Most people think they are too young to plan for their retirement. But in reality, this is a process that should be started as early as possible. Here are a few things you need to follow if you want to make sure you have a comfortable life after your retirement:
Upon the death of the reverse mortgage borrower and/or his spouse, the surviving spouse or the heir/s will get a letter from the loan service provider. This letter will explain all the rules of reverse mortgage repayment and asks you want you wish to do about your property and the loan. You will have to provide an answer to this question and keep the communication with the loan service provider, open.
Here are your options to answer this question:
- You can keep your home. However, you may have to pay back the loan. The maximum amount you may owe would be 95% of the appraised value of your home. This is irrespective of the fact that your loan balance happens to be more than this amount. You can sell one of your assets or a life insurance policy or go for a new loan in your name to pay back the reverse mortgage.
- You can sell your home, pay up what you owe and keep the excess amount with you.You can choose your own real estate broker and manage the sale your way.
- You may give your home to your lender by signing a deed-in-lieu of foreclosure. This option could be good enough for those borrowers, whose loan amount is more than their home value.
Being an HECM (Home Equity Conversion Mortgage) loan, reverse mortgage becomes due and payable if the borrower passes away. You can remove furnishings and your personal belongings; but not the fixtures.
In case you are the surviving spouse of the borrower but not a co-borrower, you can remain in the home for as long as you wish, without paying back the reverse mortgage loan. However, you may want to consult your attorney to find out your rights and options.
In case the lender forecloses while the spouse of the borrower is still surviving, it might turn into a serious legal issue. However, if the spouse of the borrower or heir fails to take any action, within the specified time frame, the lender can definitely foreclose.
This specified time frame might vary from one lender to the other. Also, as per HUD, you may even get an extension if you have been making reasonable efforts to sell or refinance your home.
As a lender of reverse mortgage, here is one thing you might have to do, in order to ensure you get the right amount of money from the spouse or heir of the borrower after the demise of the borrower – Get the home appraised in order to find the market value. If it exceeds the amount that is due, you can be sure that you will get the complete money. Nevertheless, if the amount due is much more than the actual market value of the home, 95% of the value is what you will get.
You can start looking for new potential borrowers right away. One best way would be to purchase
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You can use your reverse mortgage payout to increase your pension and Social Security payouts
Most senior homeowners tend to use up their payouts from their pensions and social security as soon as they become available. In the meantime, they don’t understand that they are losing a chance on maximizing these payouts. By taking out a reverse mortgage, you can make yourself financially sound so that you don’t have to wait for these payouts. So, they keep increasing for as long as you don’t touch them. This applies to your other retirement assets too.
You can eliminate your monthly mortgage payments
Monthly mortgage payments take out a chunk of your income every month. If you have an existing mortgage on your home, you can pay it off by taking out a reverse mortgage. Not only would this help you eliminate your monthly mortgage payments, it will also give you some extra money that you can use up for your other needs.
You can have access to an ever-growing line of credit that is non-cancellable and low-cost
Reverse mortgage offers you the option of taking out money either as a lump sum, or as a monthly payout for as long as you stay in your home. You don’t have to worry about this being cancelled or about you having to pay up some fees. Reverse mortgage becomes repayable only when you move out of/sell your house or pass away. When one of these situations happens, you or your heirs repay the amount from the sale proceeds of your home. The best part is that if the reverse mortgage amount is more than the value of your home, you won’t have to pay back the balance.
You can safeguard the performance of your portfolio even when the market is down
When the stock market is down, it might become difficult to protect your portfolio, especially when there is no other source of finance. Nevertheless, with a reverse mortgage, you get enough incoming funds that will protect your portfolio until the market starts picking up. This way you get to decide when you want to sell your stock and at what price. It will keep you out of losses that could otherwise be difficult to avoid.
You can enjoy annuity-style payments
One thing that you would definitely miss in your retired life is a steady flow of income. You can opt to receive your reverse mortgage in annuity-style payments. This would solve your problem and help you enjoy a steady flow of income for as long as you live in the house.
You can replace your cash reserves by taking out a reverse mortgage
Retirement can deplete your cash reserves, leaving you with very little left as you get older. Taking out a reverse mortgage can help you replace those cash reserves that have started depleting. This way you can maintain your lifestyle and even speed up financially.
There are many more ways to make use of your reverse mortgage to plan your finances. If you plan well, you can be free of financial problems and enjoy your retired life.
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There are many factors that the mortgage industry considers while determining how you qualify for a mortgage and what rate you deserve. Understanding these and working upon them will help you improve your current standing and ask for a better rate.
