experience: The more you invest the more you learn. Investing in multiple properties will help you figure out what types of buildings make the best investments. It will also help you develop strategies that allow you to invest wisely to make the most out of your money. Each property you take on the more you will learn and improve for the next.

Cons

·        Liquidity: real estate (generally speaking) is not a liquid asset. Therefore, it can take weeks or months to sell. If you need to sell multiple properties it can be hard to synchronize the sale. Or, you may have to take a discount in order to do so.

·        Keeping track of repairs and maintenance takes time and money. You must rely on contractors to do this work so it’s important to find servicepeople you can trust. Multiple properties complicates these.

·        Managing property managers: if you ae dealing with a diverse portfolio, it may be hard to find a management team well equipped for the task. If you need to take on multiple managers it’s more time and energy to upkeep your investment.

Refinancing

Opportunity Zones

What Are Opportunity Zones and What Benefits Do They Offer?

Efforts are continually being made to improve distressed communities.

Opportunity zones are economically distressed communities where certain new investments may be eligible for preferential tax treatments.

The areas have been nominated by the state and they have been certified as Opportunity Zones by the Secretary of U.S. Treasury via the Internal Revenue Service.

The zones were added to the IRS tax code by the 2017 Tax Cuts and Job Acts were created to spur economic development and job creation in the area.

Read on to find out more about opportunity zones and how they can benefit investors and the community.

What Tax Incentives Are Available Through Opportunity Zone Investments?

There are three tax incentives available to those investing in low income communities through a qualified Opportunity Fund. These include the following.

·        Temporary Deferral of Taxes: Investors can place existing assets with accumulated capital gains into Opportunity Funds. Money placed in these funds can not be taxed until the end of 2026 or when the asset is disposed of.

·        Basis Step Up: Capital gains that are placed in Opportunity Funds for at least five years will increase by 10%. After 7 years, the profit margins increase by 15%.

·        Permanent Exclusion of Taxable Income on New Gains: Investors will not have to pay taxes on any capital gains produced through investments in Opportunity Funds that are held for at least 10 years.

Opportunity Funds can be used to finance a variety of projects including commercial and industrial real estate, infrastructure, and businesses. For real estate projects to qualify, the investment must result in the properties being substantially improved.

What Qualifies a Community as an Opportunity Zone?

Areas that are designated as Opportunity Zones have been nominated by the governors of the 50 United States and 4 territories as well as the mayor of Washington. They account for 12% of US census tracts. These zones were chosen based on their income, poverty rates and unemployment rates.

Socioeconomic factors also come into play. Home values, rents and home ownership rents are lower in Opportunity Zones. There are also more minorities and lower education levels.

Are Opportunity Zones Effective?

Opportunity zones are great for investors who can benefits from the tax incentives. However, there is a concern that it raises prices for those living in the area, essentially pricing them out. It is hopeful that the jobs created will eventually make up for this loss bringing income levels higher so that properties are more affordable.

So what do you think? Is an Opportunity Zone investment right for you?

What Lender is Right for Me?

What Type of Mortgage Lender is Right for Me?

If you are thinking of buying a home, one of the most important steps you will take is finding the right lender. Before you go comparing rates and reputations, you should consider that there are different types of mortgage lenders available. This article will review the different types of mortgage lenders so you can find one that is right for you.

Banks and Mortgage Bankers

Banks are the first place most homeowners will turn to when they need a loan. Banks get their money from their own investors and customers and they can offer different types of mortgage loans to their borrowers. Many people won’t do business with any other type of lender.

Credit Unions

Credit unions are similar to banks but they are owned by account holders, also known as members. Members are required to sign up for membership with the credit union. Credit unions offer members checking, savings and retirement accounts and they provide mortgage loans as well.

Mortgage Lenders

Mortgage lenders are similar to a bank but they originate and fund their own loans. Unlike banks and credit unions, they exist solely to fund loans for real estate purposes. They get their money from banks or investors.

Another difference between lenders and banks, mortgage lenders do their own underwriting, processing and closing in house. Once the process is completed, they sell the loan to a bank or servicing company and it is up to that company or institution to collect the payments.

Mortgage Broker

A mortgage broker works as the middleman between a homeowner and a bank. They do not lend the money directly. They have access to many loan programs and lenders and take a commission when connecting lender to borrower.

