3 Things Not to Do When Going Through the Mortgage Process

3 Things Not to Do When Going Through the Mortgage Process

Getting a mortgage in today’s real estate environment takes planning, preparation and patience on the part of the home buyer. If the home buyer is working with an experienced loan officer who knows what documents to ask for up front and how to guide ones loan application through the underwriting process the mortgage process can be much easier for the home buyer. But caution to those buying a home, there are three things that every homebuyer should not do when they are going through the mortgage process to buy a home.

Change Jobs Voluntarily or telling your going to retire soon!
When buying a home one of the criteria that underwriters look for is job stability and the other is multiple years experience in the same industry and career. These two criteria when put together can build a snapshot of ones career in the past several years and could also be a good indicator of the likelihood of ones job and career continuing on in to the future.

Lenders as we all know like to be paid when they lend money and the job stability of a potential borrower is one of the main criteria for evaluation on the mortgage application. Ideally, a potential borrower will have two years experience at their job with a high probability of long term employment.

Because of these facts we strongly recommend to our mortgage clients to not make any voluntary job changes leading up to and during the mortgage application process. If you are in the market and plan to buy in the next one to two years it is highly advisable to stay with your current employer in the same career discipline in order to not raise questions about job instability.

Taking on Large Amounts of Debt
We tell all of our borrowers up front that while they are going through the mortgage process please try not to make any large purchases on credit and not to take on any unnecessary debt.

Every potential home buyer that buys a home has their debt-to-income ratio (DTI) evaluated for compliance to mortgage guidelines. The debt-to-income ratio is the level of debt one has as a percentage of ones monthly gross income. An ideal percentage of debt that is allowable in relation to ones income is 36% or less, though mortgage guidelines do allow borrowers to go above this level. Going above the 36% debt-to-income level will cause an underwriter to sharpen their pencil and scrutinize a file more carefully so borrowers really need to have their financial house in order when carrying higher amounts of debt.

it is best for a borrower to remain under the allowable DTI levels as set forth under the mortgage guidelines and try to have no meaningful change in their debt level while their loan file is being evaluated. A significant change up or down in debt levels will need to be explained and an increase in the level of one’s debt could adversely affect one’s ability to buy a home.

Large and Frequent Money Transfers During the Mortgage Process
Mortgage companies understand that many families routinely move money from one account to another to cover expenses and to pay monthly bills. Routine is the key word here and if there is a consistent and explainable pattern requiring a person to move money from one account to another to pay monthly expenses then that normally is fine.

The problem arises when there is unusual activity or transfers that can not be explained by the client that raises eyebrows and may cause a home buyers mortgage purchase to be delayed or denied. For this reason we advise our mortgage clients to minimize all unnecessary activity within and between their bank accounts beyond what has been done by them on a routine basis for the past several months and years.

Minimizing any unusual and potentially excessive activity when applying for a mortgage can make the mortgage process much smoother and create less complications.

Hopefully this all is logical and makes sense to potential home buyers planning to buy a home. Listen to the guidance of your mortgage loan officer and he/she will let you know what financial moves are acceptable when going through the mortgage process.

 

Reverse Mortgage Pros and Cons

Reverse Mortgage Pros and Cons

What Is a Reverse Mortgage?

A reverse mortgage is a loan for senior homeowners that uses a portion of the home’s equity as collateral.  The loan generally does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. At that time, the estate has approximately 6 months to repay the balance of the reverse mortgage or sell the home to pay off the balance.

All remaining equity is inherited by the estate. The estate is not personally liable if the home sells for less than the balance of the reverse mortgage. When you ask the question, what is a reverse mortgage, the following is the type of answer you should expect.

Eligibility For a Reverse Mortgage

To be eligible for a HECM reverse mortgage, the Federal Housing Administration (FHA) requires that all homeowners be at least age 62.  If the home is not owned free and clear, then any existing mortgage must be paid off using the proceeds from the reverse mortgage loan at the closing. In addition, you must meet financial eligibility criteria as established by HUD.

