Sunday, April 27, 2008
How a Reverse Mortgage Works
If you are over 62, you should take a minute to learn about this.First and foremost, I want to dispel a common misconception about Reverse Mortgages. Some people still think that when you obtain a Reverse Mortgage you "sign over" your house to the bank. This is FALSE! A Reverse Mortgage merely places a MORTGAGE on your home. It is no different in that respect than any other mortgage product you are familiar with.Even if you already have a first mortgage on your house, you may still be eligible for a Reverse Mortgage.A percentage of the value of your house is subject to availability of acceptable equity in your home. The most common type of Reverse Mortgage is the "Home Equity Conversion Mortgage". Otherwise called the "HECM". The HECM is GUARANTIED by FHA. That guaranty assures both YOU and the bank of some critical things.First and foremost, that guaranty assures the homeowner that they will NEVER owe more on their home that it is worth. Whether that home goes down in value or not! At no time will you ever have to worry about selling your home in a "short sale" situation. No worry about passing your home to your heirs with a balance owed in excess of its value.Second, the FHA guaranty assures you that if you chose to receive monthly payments under the conditions of the loan, you will receive them whether the bank that arranged that loan stays in business or not. FHA obtains documents at the closing that enables them to "pick up" the responsibility of that loan without any delay.Some of the payment options of the HECM are:- A line of credit (only earns interest if it is used)- A lump sum payment (up to 100% of the allowable equity is disburseddirectly to you in one payment)- "Tenure" payment (Payments will be received by you until you sell, or moveaway from your home)- "Term" payments (Payments are made to you for a specified length of time)- A "Modified Tenure" or "Modified Term" is one that combines either lumpsum, line of credit and Tenure or Term payments.I have been lending money since 1975, and I feel that this loan program is the most well regulated and conservatively designed of any that I have known. Seniors that may want to consider this product should be assured that this product does not jeopardize their ownership of their home.
Tuesday, March 4, 2008
The Effect of Foreclosures on the Rental Market in Southwest Florida
As properties continue to be added to the list of foreclosed properties, what is the overall effect on the rental market?
Some would think that the effect is neutral, or even negative in regard to rental rates, but they would be wrong. As an investment property owner receives his notice of foreclosure, the tenant of that property is also advised that the ownership of his home is in the process of changing from his old landlord to a new owner, that being “The Bank”!
These tenants would logically have between 3 to 6 months before their old landlord is no longer the owner of the house. A considered reaction could be to stop paying rent altogether. The landlord is in no position to spend money to evict them. He has already stopped making his mortgage payments, and “The Bank” has not yet taken ownership. They could “Live for Free” in that house if they so chose. The actual result is that the tenant quickly re-enters the rental pool in search of a new house. The foreclosed property will eventually be added to the list of homes for sale, but until that house is sold to an end user, either owner occupied, or investor it has effectively been removed from the houses available for rent. Banks are not in the Landlord business, and are not known to seek tenants for the houses that they own through foreclosure.
We can see that as more houses are added to the list of foreclosed properties the supply of available rental properties is decreased. With the demand for housing increasing due to continued growth of the Lee County area (approximately 2,500 per month) and the influx of displaced tenants, the rental rates in the area are likely to continue to rise from their historical lows.
I am convinced that opportunities are presenting themselves in not only the owner occupied sector of the Southwest Florida housing market, but in the rental arena as well.
Some would think that the effect is neutral, or even negative in regard to rental rates, but they would be wrong. As an investment property owner receives his notice of foreclosure, the tenant of that property is also advised that the ownership of his home is in the process of changing from his old landlord to a new owner, that being “The Bank”!
These tenants would logically have between 3 to 6 months before their old landlord is no longer the owner of the house. A considered reaction could be to stop paying rent altogether. The landlord is in no position to spend money to evict them. He has already stopped making his mortgage payments, and “The Bank” has not yet taken ownership. They could “Live for Free” in that house if they so chose. The actual result is that the tenant quickly re-enters the rental pool in search of a new house. The foreclosed property will eventually be added to the list of homes for sale, but until that house is sold to an end user, either owner occupied, or investor it has effectively been removed from the houses available for rent. Banks are not in the Landlord business, and are not known to seek tenants for the houses that they own through foreclosure.
We can see that as more houses are added to the list of foreclosed properties the supply of available rental properties is decreased. With the demand for housing increasing due to continued growth of the Lee County area (approximately 2,500 per month) and the influx of displaced tenants, the rental rates in the area are likely to continue to rise from their historical lows.
I am convinced that opportunities are presenting themselves in not only the owner occupied sector of the Southwest Florida housing market, but in the rental arena as well.
Sunday, December 9, 2007
Reverse Mortgage is answer to a prayer
I have recently been involved in a transaction that has made me feel better about doing a single piece of business than any loan I have made in a long time.
My borrowers were a couple in their mid 70's. They had already entered into Chapter 13 Bankruptcy 3 years ago. They had been making payments of almost $300 per month for those three years, and were not happy with the thought of another 2 years making those payments. They found themselves with only their social security incomes after a recent tragic even in their life had cost them their life savings.