If you’re credit isn’t great, a mortgage broker may be able to help you find a loan that isn’t being offered by a bank, credit union or even a lender. For this reason, mortgage brokers are ideal for those who don’t have the best financial histories.

Which Lender is Best for Me?

There is no right answer to this question. The ideal lender varies from borrower to borrower and depends on their individual situations. However, here are some things you will want to consider.

If Time is a Factor: A lender that does loans in-house may be the best option.

If Money is a Factor: Credit unions tend to offer lower closing costs and interest rates to their members.

Do You Need a Government Backed Loan: Government backed loans are loans subsidized by the government. They protect lenders against defaults on payments making it easier for lenders to offer buyers lower interest rates. Lenders and brokers are more likely to offer government backed loans as opposed to banks and credit unions.

Bad Credit: If you have bad credit or a high debt to income ratio, lenders or brokers will be more flexible than banks and credit unions.

Convenience: If you already have an account with a bank or credit union, you may choose to get a loan with them for the convenience of having all your accounts in one place.

Finding the right lender starts with determining the type of lender that is right for you. While your personal circumstances will be a factor, costs and interest rates will also come into play. Good luck finding a lender that provides you with the best service possible.

Unexpected Real Estate Fees

What Unexpected Fees Are Involved in Buying a Home?

When you buy a home, it’s likely you are expecting to be making principal and interest payments. But when your lender provides you with your loan estimate, you may be in for a rude awakening as many other fees will be added on. If you are aware of what these fees are and how they originate, you may be able to take steps to minimize and plan for them.

This article will review some of the common fees you may encounter so you will know what to look out for when you are getting a mortgage on your home.

Appraisal Fee

Before you can close on your mortgage, your home will need to appraised. An appraisal is done by a third party to determine your loan to value ratio and it will result in a one-time fee that can range from $300-1000. Appraisals are a necessary part of the closing process and they are unavoidable.

Home Inspection Fee

Another necessary part of the closing process, a home inspection is done to make sure the home is livable and structurally sound. The inspection typically costs $300 - $500.

Credit Report Fee

Lenders will want to know your credit rating so they can determine the amount of risk they are taking in giving you a loan. There are financial institutions like Credit Karma that provide free credit monitoring but your lender may choose to pull the score themselves which can result in a fee that can range from $30-$50.

Some lenders will cover this fee themselves. Talk to your lender to find out if he or she will be agreeable to covering this cost. Every penny counts!

Document Prep Fee

Lenders may also charge you for the time and administrative expenses that go into them preparing your documents. This fee typically ranges from $50-$100 and it is often negotiable. Talk to your lender to find out how flexible they will be in lowering this cost.

HOA Fees

Buying a townhouse or condo can be more affordable than purchasing a house, but be warned, HOA fees often apply. These are fees that are paid to the homeowner’s association for the upkeep of the property. Even though these are an added expense, they may be worth it in the long run in comparison to the money homeowners spend on major repairs.

Loan Origination Fees

Probably the biggest expense you will encounter, the loan origination fee is the primary way lenders make money. This fee will equal 1% of the total loan amount. So if your mortgage is $100,000 expect to pay your lender a $1000 origination fee.

Title Fees

When buying a home, the title must be transferred from the old owner to the new owner. This can result in a variety of fees. For example, there may be a search fee if a search is done to see if anyone has a claim to the title. There may also be a recording fee that is paid to the local recording office to make the sale a matter of public record.

Some homeowners may also choose to get title insurance to protect their investment.

The fees you pay on the title can be negotiated. The saving may not amount to much but any savings is good.

Taxes

Homeowners can also expect to pay taxes that include county and city property taxes and a transfer tax for transferring the title. Just like the famous Mark Twain saying dictates, these are unavoidable.

There are many fees attached to a mortgage. In some cases, you may be able to talk to your lender to have these reduced. You may also be able to counter fees with tax deductions (talk to an accountant for guidance). Good luck making your mortgage fees as low as possible.

How to get the Best Rate on your Mortgage

How Do I Get the Best Rate for My Mortgage Loan?

If you are looking for a mortgage loan, you will want to get the best interest rate possible. After all, this rate will determine the amount you will be paying on your home each month, so it’s best to start off with payments that are as low as possible.

