Should You Use a HECM to Buy a Foreclosure?

by Francine Huff
February 24th, 2010

A Home Equity Conversion Mortgage (HECM) can be used to purchase another home if you plan to live in it as your principal residence. Does it make sense to use reverse loan proceeds to buy a foreclosure property? Here are some things to keep in mind.

  1. Do your research before committing to purchasing a foreclosure. Search public records to see if a house has liens for unpaid property taxes or other bills. Also look at property records in the neighborhood to get an idea of what similar homes are going for in that market.
  2. Many foreclosures need repairs or maintenance that owners have let slide because they couldn’t afford to do the work. Be prepared to use some of the proceeds from a reverse home mortgage to do this work if you don’t have other funds available.
  3. Use reverse mortgage funds to buy a bank-owned property that has already gone through the foreclosure process. Unless you really know what you’re doing it’s best to avoid getting involved with a house where the homeowners are still living in it.
  4. Contact home builders in the area you want to live in. You just might find a brand new home that in foreclosure that you can get at a bargain-basement price. Also ask mortgage lenders if they have a list of brand new construction that has already gone through foreclosure.
  5. Consider using a real estate agent who is familiar with foreclosure activity in your housing market. An agent may have a list of homes that he or she has already seen and can steer you away from homes you aren’t interested in pursuing, such as those that require too many repairs.

Reverse Mortgage Can Help You Downsize

When considering using the proceeds from a HECM to relocate, it’s a good idea to downsize to a less expensive home. Avoid purchasing any foreclosure that strains your budget and leaves you in worse financial shape than when you started. Begin comparing reverse mortgage loan quotes to get an idea of how much you qualify to borrow to determine if it can cover a move.

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Should You Use Reverse Loan to Buy a Car?

by Francine Huff
February 23rd, 2010

Are mortgage foreclosure rates linked to homeowners’ transportation costs? They are according to a recent study by the Natural Resources Defense Council (NRDC). The study found that the more cars households in a neighborhood have, the higher the probability of foreclosure.

The NRDC, a nonprofit that works to protect public health and the environment, examined data from 40,000 households in Chicago, San Francisco, and Jacksonville, Fla. The probability of mortgage foreclosure decreased in neighborhoods where residents weren’t as dependent on cars, after accounting for income.

Are You Paying Too Much to Drive?

Are you paying out too much of your income for transportation costs? The average American household spent about 17% of its income on transportation costs in 2008, according to the U.S. Bureau of Labor Statistics.

Reverse Mortgages and Transportation

You may have considered getting a reverse mortgage to buy a new car or pay off the one you currently have. Here are some things to consider before getting a reverse home mortgage.

  • Reverse mortgages can be used for any purpose, even transportation costs. But make sure buying a car is really the best use of your money. Even if you think you can afford a luxury car, it might not be a wise investment on a fixed income. Look for a dependable vehicle that is less expensive.
  • Are you struggling with constant repair bills for a vehicle that is way past its prime? If so, then it may be time to get a more reliable car or look into using public transportation more often.
  • New cars begin depreciating the instant you drive off the car lot. If a reverse loan is used to pay for the purchase, consider buying a reliable used car instead of spending reverse mortgage proceeds on a new car.

Reverse Mortgage Guidelines

Talk with a reverse mortgage counselor to get the facts on borrowing money. You can also shop for quotes to get an idea of the costs involved with getting a reverse loan.

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Housing Counselors Have Tough Time Passing Reverse Mortgage Exam

by Francine Huff
February 22nd, 2010

Many reverse mortgage counselors are having trouble passing a test required by the Department of Housing and Urban Development. Only 995 counselors nationwide have passed the licensing test since it was revised last year, according to HUD.

Reverse Mortgage Test Is Difficult

“The test is intentionally difficult, but we believe it needs to be so because of the vulnerable population” who seek out reverse mortgages, a HUD spokesman told the Post and Courier. HUD made the licensing exam more difficult after numerous complaints that people who were providing counseling about reverse loans were not always well-informed.