They had even needed to borrow $24,000 from their next door neighbor, as they had no family. They simply did not have enough income to survive, even though they owned their home of many years free and clear. Their options left them little to do but to sell their home in a depressed market and rent a small apartment. Their spirits were quite low when they entered my office.
I explained to them that by using the equity in their home I could arrange financing for them that they would never need to repay. The financing that I explained to them would pay off the remaining $10,000 on their Chapter 13, relieving them of those dreaded $300 monthly payments. Their neighbor would be paid back the money he borrowed from them, It would also put $6,000 money in their pocket. There was availability to a $20,000 line of credit. They would also receive additional $600 a month income for the rest of their lives!
Any heirs would still inherit their home with a mortgage outstanding for the funds that they had received.
When in the midst of the credit "crunch" we have so many worries and stress, it is so encouraging to be able to help someone.
I mentioned this loan in an earlier post, but now that I have closed the loan I just wanted to share this story of the completed transaction, knowing how well things turned out.
My borrowers were a couple in their mid 70's. They had already entered into Chapter 13 Bankruptcy 3 years ago. They had been making payments of almost $300 per month for those three years, and were not happy with the thought of another 2 years making those payments. They found themselves with only their social security incomes after a recent tragic even in their life had cost them their life savings.
They had even needed to borrow $24,000 from their next door neighbor, as they had no family. They simply did not have enough income to survive, even though they owned their home of many years free and clear. Their options left them little to do but to sell their home in a depressed market and rent a small apartment. Their spirits were quite low when they entered my office.
I explained to them that by using the equity in their home I could arrange financing for them that they would never need to repay. The financing that I explained to them would pay off the remaining $10,000 on their Chapter 13, relieving them of those dreaded $300 monthly payments. Their neighbor would be paid back the money he borrowed from them, It would also put $6,000 money in their pocket. There was availability to a $20,000 line of credit. They would also receive additional $600 a month income for the rest of their lives!
Any heirs would still inherit their home with a mortgage outstanding for the funds that they had received.
When in the midst of the credit "crunch" we have so many worries and stress, it is so encouraging to be able to help someone.
I mentioned this loan in an earlier post, but now that I have closed the loan I just wanted to share this story of the completed transaction, knowing how well things turned out.
Tuesday, October 30, 2007
A Reverse Mortgage for a Neighbor
A Reverse Mortgage for a Neighbor
I recently received a call from a man asking me for a rate quote on a Reverse Mortgage. I asked him if he was at least 62, and he told me that it was for his neighbor. As the conversation continued he went on to tell me that he recently had to lend money to his 75 year old neighbor. They owned their home free and clear, after many years of hard work. They were now faced with mounting anxiety as they were unable to pay for their bare necessities.
They were very unhappy with the thought that they would have to sell the house that they had worked all of their life to own and move into a small apartment. They had become very depressed, and their neighbor was worried about them.
I had their neighbor bring them by my office so that I could explain how a Reverse Mortgage works. They were pleased to learn that they would be able to live in and own their house for the rest of their life. They could choose the payment type they would receive from the equity in their home, and maintain their living standard, without having to borrow from neighbors. They would be able to maintain their dignity!
Since a Reverse Mortgage is specifically for individuals that are in their senior years, the government has tried to maintain a very close control of the product. Before a borrower may even enter into the official application process for a Reverse Mortgage, they must complete a counseling session by a third party (usually about an hour). And it can be done over the phone! That third party CAN NOT offer Reverse Mortgages, nor can they recommend any specific product. This session is held to assure that the borrower has a complete understanding of the loan transaction into which they are about to enter. These counseling sessions are held by licensed counselors like AARP.
There are many misconceptions about Reverse Mortgages. Some people feel that a Reverse Mortgage means that the elderly loose their home. NOT TRUE. The home is theirs, just as it is with any conventional mortgage. When the home is sold, there is a mortgage balance to be paid. JUST LIKE ANY OTHER MORTGAGE.
The balance on a Reverse Mortgage is only those funds that have been borrowed, plus any closing costs that were added to the loan balance. There are no “pre-payment” penalties. The house can be sold or re-financed at any time.
Payments can range from one lump sum payment, to a combination of a lump sum and monthly payments, or even a line of credit. The monthly payments can be arranged for a specific number of months, or for the rest of your life!
I recently received a call from a man asking me for a rate quote on a Reverse Mortgage. I asked him if he was at least 62, and he told me that it was for his neighbor. As the conversation continued he went on to tell me that he recently had to lend money to his 75 year old neighbor. They owned their home free and clear, after many years of hard work. They were now faced with mounting anxiety as they were unable to pay for their bare necessities.
They were very unhappy with the thought that they would have to sell the house that they had worked all of their life to own and move into a small apartment. They had become very depressed, and their neighbor was worried about them.
I had their neighbor bring them by my office so that I could explain how a Reverse Mortgage works. They were pleased to learn that they would be able to live in and own their house for the rest of their life. They could choose the payment type they would receive from the equity in their home, and maintain their living standard, without having to borrow from neighbors. They would be able to maintain their dignity!
