Reverse Mortgages: How Do They Work?

Reverse Mortgages are exploding in popularity and as more and more baby boomers reach age 62 and beyond they will become eligible to cash in on their home equity with a reverse mortgage.

A reverse mortgage is a home loan you don't have to pay back for as long as you live in your home. It can be paid to you in one lump sum, as a regular monthly income, or at the times and in the amounts you prefer. The loan and interest are repaid only when you sell your home, permanently move away, or die.

Because you make no monthly payments, the amount you owe grows larger over time. By law, you can never owe more than your home's value at the time the loan is repaid. You continue to own the home, so you must pay the property taxes, insurance, and repairs. If you fail to pay these, the lender can use the loan to make payments or require you to pay the loan in full.

The amount of funding you get from a reverse mortgage usually depends on your age, your home's value and location, and the cost of the loan. The greatest amounts typically go to the oldest owners living in the most expensive homes getting loans with the lowest costs. Most people get the most money from the Home Equity Conversion Mortgage (HELM), a federally insured program.

Loans offered by some state and local governments are generally for specific purposes, such as paying for home repairs or property taxes. These are the lowest cost reverse mortgages. Loans offered by some banks and mortgage companies can be used for any purpose.

If you have questions about Reverse Mortgages, and whether they might be right for you, post your question or comment using the "comment" link below and we'll get back to you with answers to your questions, or find a loan professional who can answer your questions for you.

Mortgages: Pre-Qualified vs Pre-Approved

When you are pre-qualified for a mortgage of some amount, this is simply a quick measure of what you probably can borrow. It is based on a few answers you give to things like how much income you have and the amounts of any debts you have. It does not, however, mean the bank or lender who pre-qualifies you has agreed to lend you anything. Your income still needs to be verified, and your credit report will need to be looked at.

Loan pre-approval is different. Once the lender has verified any important facts and seen your credit score, you can be approved for a loan up to a certain amount. You should get a letter showing what they will lend you and at what interest rate.

This still does not guarantee you a loan. If interest rates change much prior to you finding a home and making an offer that is accepted, the lender may lower the amount they are willing to lend to you, since the total payment amount is important to whether you can afford the loan or not, and higher interest rates could change this amount. Also, changes in your credit score could affect the final loan commitment. Keep this in mind, and make all offers subject to an actual loan commitment.

Make a few copies of your loan pre-approval letter. Presenting it with an offer on a home is a good way to show the seller you are serious and prepared to close. If the seller has ever had an offer fall apart due to a buyer who couldn't get financing, he will be very happy to see your pre-approval letter. If you are looking for more than six months, you may want to get a new pre-approval letter, to show that you are still able to buy at the current interest rates and with your current credit score.

If you have any questions about the difference in being pre-qualified vs. being pre-approved, just use the "comment" link below and post your question here. We'll reply with an answer to your question. Remember, your email address will never be published here to protect your privacy.

Jumbo Loans for Larger Home Loans

In some real estate markets, a house in the $400,000 range may be considered a starter home. So the million dollar question is, "Why is it that a home loan in the mid $400's is considered a Jumbo Mortgage Loan?"

While most of us see the term "jumbo" as relative, Fannie Mae and Freddie Mac, two government sponsored mortgage entities, have their own opinions. Each year, a new "conforming loan limit" is published by these organizations.

The conforming loan limit is the maximum loan size eligible for purchase by either Fannie Mae or Freddie Mac, who purchase the underlying securities from mortgage originators. Those funds are then reinvested in new mortgages, and the flow-of-funds cycle continues.

The conforming loan limit, or "Jumbo Loan amount" is set every January. The current conforming loan limit is $417,000.

When a loan amount is higher than the conforming limit, it becomes a Jumbo Loan, or non-conforming loan, with slightly higher interest rates.

Jumbo Loans, compared with historically low mortgage rates, can bring greater flexibility for some home buyers to purchase the house they want and make the payment they want.

With interest rates so low, consumer interest in Jumbo Loans is very high. If you are looking at homes that wouild cause you to secure one of these "jumbo loans", talk to a mortgage expert to see if you qualify to get your jumbo loan with a low or no down payment. There are more options out there than most people understand, so it's important to talk with a professional in the industry before you start your home search.

If you have questions about jumbo loans, or any area pertaining to home loans, mortgages, or home buying, contact us. If we don't have the answers you're looking for, we'll find them for you, guaranteed. Just use the "comment" link below to send us your questions.

Mortgage Prepay Programs: Don't Get Suckered In

The world is full of people trying to convince us to pay for things we shouldn't. For example, programs that promise to help you pay off your mortgage ahead of schedule. Worth the money? Not according to money reporter Stacy Johnson. In this short (1:33) video, Stacy examines "Matter over Mind". Don't get suckered into this Mortgage Prepayment Program ploy. Take a look…

Have you received offers in the mail for something like this? Did you know you could prepay your mortgage without having to pay your mortgage company for the priveledge of doing so?

Mortgage Foreclosure Looming?

One thing that seems pretty consistent throughout the mortgage industry is, people facing the possibility of losing their home often do little or nothing to prevent it from happening. Many homeowner's don't even seem to be aware that they have options, while other are so distraught by their hardship, it's difficult for them to look for ways to improve their situation.

If you're facing a hardship and there's a chance you could lose your home, it's best to start educating yourself about the options that may be available to you. Homeowners are often able to buy more time in their home by working with their lender to postpone the foreclosure, pending a workout agreement. Many are able to avoid a foreclosure going on their credit. Some are able to work out an agreement with their lender that even makes it possible to keep their home.

You may be able to benefit from one or all of these scenarios; but you must take action to find out if you qualify. Contact your lender and request a workout package. Follow the instructions provided in the package and submit everything the lender requests to help them make an informed decision.

It really is in your lenders best interest to work with you because the cost associated with foreclosing is often much greater than the cost of helping you reaffirm your loan. But it's up to you! If you avoid contact with your lender, they will assume the only option they have is to foreclose.

So take action by following the steps we've outlined here. If foreclosure is looming in your future, don't just sit back and ignore the problem. Contact your lender. You'd be surprised, but they really do want you to keep you home if at all possible, and in most cases, are more than willing to work with you to do so.