Because of concerns about the difficulty of passing the test, HUD posted additional study materials online. But some experienced reverse mortgage counselors who have taken the test more than once still haven’t passed.

Reverse Loan Counselor Fails Test Repeatedly

Debbie Kidd, head of the Homeowner Resource Center at Family Services Inc. in North Charleston, S.C., who failed the test four times, told the Post and Courier, “It’s humiliating for me. I’ve done this for 20 years. … Why can’t we pass this test?”

Reverse mortgage counselors are required to pass the licensing exam. Because so many people are having a tough time passing the test, some areas are being left without counselors approved to discuss reverse home mortgages. Depending upon where you live it may be necessary to travel out of the local area to receive counseling face-to-face. Reverse mortgage loan counseling also can be done by phone.

Reverse Mortgage Counseling Is Required

If you’re in the process of applying for a reverse mortgage, you need to talk with a counselor. When choosing a counselor, find out if he or she has passed HUD’s new licensing requirements. Don’t assume that all counselors who work for a specific agency have passed the test.

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HECM Can Supplement Your Income

by Francine Huff
February 17th, 2010

Home Equity Conversion Mortgages (HECMs) are the only reverse loans that are insured by the federal government. Only reverse mortgage lenders approved by the Federal Housing Administration (FHA) can offer HECMs, which are the most popular reverse mortgage program in the U.S. Here are some things to know about reverse loans.

Reverse Mortgage Counseling

To borrow with HECM loans you must obtain counseling from an FHA-approved agency. HECM counselors must:

  • Pass a standardized exam administered by HUD;
  • Complete training related to HECMs within the previous two years;
  • Have access to technology that allows HUD to track the results of counseling to clients;
  • Retake the HECM exam every three years.
  • To find a reverse loan counselor in your area you can contact the Housing Counseling Clearinghouse at (800) 569-4287, or search online. Prepare a list of your concerns and questions about reverse mortgages before your counseling session.

    HECM and Home Equity

    When you take out a reverse mortgage, you tap into your home equity. Unlike a traditional mortgage that requires you to make monthly payments, a reverse home mortgage pays you. The more valuable your home is, the more you may be able to borrow. The amount you can get also increases as you age.

    As long as you live in the home as your principal residence and stay current with insurance and taxes, you can stay without paying back a reverse loan. Remember, proceeds from a reverse mortgage can be used to buy another home to live in as your principal residence.

    Compare Reverse Mortgage Lenders

    Even though reverse mortgage lenders must meet federal guidelines, it is still important to shop around to compare reverse mortgage quotes. Make sure you understand all the closing costs, terms, and conditions associated with any reverse mortgage you are considering.

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    Reverse Loans and Early Retirement

    by Francine Huff
    February 16th, 2010

    Did you retire early and now find yourself with less of a retirement fund than you anticipated because of stock market declines? Even if you planned for retirement carefully and socked away money religiously over your working years, it may take years to rebuild a nest egg. Should you consider borrowing with a reverse home mortgage to supplement your income?

    Reverse Loan Coverts Home Equity to Cash

    A reverse mortgage could put a significant chunk of money in your pocket if you have enough home equity. Take the proceeds as a lump sum, a line of credit, or regular monthly payments. But keep in mind that the amount of home equity you can convert to cash is based upon your age and current mortgage rates, as well as a home appraisal.

    AARP has a reverse mortgage calculator that can give you an idea of how much you might be able to borrow. You also are required to meet with a reverse mortgage counselor before applying for a loan. The counseling session is designed to inform you about reverse mortgage guidelines as well as other alternatives to borrowing money.

    Reverse Mortgage or Get a Job?

    If you are uncomfortable with giving up home equity to borrow a reverse loan, you may need to consider going back to work. A part-time or full-time job may give you just enough income to handle your monthly bills.