When Does a Reverse Mortgage Come Due

A reverse mortgage typically does not become due as long as you meet the loan obligations.  For example, you must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.

Estate Inheritance

In the event of death or in the event that the home ceases to be the primary residence for more than 12 months, the homeowner’s estate can choose to repay the reverse mortgage or put the home up for sale.

If the equity in the home is higher than the balance of the loan, the remaining equity belongs to the estate.

If the sale of the home is not enough to pay off the reverse mortgage, the lender must take a loss and request reimbursement from the FHA. No other assets are affected by a reverse mortgage. For example, investments, second homes, cars, and other valuable possessions cannot be taken from the estate to pay off the reverse mortgage.

Loan Limits

The amount that is available generally depends on four factors: age, current interest rate, appraised value of the home and government imposed lending limits. Use the calculator to estimate how much you could receive. Please note that you may need to set aside additional funds from loan proceeds to pay for taxes and insurance.

Distribution of Money From a Reverse Mortgage

There are several ways to receive the proceeds from a reverse mortgage:

  • Lump sum – a lump sum of cash at closing.
  • Tenure – equal monthly payments as long as the homeowner lives in the home.
  • Term – equal monthly payments for a fixed period of time.
  • Line of Credit – draw any amount at any time until the line of credit is exhausted.
  • Any combination of those listed above

Difference Between a Reverse Mortgage and a Home Equity Loan

Unlike a Home Equity Line of Credit (HELOC), the HECM does not require the borrower to make monthly mortgage payments and any existing mortgage or mandatory obligations must be paid off using the proceeds from the reverse mortgage loan.  Many seniors use the remaining proceeds to fund medical expenses, make home repairs or just keep the extra cash in case of an emergency.  In addition, a HECM reverse mortgage line of credit cannot be reduced by the lender.

With a reverse mortgage the amount that can be borrowed is determined by an FHA formula that considers age, the current interest rate, and the appraised value of the home.

As stated previously, with traditional loans the homeowner is still required to make monthly payments, but with a reverse mortgage the loan is typically not due as long as the homeowner lives in the home as their primary residence, continues to pay required property taxes, homeowners insurance and maintains the home according to FHA requirements.

Pros of Reverse Mortgages

  • Allows the homeowner to stay in the home.
  • Can pay off existing mortgages on the home.
  • No monthly mortgage payments are required, however the homeowner must live in the home as their primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.
  • The homeowner receives payments on flexible terms:
    • Credit line for emergencies
    • Monthly payments
    • Lump sum distribution
    • Any combination of the above
  • A reverse mortgage can not get “upside down” so the heirs will never be personally liable for more than the home is sold for.
  • Heirs inherit the home and keep any remaining equity after the balance of the reverse mortgage is paid off.
  • Loan proceeds are not taxable.
  • The interest rate may be lower than traditional mortgages and home equity loans.

Reverse Mortgage Cons

  • The fees on a reverse mortgage are the same as a traditional FHA mortgage but are higher than a conventional mortgage because of the insurance cost. The largest costs are:
  • The loan balance gets larger over time and the value of the estate/inheritance may decrease over time.
  • A reverse mortgage loan usually does not affect eligibility for entitlement programs, such as Medicare or Social Security benefits. However, some needs based government benefits such as Medicaid and Supplemental Security Income (SSI) may be affected by a reverse mortgage loan. You should consult a qualified professional to determine if there would be any impact to your government benefits.
  • The program is not well understood by most individuals. However, the availability of independent reverse mortgage counseling helps.

Myths of Reverse Mortgages

 

  1. A reverse mortgage sells the home to the lender
  2. Heirs will not inherit the home
  3. The homeowner could get forced out of the home
  4. You could outlive the reverse mortgage
  5. Social Security and Medicare will be affected
  6. The homeowner pays taxes on reverse mortgage proceeds
  7. There are large out-of-pocket expenses
  8. A reverse mortgage is similar to a home equity loan

 

1. A reverse mortgage sells the home to the bank

Lenders are not in the business of owning homes — they wish to make loans and earn interest. The homeowner keeps the title to the home in their name. What the lender does is add a lien onto the title  so that the lender can guarantee that it will eventually get paid back the money it lends.