Here are a few steps you need to take if you are looking to obtain a mortgage at a great rate of interest:
Improving your FICO credit score
The higher your credit score the lower will be your mortgage rate. If you have a FICO score of 760 or above, you can get the best mortgage rates in the market. A 620 FICO Score will definitely help you qualify for a mortgage; but the rate you will get would be about 5.022%. Nevertheless, with a score of 760 or above, you can obtain a mortgage with 3.433% only. You will have to start working months in advance if you want to improve your credit score. This includes paying off your debts or dues and cleaning up your credit report if there are any mistakes.
Work on your Income and Employment Stability
Job stability is one thing that most Mortgage lenders would consider while qualifying mortgage applications. You should ideally be in the same job for at least two years before you apply for a mortgage. In case you have switched your job, it better be to a higher paying position. The requirements are quite strict if you are self-employed. You will need to make sure you have documented your business income along with your IT returns for a period of two years at least.
Improve your DTI or Debt-to-Income Ratio
There are two things you need to improve here – your back-end ratio ((sum total of your monthly debt payments + proposed monthly payment for your new housing) / your gross monthly income) and your front-end ratio (your housing costs apart from your debts). Ideally your front-end ratio should be less than 28% and your back-end ratio should be less than 36%. The lower your DTI, the lower would your interest rate be.
Save up for your Down Payment
The more down payment you make the better will be your mortgage rate as it reduces the risk of your lender. You should ideally save up enough money to pay up a 20% down payment before applying for a mortgage. This way you may not have to pay your PMI or private mortgage insurance. This will reduce your monthly mortgage payment and make it much more affordable.
Manage your Cash Reserves Efficiently
Apart from saving up for the down payment, you should also have enough cash reserve to make your monthly mortgage payments for about three months or so. This will give the confidence to the lender that you will pay up your dues even if you happen to lose your job.
Once you are through with all this, you will have to shop around for mortgage lenders. Also, consider those that contact you directly by purchasing your details via exclusive
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Reverse mortgages may not help in all situations. It is best to consider your other alternatives too. For instance, in case you want to make any home improvements or repairs or if you are looking for some funds to pay your property taxes, it is better to check if there are any low-cost single-purpose loans you can qualify for. You can ask AAA or Area Agencies on Aging who will have information about such programs. You will have to specifically ask for information about the availability of “loan programs for home repairs or improvements,” “property tax postponement programs,” or “property tax deferral programs.”
Federally insured HECM is also an option to go or. In this case it would be better to be aware of the various HUD rules that the HECM lenders need to follow. Although the loan costs and the interest rates are standard, certain costs such as origination fee, servicing fee and other closing costs may vary from one lender to the other. So, it does benefit to do some shopping around.
If your home has a high value, proprietary
There is a primary advantage in buying a home through a reverse mortgage purchase program when compared to a conventional mortgage – You don’t have to make any monthly mortgage payments. You pay up the cost of the home in a lump sum and enjoy staying there. Nevertheless, there are a few things you need to know here:
- Reverse mortgages can be taken by home owners who are above 62 years of age. However, you can make the most out of the new non-borrowing spouse rules for the FHA Insured HECM Reverse mortgage if you have a younger spouse.
- If you purchase a home by taking out a reverse mortgage purchase loan, you may have to make a higher down payment, which might be about 40 to 50% of the home value or $625,500, whichever is lesser. This is basically because you are not required to make any monthly mortgage payments. This will make sure your home has equity right from the beginning, which will later be used up, to pay back the loan after you leave your home permanently. The amount that you contribute has a lot to do with your age. So the older you are, the lesser contribution you get to make.
- The income qualification in this case is much lower than the conventional mortgages. However, you need to have a good payment history for your debt expenses and past housing.
- By taking out a reverse mortgage purchase loan, you can be eligible to buy only the following properties:
- single family residences
- Condos and town homes that have been approved by HUD
- New constructions that have got certificate of occupancy
The down payment that you make will have to come from one of these sources:
- Sale of an existing home or an asset
- Gift from family members
- Cash from your savings or investments
You have to pay up the closing costs without availing any seller concessions.
In case there are any repairs upon appraisal or inspection, the seller will have to complete all the repairs before the closing.
The new financial assessment rules have for sure lengthened the amount of time taken to close HECM purchase loans. However, if your purchase agreement has been drafted accurately and if you have a good real estate agent, you can get the transaction closed within a very short span of time.
Many lenders who offer reverse mortgage purchase loans may start contacting you directly. They get your details from professional lead generating firms that sell
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