Reverse Mortgage Primer: A Realtor’s Notes

For Homeowners Over 62, a Reverse Mortgage Could Address Some Financial Needs

Recently our agents and I received training on Home Equity Conversion Mortgages (HECM), better known a “reverse mortgages.” These loans can be taken out on your current home or used to purchase a new home. What makes them particularly attractive is how they can turn your home from an expense (if you have a mortgage currently) into a source of money for the rest of your life after age 62.

In a normal mortgage, you have monthly payments of PITI—principal plus interest plus taxes and insurance. With a reverse mortgage, the principal increases instead of decreases because the principal and interest is being drawn from the equity you have in your house.

If you have longevity in your genes and don’t need to leave the value of your house to your heirs, this can be a good solution because no matter how long you live, as long as you continue to live in your house, you will never be “upside down.” The mortgage continues to be paid even after your equity is used up.  When you die and the house is sold by the lender, any shortage in payoff is covered by the mortgage insurance which is built into the loan.

This scenario is not for everyone, but it has enough advantages that it is worth speaking with a reverse mortgage specialist who can study your financial situation and help you decide if a reverse mortgage is right for you.

We had such a specialist — James Spray of MilestoneMtg.net, dba The Mortgage Company — speak to us and answer such questions as:

What happens if both husband and wife are on the mortgage and one of them dies? The surviving spouse can stay in the house until he or she dies.

What if you go into assisted living? Once all borrowers on the loan no longer live in the house, the loan must be paid. If there’s still equity in the house, it can be listed and sold just like any other house, and the loan is paid off.  If the equity has been exhausted and you’re “under water,” then you deed the home over to the lender and walk away not owing anything.

What if a son or daughter wants to buy the house? They can buy the house, with the loan paid off at closing, but if the house has negative equity, they can buy the house from the lender for 95% of its appraised value, regardless of how large the principal had grown.

Are property taxes and insurance escrowed? No, you must pay those directly, along with any HOA dues.

Can you take cash out when you refinance with a reverse mortgage? Yes, depending on your age, you can take out half or more of your home’s appraised value when you refinance into a reverse mortgage. The older you are, the more you can take out, based on actuarial tables. That’s why I say that if you have longevity in your genes, you could take out your full equity in your home before you die and continue to live in the house until all borrowers die without making any mortgage payments again—just taxes, insurance and HOA dues.

Can I sell my house and downsize? You should do that before you take out a reverse mortgage. Sell your house now, buy your perfect “forever” home, and finance it with the reverse mortgage, putting down only the minimum down payment based on the actuarial tables.  Keep the other proceeds from the sale of your current home as cash to spend, save or invest as you wish.

What about Social Security?  As you know, you get a much higher Social Security payment if you wait until age 70 to start drawing it.  Refinancing or purchasing with a reverse mortgage at age 62 could make it possible by lowering your living costs for you to wait until age 70 to start drawing Social Security.

What if my credit isn’t very good? Unlike with a regular mortgage, credit is not a factor in approving a reverse mortgage, barring recent bankruptcy or other derogatory factors. You need only prove that you’ll be able to keep paying the taxes, insurance and HOA fees (if any) on your home. Not doing so risks foreclosure.

You probably have many other questions.  If I can’t answer them for you, I’d be happy to connect you with Jim Spray or another specialist.

Read my weekly Real Estate Today column as published in the Denver Post at www.JimSmithColumns.com

Download our FREE service provider app at www.clientlinkt.com/install/243.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The above article is to be/was published in the Denver Post on September 8, 2016 by Realtor Jim Smith of Golden Real Estate, Inc. His office is located in Jefferson County, Colorado. It is reprinted here with permission/blessings of the author.

Financially Speaking™ James Spray | CO LMO 100008715 | NMLS 257365 |September 2, 2016

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

A Reverse Mortgage to Buy a Home? Here’s How – WSJ

With a home-equity conversion mortgage, seniors can finance the purchase of a new home without monthly payments

Source: A Reverse Mortgage to Buy a Home? Here’s How – WSJ

The Secrets To Building An Awesome Score

Mom never told you as she didn’t know either

The not so  Secret Formula

Use your credit cards properly to build an awesome FICO^© Score. An awesome score will give you the best advantage for the best rates on insurance, credit cards, vehicle and other installment loans and home loans. As well, having a great score will give you a distinct advantage for certain employment opportunities. Having a great score will also help you to screen potential long-term partners to determine the likelihood of a successful relationship. Let’s face it, having a great score means you keep your commitments.