2. Heirs will not inherit the home

The estate inherits the home as usual, but there will be a lien on the title for the amount of the reverse mortgage loan plus any accrued interest and mortgage insurance premium.

For example, let’s assume someoneone takes out a reverse mortgage and owes $50,000 after 5 years. Then the homeowner passes away and the estate sells the house for $250,000. The lender gets $50,000 and the estate inherits $200,000.

A reverse mortgage is a “non-recourse” loan which means that the HECM borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less; and no assets other than the home must be used to repay the debt.  Non-recourse means simply that if the borrower (or estate) does not pay the balance when due, the mortgagee’s remedy is limited to foreclosure and the borrower will not be personally liable for any deficiency resulting from the foreclosure.

3. The homeowner could get forced out of the home

The HECM reverse mortgage was created specifically to allow seniors to live in their home for the rest of their lives. The homeowner will not be evicted or foreclosed on as long as the borrower meets the obligations of the loan.  For example, the borrower must live in the home as their primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.

4. Someone can outlive a reverse mortgage

The reverse mortgage becomes due when all homeowners have moved out of the property for 12 consecutive months or passed away.

5. Social Security and Medicare will be affected

Government entitlement programs such as Social Security and Medicare are usually not affected by a reverse mortgage. However, need-based programs such as Medicaid can be affected. It’s best to consult with a qualified financial advisor to learn how a reverse mortgage could impact eligibility of some government benefits.

6. The homeowner pays taxes on a reverse mortgage

The proceeds from a reverse mortgage are not considered income and are not taxable. Consult a tax advisor for more information.

7. There are large out-of-pocket expenses

Typically, the majority of lender closing costs and fees can be financed into the reverse mortgage loan.

8. A reverse mortgage is similar to a home equity loan

A reverse mortgage and a home equity loan both use the home’s equity as collateral; however, there are also some differences.  For example,

  • Any homeowner can apply for a home equity loan. A homeowner must be at least age 62 to be eligible for a reverse mortgage.
  • A home equity loan typically must be repaid in monthly payments over 5 or 10 years. A reverse mortgage is typically not paid back until the homeowner moves out of the property for 12 consecutive months or passes away.
  • A home equity loan that charges no closing costs may have a higher interest rate over the life of the loan. A reverse mortgage charges upfront closing costs but generally has lower interest over the course of the loan.

Fees

Closing Costs

The three largest closing costs are the FHA mortgage insurance, the origination fee, and escrow fees. However the only cost that is typically paid out of pocket is counseling.

FHA Mortgage Insurance

With a HECM, the borrower is required to pay an initial Mortgage Insurance Premium (MIP), as well as an annual MIP of 1.25 percent. (Please see chart below for more details regarding the initial MIP).

MIP Chart

The mortgage insurance premium provides the following safeguards:

  • The HECM is a “non-recourse” loan. If you sell the home to repay the loan, you or your heirs will never owe more than the loan balance or the value of the property, whichever is less; and no assets other than the home must be used to repay the debt
  • If the lender becomes insolvent or otherwise fails to make payments due the borrower; MIP ensures that the borrower will continue to receive their payments

Origination Fee

The origination fee is what the reverse mortgage lender earns on the loan. The FHA uses a formula to determine what the lender can charge. The formula is:

  • 2% of the first $200,000 of the property’s value and 1% of the amount over $200,000
  • A maximum of a $6,000 origination fee
  • A lender can charge a HECM origination fee up to $2,500 if your home is valued at less than $125,000

Title Fees

Title is required for all mortgages whether reverse or conventional. The largest part of title fees is title insurance. Title fees are usually broken down into:

  • Title insurance (varies by state and with property value)
  • Title settlement
  • Title search/exam
  • Recording
  • Delivery/courier
  • Payoff (if a mortgage is being paid off)
  • Notary
  • Doc prep

Appraisal

An appraisal is required to determine your home’s value. A reverse mortgage appraisal is conducted by an FHA-approved appraiser and follows specific FHA guidelines that require more documentation than a typical appraisal. The cost of the appraisal can vary.