Since a Reverse Mortgage is specifically for individuals that are in their senior years, the government has tried to maintain a very close control of the product. Before a borrower may even enter into the official application process for a Reverse Mortgage, they must complete a counseling session by a third party (usually about an hour). And it can be done over the phone! That third party CAN NOT offer Reverse Mortgages, nor can they recommend any specific product. This session is held to assure that the borrower has a complete understanding of the loan transaction into which they are about to enter. These counseling sessions are held by licensed counselors like AARP.
There are many misconceptions about Reverse Mortgages. Some people feel that a Reverse Mortgage means that the elderly loose their home. NOT TRUE. The home is theirs, just as it is with any conventional mortgage. When the home is sold, there is a mortgage balance to be paid. JUST LIKE ANY OTHER MORTGAGE.
The balance on a Reverse Mortgage is only those funds that have been borrowed, plus any closing costs that were added to the loan balance. There are no “pre-payment” penalties. The house can be sold or re-financed at any time.
Payments can range from one lump sum payment, to a combination of a lump sum and monthly payments, or even a line of credit. The monthly payments can be arranged for a specific number of months, or for the rest of your life!
Bob Tomasso
bob@tomasso.com
Saturday, October 27, 2007
When your lender talks about “points”
What does you lender mean when speaking about points? Very simply put, a point is 1% of the loan amount. The correlation between points and interest rate is simple. The more points you pay, the lower your rate. The question that we should ask ourselves when negotiating rates and terms with our lender is whether it is in our best interests to pay points and get a lower rate, or settle for a higher rate to avoid points and have lower closing costs.
It is not a very complicated analysis that is needed to determine what is in our best interests, and if our loan officer is listening to our plans and hopes for the property being purchased, or refinanced, suggestions to the structuring of the loan should be forthcoming.
If we consider a simple example of the rates and terms that would be available for the structuring of a loan in the amount of $150,000 on a 30 year amortization it may make my point more clear.
To finance the loan with a rate of 5.875%, one would expect to pay the lender approximately 2 Points. That same loan, without paying any points, would probably be negotiated at a rate of 6.375 %. What does this show us?
The loan at 5.875% would require monthly payments of $882.98 Principle and Interest.
The monthly payments at 6.375%, not paying any points would be $930.86 Principle and Interest.
We can therefore see that the loan with no points costs us ($930.86 - $882.98) $47.88 more per month. The points have cost us ($150,000 x 2%) $3,000.00.
If we divide the cost of the points by the monthly savings in payments ($3,000 divided by $47.88 = 62.6) we see that it will take us over 62 months to earn back the cost of the points we paid for the lower rate. If our intention is to occupy the house for less than 5 years, it seems that we should consider the higher rate, without paying the points.
Bond market factors involved in establishing interest rates do not always give the same results. It is important to always ask our lender what the rate would be if we were willing to pay points, and what it will be if we pay no points. We can then do our own calculations to determine what is in our best interests. If you like, you can contact me, and I will give you a current rate quote, and do the math for your individual situation.
bob@tomasso.com
Bob
Robert P. Tomasso
Licensed Mortgage Broker
Principal Broker
Tomasso Mortgage - Established 1989
A Licensed Correspondent Mortgage Lender
4410 SE 16th Place, Suite #1
Cape Coral, FL 33904
Toll Free(800)531-6739
Office(239)945-4348
Fax (239)945-4162
Serving all of Florida and Tennessee
It is not a very complicated analysis that is needed to determine what is in our best interests, and if our loan officer is listening to our plans and hopes for the property being purchased, or refinanced, suggestions to the structuring of the loan should be forthcoming.
If we consider a simple example of the rates and terms that would be available for the structuring of a loan in the amount of $150,000 on a 30 year amortization it may make my point more clear.
To finance the loan with a rate of 5.875%, one would expect to pay the lender approximately 2 Points. That same loan, without paying any points, would probably be negotiated at a rate of 6.375 %. What does this show us?
The loan at 5.875% would require monthly payments of $882.98 Principle and Interest.
The monthly payments at 6.375%, not paying any points would be $930.86 Principle and Interest.
We can therefore see that the loan with no points costs us ($930.86 - $882.98) $47.88 more per month. The points have cost us ($150,000 x 2%) $3,000.00.
If we divide the cost of the points by the monthly savings in payments ($3,000 divided by $47.88 = 62.6) we see that it will take us over 62 months to earn back the cost of the points we paid for the lower rate. If our intention is to occupy the house for less than 5 years, it seems that we should consider the higher rate, without paying the points.
Bond market factors involved in establishing interest rates do not always give the same results. It is important to always ask our lender what the rate would be if we were willing to pay points, and what it will be if we pay no points. We can then do our own calculations to determine what is in our best interests. If you like, you can contact me, and I will give you a current rate quote, and do the math for your individual situation.
bob@tomasso.com
Bob
Robert P. Tomasso
Licensed Mortgage Broker
Principal Broker
Tomasso Mortgage - Established 1989
A Licensed Correspondent Mortgage Lender
4410 SE 16th Place, Suite #1
Cape Coral, FL 33904
Toll Free(800)531-6739
Office(239)945-4348
Fax (239)945-4162
Serving all of Florida and Tennessee
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