Fortunately, there are steps you can take that will help you get a low interest rate. Here are some things you can do to get the best rate possible.

Research Lenders

The internet is a great resource when it comes to finding lenders. You can look online to find out which lenders are reliable, the minimum down payments they require, the minimum credit score they accept and more. Customer ratings and reviews are available as well.

Also, remember, once you are quoted an interest rate, you are under no obligation to accept that rate. You are free to shop around to try and find one that is lower and go with the lender who offers you the best deal.

Finally, when talking to lenders, be sure to ask them the right questions. Interest rates aren’t the only thing you need to be concerned about. You also want to ask them about their customer service policies, their turnaround time and any fees in addition to interest and capital.

Get Your Credit Score in Shape

Got a lot of unpaid debt? Is it bringing your credit score down?

Unfortunately, lenders will look at low credit scores and see it as a poor reflection of your ability to repay the debt. The fact that they are taking a risk on you will make your interest rates increase.

Luckily, you can do things to improve your credit rating. One is to pay off any debt you have.

You can also order a free credit report from one of the major credit bureaus to make sure your report is accurate and free of errors that can bring down your score.

Find the Right Kind of Lender

There are different types of home lenders and the one you choose will affect your interest rate. Here is a list of the ones you can choose from:

·        Credit Unions: Credit unions are member-owned financial institutions that offer low interest to shareholders. Membership restrictions have eased up over the years so it shouldn’t be too hard to find one you can join.

·        Mortgage Bankers: These bankers work for a specific financial institutions and offer loans directly to consumers.

·        Correspondent Lenders: These are usually local mortgage loan companies that can make you a loan but rely on a pipeline of other lenders who they will immediately sell your loan to.

·        Savings and Loans: S&L’s have dwindled in popularity over the years, but they are community-oriented and therefore worth seeking out.

·        Mutual Banks: Like S&L’s mutual banks are also community oriented and offer competitive rates.

Hopefully this article has given you some valuable background on finding a low interest loan that’s right for you. We wish you luck moving forward in the home buying process.

Mortgage Basics

The Basics of Getting a Mortgage

So, you want to buy a home. Normally, that entails getting a mortgage.

Most of us understand that a mortgage is a type of loan that is repaid over the course of time you own your house, but once the buying process starts, we learn it’s much more involved than all that.

But don’t worry, this article will provide some mortgage basics that will give you a good idea of what to expect on your home buying journey.

What is a Mortgage?

A mortgage is defined as a type of loan you can use to buy or refinance a house. It’s a way of buying a house without having all the cash up front.

Benefits of Getting a Mortgage

A mortgage is good for people who can’t afford to buy their homes outright… aka most people, but it can also be good for those who can. For example, some investors will get a mortgage so they can free up money for other investments.

How Do You Qualify for a Mortgage?

Before being approved for a mortgage, the lender will want to make sure that you meet certain financial requirements.  This includes an income that is high enough to cover the payments on the loan. You will also need a good credit score, typically above 620, and a debt to income ratio of less than 50%.

What’s the Difference Between a Loan and a Mortgage?

Loans are transactions where money is loaned to a borrower. The borrower must pay off these loans over a set course of time, usually with interest rates added.

All mortgages are loans but not all loans are mortgages.

A mortgage is a type of loan used to finance property. They are secured loans. This means the borrower promises collateral to the lender in the event that they default on their loan.

In the case of a mortgage, the collateral is the house. So, if they borrower is unable to make payments, they will lose their house.

How Do Mortgages Work?

In the case of a mortgage, the loan you get from a lender will cover the full value of the house. The loan must be paid back with interest over a specified period of time. The borrower will not fully own their home until the loan is paid off.

The interest rate on a loan is dependent on two factors, the current market rate and the amount of risk the lender is taking in lending you the money. While you can’t control the market rate, the risk the lender is taking will depend on factors like your income, your credit score and your Debt to Income ratio.

It’s a good idea to take any steps you can to improve your credit and DTI before even speaking to a lender about a mortgage.

The amount of money you will be borrowing will depend of what you can afford and the market value of the home which will be determined during an appraisal. The lender can not lend you an amount that is more than the appraised value of the home.

Now that you have some basics under your belt, you are ready to start exploring your options in the home buying process. Good luck finding a property that is right for you.