Other Closing Costs

  • Counseling
  • Wire Fee
  • Flood Cert
  • Credit Report

Interest

Interest and annual mortgage insurance premium accumulates on a reverse mortgage loan. However, instead of paying down the balance like you would on a traditional mortgage, the loan balance increases over time.

Interest Rate and Mortgage Insurance

The true interest rate is one and a quarter percentage points above the quoted rate because the total rate includes the FHA’s ongoing Mortgage Insurance Premium (MIP) charges. For example, if the quoted rate is 4.51%, with the MIP charges of 1.25%, the total rate would be 5.76%.

Eligibility Requirements

In general, to be eligible for a reverse mortgage the youngest homeowner must be 62 years old or older and have sufficient home equity. You must also meet financial eligibility criteria as established by HUD.

Determining whether or not there is sufficient equity in the home is an FHA calculation that takes into account:

  • Current interest rate
  • Whether the rate will be variable or fixed
  • Age of the youngest homeowner
  • FHA lending limits
  • Appraised value of the home

You may need to set aside additional funds from loan proceeds to pay for taxes and insurance.

 

Frequently asked questions:

If a homeowner is not 62 but they are permanently disabled, can they qualify?
No. The FHA use age as a criteria to determine reverse mortgage eligibility and makes no exceptions for disability or Social Security status.
Can someone qualify if they have a mortgage?
Yes, as long as they have sufficient equity.  Many homeowners who take out a reverse mortgage use it to pay off their existing mortgage, so they can stop making monthly mortgage payments.
Do all 62-year olds who own their home qualify?
No. Some homeowners who want to get a reverse mortgage are not eligible because they don’t have enough equity built up in their home. In addition, some types of homes are not eligible and the borrower must also meet financial eligibility criteria as established by HUD.
What happens if there isn’t enough home equity to qualify?
This is called a “shortfall.” This means that the reverse mortgage would not provide enough money to pay off the existing mortgage on the home — it is coming up “short.” In this situation, some homeowners may choose to make up the difference by paying down the balance on their mortgage by the amount of the shortfall so that they can qualify for the reverse mortgage. However, most people who want a reverse mortgage and have a shortfall don’t have enough money to do this.

 

 

DROUGHT-TOLERANT PLANTS

THE BEST DROUGHT-TOLERANT PLANTS TO KEEP YOUR GARDEN FROM GOING NAKED

Written by Jaymi Naciri on Sunday, 07 June 2015 9:17 am

 

Drought got your garden feeling lonely? You don’t have to go naked this summer. Xeriscaping with drought-tolerant plants can bring in color and texture without sucking down that precious water.

Xeriscaping has been practiced in the southwest for years, but with several states now facing drought conditions and mandatory water restrictions—in addition to a growing desire to conserve natural resources—the practice has grown.

If you’re looking for ways to pack some drought-friendly punch into your garden this year, here are a few places to start.

Portulaca

“This easy-care, drought-tolerant annual is a sure source of perky color,” said Birds and Blooms. “Portulaca grows in low clusters, bloom in a rainbow of hues and thrive in the hot, sunny spots where other flowers might wither.”

Blanket Flower

Better Homes and Gardens calls blanket flower “a tough prairie plant” and also “flamboyant,” which is great for someone who likes lots of color. Better yet, this perennial “blooms all summer and into fall.”


Prescott Valley GrowersLavender

This favorite scent is also a hearty plant that can add color and fragrance to your garden with minimal upkeep.


BestGarden.netCalifornia Poppy

Plant it in full sun even in soil that’s not the best quality, and watch this sunshiny flower grow.


LoveToKnowLicorice Plant

If you’re a fan of the way vines look trailing around fences are among other plants, this “fuzzy, silvery foliage (that) thrives in partial shade to full sun and spreads out to 6 feet,” said Birds and Blooms, is a unique option.