    Many U.S. workers are having a tough time finding positions right now, so be prepared to job hunt for a while. Decide what your limitations are in terms of hours, commuting, or physical restrictions that may impact your ability to get a job. If your search doesn’t result in a new gig and you still want to investigate reverse mortgage loans, consider shopping for free, no obligation quotes here.

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    Reverse Mortgages Require Home Equity

    by Francine Huff
    February 15th, 2010

    Many Americans are still waiting for their home values to rise. About a quarter of people who have mortgages are underwater on them, or owe more than their homes are worth. Can you get a reverse loan if your home has lost significant value?

    No Home Equity, No Reverse Mortgage

    Reverse loans are approved for people who have enough home equity to convert to cash. The amount that can be borrowed depends upon your home’s appraised value. Without equity in your home, you can kiss a reverse home mortgage good-bye.

    Appraisals Are Important

    What if you still have some equity although home values are falling in your area? You may qualify for a reverse mortgage, but not as much as you hope to get. In general, the amount you qualify to borrow is determined by your age, your home’s value, and current interest rates.

    Talk with a qualified housing counseling to discuss reverse mortgage guidelines and determine if it’s worth it to take out a loan. Decide why you need a loan in the first place. If borrowing with a reverse loan won’t help, you may be better off not applying for one.

    Reverse Loan Payout

    For some homeowners it makes more sense to postpone borrowing with a reverse mortgage until the local housing market recovers. Older borrowers also receive more money, so waiting a few years can put more money in your pocket even if housing values don’t change significantly. Contact reverse mortgage lenders to compare quotes for borrowing at different ages.

    When You Can’t Pay Mortgage Bills

    When a reverse mortgage isn’t the right option, investigate other alternatives. Your housing counselor should be able to discuss other ways you may be able to improve your financial situation. If you struggle to make monthly payments on a mortgage, contact your mortgage lender to discuss the possibility of refinancing or getting a loan modification.

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    Discussing Reverse Loans with Your Parents

    by Francine Huff
    February 10th, 2010

    At some point, adult child caregivers may get involved as their aging parents make financial decisions. In many families, kids’ finances become intertwined with their parents. A reverse home mortgage can help elderly parents and the family they have come to depend on.

    What Is a Reverse Mortgage?

    Reverse loans allow people 62 and older to convert home equity into cash. Money borrowed can be used for any purpose, including paying off debt, medical bills, home improvements, etc. The funds can be distributed in a lump sum or installments. The amount that can be borrowed is based upon the age of the borrower, appraised home value, and current interest rates.

    Involving Parents in the Process

    The person applying for a reverse mortgage must have the name on the deed. Adult children cannot apply for a reverse mortgage for their parents, but can schedule a consultation with a reverse mortgage counselor if they are caregivers.

    Parents should be involved in any decisions about applying for a reverse loan as long as they are mentally able to participate. They probably worked hard to buy a home and shouldn’t have to worry about their home equity being stripped away without their consent — even if their chidren mean well.

    Reverse Mortgage Guidelines

    A counselor can explain reverse mortgage guidelines and help determine how such a loan would help with household expenses. Counselors should be comfortable running the numbers to determine how much can be borrowed and with explaining reverse mortgages pros and cons. Reverse mortgage counselors also should be able to discuss alternatives to reverse mortgages.

    Borrowing money through a reverse home mortgage is a big financial decision that should be planned carefully. It may be helpful for adult kids to find a knowledgeable estate planner to talk with about how a reverse loan can fit into their parents’ overall financial picture.

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    Should You Cash Out Home Equity with a Reverse Loan?

    by Francine Huff
    February 9th, 2010

    You spent years working hard so you could pay off a mortgage and own your home free and clear. But retirement isn’t exactly what you thought it would be and now find yourself having a tough time paying bills. Should you consider cashing in some of that home equity by borrowing with a reverse home mortgage?

    What Makes You Feel Secure?

    One of the main questions to ask yourself is how secure you feel with your current income. Having a home paid off in full is a blessing. There are no monthly mortgage payments and you know you’ll always have a place to live as long as you keep the property taxes paid. But if you find yourself struggling to pay high medical costs or other bills even though you own your home free and clear, it may be necessary to supplement your income. The question is how to do that.