By way of proper use, let’s explore what it is that is rewarded by the scoring system. Two cardinal rules are never exceed using 30% of your available credit on any card in any month. Ever. Never maximize the usage of your credit limit on any card. Ever. Better is to not exceed using 20% of your credit limit. For example, the credit limit is $1,000.00. Do not exceed $300 in use and better do not exceed $200 in use. This accounts for about a third of your total credit score.

For best results, pay off the balance monthly. In addition to never maximizing the usage of your credit limit, never exceed the limit. Ever. For your best advantage do not ever close a credit card. The aging of your credit profile is essential to having a great score. The longer you have good credit, the better for your credit history and as a result your credit score. This accounts for a little more than a third of your score. In this and the previous paragraph we have discussed that which makes up about sixty-five percent of your total credit score. Such is illustrated in the following pie chart.

At each opportunity you get, or at each opportunity you can make, increase the amount your available credit. Once your credit card issuer sees you are managing your account well, they will offer to increase your credit limits so long as you have the ability to repay. Don’t be shy, after about 6 months, contact your card issuer and ask when you may qualify for an increase.

Keep in mind that a single 30-day late payment will ding your credit score by 90-115 points. Boom! The time it takes to recover from this one 30-day late payment will take from one to three years depending on your score at the time.

If you wish to take the time, the author of this article captured the reality of building a perfect score.

With all things, including credit cards, TANSTAFFL applies. TANSTAFFL was a term coined by Robert Heinlein in his 1961 novel Stranger in a Strange Land. There Ain’t No Such Thing As A Free Lunch.

Image attribution

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | June 24, 2016

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

Romance and Credit Scores

In addition to getting the best employment and the lowest interest rate on everything financed, including credit cards, home and auto loans, the prime potential partners in the dating pool are quickly thinned of those with inferior credit.

This is clearly highlighted in a post made by the Credit Slips summary of a Washington Post article which examines the working paper recently published by the Federal Reserve titled Credit Scores and Committed Relationships.

Barron’s Market Watch recently published an article titled, Nearly 40% of Americans want to know your credit score before dating. In part, this phenomena was summarized by University of Kansas Communications Professor Jeffrey Hall who stated,

By showing an interest in these three digits, people are probably being smart rather than shallow, says Jeffrey Hall, associate professor of communications at the University of Kansas. “Finances, education, and job prospects all factor into the value of a potential mate,” he says. “Assuming that people can actually interpret a credit score meaningfully, it makes sense they would think a credit score is useful in evaluating mate value.”

“…In fact, the higher your credit score, the less likely you’ll separate from your partner — and a lower score often means you’ll be less lucky in love, researchers at the Federal Reserve Board, the Brookings Institution and UCLA recently concluded.”

Your credit score has become such a popular character-meter that there are dating services based on them. A 2015 academic study found that “quality in credit scores, measured at the time of relationship formation, are highly predictive of subsequent separations.” The research suggested “credit scores reveal an individual’s relationship skill and level of commitment.” How More Americans Are Getting a Perfect Credit Score Bloomberg Suzanne Woolley, August 14, 2017.

I think it’s safe to predict that more and more people in the dating pool will become savvy to the benefit of checking one’s credit score before entertaining the possibility of a committed relationship.

ConsumerAffairs February 9, 2020: Improving your credit score might improve your love life “…Other nuggets from the survey reveal that four out of ten people — both men and women — say irresponsible spending is a bigger turnoff than bad breath. Forty-six percent of people would break up over irresponsible spending, the second biggest reason behind cheating.”

Image Attribution

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | Published November 13, 2015 – Updated August 16, 2017 – Updated February 9, 2020

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

Veterans Who Have Served Our Country Have Found The Reverse Mortgage Has Served Their Needs | Beth Paterson, CRMP, NMLS #342859 | LinkedIn

Source: Veterans Who Have Served Our Country Have Found The Reverse Mortgage Has Served Their Needs | Beth Paterson, CRMP, NMLS #342859 | LinkedIn

When it Comes to Credit Scores, Consumers are Confused

Source: http://bit.ly/1GN4tyG

Every day consumers across America make important financial decisions, such as buying a first home. They monitor their credit score and, if necessary, take steps to improve it so that when they finally find the perfect place, they can be confident they’ll get approved for a mortgage. But often, in…

Source: When it Comes to Credit Scores, Consumers are Confused

And for additional information, Vantage Scores are no substitute for FICO Scores.

 

 

The 11 things your Realtor won’t tell you but should – The Washington Post

Buyers should consider that bigger houses mean bigger headaches and it’s not a good idea to think of your home as an investment.

Source: The 11 things your Realtor won’t tell you but should – The Washington Post

The 4 C’s of Credit

The following is written primarily for those wishing to obtain a mortgage. However the same dynamics apply to credit cards, vehicle loans, insurance, employment opportunities and even dating eligibility.