    Reverse Loan Puts Cash in Your Pocket

    You are eligible to apply for a reverse loan if you are over 62. However, it can pay to wait a few more years before borrowing money through a reverse mortgage. That’s because the older you are, the more money you can get. What you can borrow also depends upon your home’s appraised value, as well as reverse mortgage rates.

    Return to the Workforce

    Unless you are able to come up with cash from another source, returning to the workforce may be a necessity if you can’t pay the bills. Choosing to get a part-time or full-time job won’t affect your ability to borrow with a reverse mortgage. But if you can’t work because of a medical condition, talk with a reverse mortgage counselor about how a loan could help.

    Begin to compare reverse mortgage quotes here to become familiar with how much you may be able to borrow.

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    Reverse Mortgage Straw Buyers Among Top Mortgage Scams

    by Francine Huff
    February 8th, 2010

    Fraud involving straw buyers and reverse mortgages is one of the most common mortgage scams in Utah, according to the Salt Lake City Federal Bureau of Investigation (FBI) and Utah Division of Real Estate. The agencies released a list of the top five mortgage scams.

    A “Free” House and HECM Loan

    Straw buyers are people who are recruited to purchase properties they don’t actually intend to live in. When reverse loans are involved, seniors may be told they can live in a home for free. The deed to the home is then transferred to them without any exchange of money. After 60 days have passed, arrangements are made for the senior to apply for a Home Equity Conversion Mortgage (HECM). After the person receives a lump sum distribution of HECM funds, the scam artist pockets the money and disappears, leaving the victim responsible for repaying the loan.

    Short Sale Fraud

    Short sales have become more common as so many homeowners have lost significant value in their homes and need to sell. A short sale happens when a bank agrees to accept less than the mortgage owed from a distressed homeowner who sells a home. “Fraud occurs when a distressed homeowner finds a prospective buyer and they secretly set a low sale price. Unbeknownst to the lender, the buyer is willing to pay more for the property and the homeowner pockets the difference,” according to the FBI statement.

    Kickbacks and Mortgage Modifications

    Other scams in the top five involve kickbacks where home builders have a too much inventory and offer excessive incentives to buyers. The incentives are disclosed as down payments so it appears to the mortgage lender that the buyer has some equity. Loan modification scams occur when companies charge up to $2,000 to help distressed homeowners with their payments, but don’t keep up their end of the bargain.

    The fifth mortgage scam on the list involves affinity fraud. That occurs when scam artists get the trust of people in a specific religious, ethnic, or professional group and get them to invest in some type of investment scheme.

    Do Your Research First

    In general, homeowners should be skeptical of any one who makes promises that seem questionable or too good to be true. It’s always a good practice to check out unknown companies or individuals who want to do business before getting involved with them. Start with your state attorney general’s office and the Better Business Bureau to check out their reputations.

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    Home Ownership Rate Falls in U.S.

    by Francine Huff
    February 3rd, 2010

    The home ownership rate in the fourth quarter of 2009 fell to a level not seen since before the housing boom. The home ownership rate on a seasonally-adjusted basis was 67.2%, close to what it was in early 2000, according to the U.S. Census Bureau.

    Many Seniors Own Homes

    Home ownership rates in the fourth quarter were highest for people 65 years and up (80.2%), and lowest for those under 35 (40.4%). Although many seniors own their homes, that doesn’t mean they aren’t struggling to hold onto them. Folks over 65 can use the following checklist to decide if a reverse loan could help them avoid foreclosure.

    1. Do you want to continue keeping up maintenance and repairs on a house? Although many seniors value their independence, you may not want to be bothered with all the chores that go with being a homeowner. Selling your home and moving to a condo or apartment may be a better option.
    2. Do you have much equity in your home? The more equity you have and the older you are, the more money you can borrow through a reverse home mortgage.
    3. Are you and your spouse old enough to qualify for a reverse loan? If both of your names are on the deed to your home, both of you must apply for a reverse mortgage together. You can only do that if you are 65 or older.
    4. Have you exhausted other options for keeping your home, such as assistance programs in your community, taking in a boarder, or getting other types of financial aid available to seniors?