Character – Reputation is a key factor in obtaining new credit. Bankruptcy, foreclosure, late payments, settlements, collections, judgments, charge-offs and other derogatory events weigh how your credit character is measured. A short-cut for evaluating character is the credit score.

Capacity – Is the ability to repay the obligation provable with third party documentation? This is measured by the stability of the income, and how long the wage-earner or self-employed has generated that income.

Conditions – What is the purpose of the loan? If the purpose is to refinance for a rate or term improvement, a simple letter stating such suffices. If applying for a cash-out refinance, how are the proceeds to be used? Documentation is required to explain the perceived additional risk. In situations where Character is less than stellar, a cash-out refinance for the purpose, for example, reimburse a family member could jeopardize loan approval.

Collateral – How much equity is available to protect the investor? In a purchase or refinance, this is the percentage of Down Payment/Equity vs Appraised Value and the loan amount. The lower the loan amount to the equity, the stronger

For example, when the character and/or the credit are challenged a down payment/equity position of about thirty percent can mitigate two of the “C’s”.   The greater the collateral/equity, a lesser weight may be given to Character, Capacity.

What is your credit score? Use this credit score simulator to find out. It’s free and it will give you a good idea of what your score range is right now.

Caution – Finally, be very wary of credit repair schemes, many are designed to part you from your hard earned money. Most of these “service providers” are scams. It’s easy to see if they are running a scam. The scammers require cash up-front; this is not legal. Pursuant to the Credit Repair Organization Act (CROA), any credit repair work must be completed before a consumer may be charged for the work. For more information, see: Credit Repair Basics.

Image attribution

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 |October 19, 2015

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

CFPB Rules Establish Strong Protections for Homeowners Facing Foreclosure > Newsroom > Consumer Financial Protection Bureau

If you are having trouble making your mortgage payment and if it appears you are going to have to miss payments, do yourself a great favor and contact a HUD Certified Housing Counselor for guidance; your chances for success are greatly improved. In most cases, this service is provided at no cost for the consumer.

Source: CFPB Rules Establish Strong Protections for Homeowners Facing Foreclosure > Newsroom > Consumer Financial Protection Bureau

4 Steps to Enhance Your Credit

Better job, better credit, better dating pool

We all know that a high credit score can help streamline life events like buying a house, landing a new job or a promotion or transfer and, yes, even establishing close personal relationship.

But do you know how to increase your score? Try these four moves to give your scores a boost.

Fix Credit Errors — Don’t wait for a lender to check your credit before reviewing it yourself. Request a credit report from each of the three major bureaus every year, reviewing the accuracy of your personal info, credit limits and the open or closed status of each account. Dispute any errors immediately. Understand that open/unresolved disputes will, in many cases, impede your ability to get new credit.

Ask Forgiveness — If you have blemishes on your credit, try clearing them up. Negotiate paying an old debt if the creditor will mark your account “paid as agreed.” For a late payment on a long-held account, write the creditor, acknowledge your otherwise good history and ask for a goodwill adjustment that will remove the negative item it from your credit report. Act immediately upon learning of your oversight.

Make Strategic Repayments — You may not be able to pay off your credit cards quickly, but you can strategically pay them down. Start by dividing each card balance by its limit. Demonstrate moderation to lenders by keeping your credit balance below 20 percent of your available credit limit at all times, not just once a month. If your card debts are higher, make a plan to pay the balances down to reach a more desirable ratio within a few days. This is particularly true as you prepare to apply for new or better credit.

Increase Credit Limit(s) — Another way to reduce your debt-to-income ratio is to ask for an increased limit. It’s a balancing act; keep your credit balances in check, you will earn a better credit profile resulting in a higher credit score. Your chances of getting an increase on your credit limit are vastly better while your usage of the credit limit is minimal.

What is your credit score? Use this credit score simulator to find out. It’s free and it will give you a very good idea of where your score range is right now.

Caution – Be very wary of credit repair schemes, many are designed solely to part you from your hard earned money. Further, many are just scams. You can easily tell if they are running a scam. The scammers demand cash up-front. This is not legal. Pursuant to the Credit Repair Organization Act (CROA), any credit repair work must be completed before a consumer may be charged for the work.

• Q – Are there legitimate credit repair agencies?
• A – Yes, a few.
• Q – How do you know they are legitimate?
• A – They don’t charge you a fee until the work is done.
• Q – They told me there is a little known law they use to magically fix my credit.
• A – They are lying or under the influence of a liar.

Image attribution

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | October 1, 2015 | July 8, 2018

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.