    Review Reverse Mortgage Guidelines

    You can search for reputable reverse mortgage lenders here to compare quotes. Look for a knowledgeable reverse loan counselor who meets HUD guidelines.

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    Peter Graves Speaks out about Reverse Mortgages

    by Francine Huff
    February 2nd, 2010

    Actor Peter Graves is speaking out about reverse mortgages. Graves became the spokesperson for American Advisors Group last year and said in a statement that working with the company has allowed him to learn more about reverse loans. He expressed concern that some of the negative press about reverse mortgages may be giving seniors the wrong message about these loans.

    Reverse Mortgage Pros and Cons

    Reverse loans certainly have generated a vigorous debate recently over whether they are a help to seniors or the next “sub-prime disaster” waiting to happen. There definitely are cases of reverse loans gone wrong, but there also are many stories of seniors who successfully supplemented their incomes by tapping their home equity.

    “Of course, I’m a senior myself and I know how many thousands of seniors are out there struggling and looking for answers. I am all for reverse mortgages and what we’re trying to do is important to me,” Graves said in the statement. “I wouldn’t put my name and reputation behind anything I didn’t believe in.”

    Research Reverse Loans Carefully

    Graves also said that reverse mortgages are not a solution for everyone. He also said that before he became the spokesperson for the company, he also misunderstood some of the benefits and features of reverse home mortgages. He says anyone interested in learning more about reverse mortgages should do their research and look for reputable lenders to get quotes.

    It’s also important to remember that regardless of who the celebrity spokesperson is for a reverse loan firm or other type of company, you should never sign up for a product or service without fully evaluating whether or not it is right for your situation. Borrowing money through a reverse loan is a big decision to make, and no matter who endorses it, it’s your financial future that is being impacted.

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    Sunbelt Cities Top Foreclosure List

    by Francine Huff
    February 1st, 2010

    Twenty cities in sunbelt states accounted for the top 20 foreclosures rates among metro areas last year, according to RealtyTrac. Nine of the top 20 foreclosure rates were in California, eight were in Florida, two were in Nevada, and Arizona had one. Many of those areas have a lot of seniors who might be able to save their properties with reverse home mortgages.

    Las Vegas Foreclosures

    Las Vegas had the highest rate of foreclosures for a metro area with a population over 200,000; 12% of its housing units receiving a foreclosure notice in 2009. No. 2 on the list was Cape Coral – Ft. Myers, Fla., followed by Merced, Calif. Although it isn’t surprising that cities in these states continued to struggle with housing, the RealtyTrac data shows that other areas are starting to be affected by more foreclosures.

    Unemployment Contributes to Foreclosure Rates

    “There is evidence that we’re entering a new wave of foreclosures, driven more by unemployment and economic hardship than what we’ve seen over the past few years,” James J. Saccacio, chief executive officer of RealtyTrac, said in a statement. “Areas like Provo, Utah, Fayetteville, Ark., Portland, Ore., and Rockford, Ill., all posted foreclosure rates above the U.S. average in 2009. And markets like Honolulu, Minneapolis, and Seattle saw foreclosure activity increase at more than twice the national pace over the past 12 months — although all three of those markets still had 2009 foreclosure rates that were at or below the U.S. average.”

    Reverse Home Mortgage Can Help

    For seniors who are struggling to make mortgage payments or facing the threat of foreclosure because they can’t pay their property taxes, a reverse mortgage could help. A reverse loan can supplement a fixed income and keep you in your home. The money doesn’t have to be repaid until you move or die.

    Gather quotes from several lenders to find the best reverse mortgage for your situation. After reviewing reverse mortgage guidelines and comparing quotes, you should be in a better position to decide if one of these loans can keep you from becoming another foreclosure statistic.

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