Wilson Bros NurseryConeflower

Looking for something that requires little effort and can grow without perfect soil and with minimal water? Try coneflower. A bonus: It is also “often self-sowing,” said Birds and Blooms.


Gardening Know HowAngelina

This succulent brings in chartreuse leaves and “spreads freely, making it a fluffy groundcover or filler between other plants,” said Sunset magazine.


Sarilia Country EstatesVoodoo

One of our favorite succulents is also one called out by Sunset. “Small, rounded burgundy leaves cover this low-growing, quick-spreading succulent from the Caucasus,” they said. “Tiny reddish flowers bloom in summer.”


Sunnyside GardensSucculents are a favorite choice today for those who are looking to be water wise while still creating a standout garden, said Monrovia. “Easy care and attractive, these succulents provide high style when potted in containers in urban settings and in rock gardens, paths and challenging dry spots in the garden.”

Yarrow

“Not only does yarrow tolerate heat and drought like a champion, but this easy-growing perennial is also a great cut flower—and it comes in a number of varieties with blooms in shades of yellow, orange, red, pink, and white,” said Better Homes and Gardens.

Yarrow is also a great choice in areas where wildlife is known to feast. “Deer, rabbits, and most other pests won’t touch it.”


Gardenality

If you’re creating a drought-tolerant garden from scratch, click here for some great tips.

Market in a Minute.

 

For the Week Ending June 5, 2015
 

Please enjoy this quick update on what happened this week in the housing and financial markets.


In the US, manufacturing and business productivity fell sharply with higher labor related costs, which could support inflation. Inflation could lead to higher rates.
Jobless claims continue to point to a tightening jobs market. Strengthening in the labor market keeps the Fed on track to likely raise policy rates later this year.
Bond markets are again selling-off and pushing yields higher across the globe. Concurrent selling in mortgage bond markets is pushing mortgage rates higher too.  Be prepared for some volatile times ahead.

Buyers show an unprecedented demand for bigger homes. An increased number of homes built in 2014 had more bedrooms, more bathrooms, and bigger garages.
Existing home sales in April were up 6.1% from a year earlier. Strong demand continues to drive up prices, with 40% of properties sold at or above asking price.
Private residential construction spending increased slightly over last month and more substantially year-over-year. Greater supply could help the housing market.

Weekly Market Preview

What’s on the agenda for this week?

A huge week this week and a huge month. By the end of this month markets should have a solid idea when the Fed will actually stop talking and increase the FF rate—-or not. This week’s data is critical, both ISM reports, personal income and spending for May, April construction spending, April factory orders, May auto and truck sales, US April traded deficit, the Fed Beige Bok, Q1 productivity and unit labor costs and…the May employment data.

April personal income increased 0.4%, a little better than thought at 0.3%, spending tough continues to show consumers are in no big rush to spend, spending expected up 0.2% but there was no increase (0%). Just another reminder, consumer spending accounts for more as much as 70% of what goes on in the U.S. economy. The savings rate jumped in April to 5.6% from 5.2%, and it’s been above 5% for five straight months; the last time that happened was two years ago. Core PCE expected up 0.2%, up just 0.1% and yr/yr +1.2% compared to yr/yr in March +1.4%; inflation based on this data is nowhere near the Fed’s target. Prior to the 8:30 report the 10 yr yield was 2.13% +1 bp, at 9:00 and ahead of 10:00 key data, -1 bp to 2.12% and 30 yr MBS prices +9 bps.

At 9:30 the DJIA opened +70, NASDAQ +28, S&P +7. 10 yr note 2.12% unch, 30 yr MBS price +1 bps. Prior to the ISM manufacturing index report at 10:00 stock indexes slipped, the DJIA at 9:55 +16; 10 yr unch and MBS price +6 bps.

At 10:00, the key data today, May ISM manufacturing index expected at 51.8 frm 51.5, as reported at 52.8, the highest read this year was in Jan at 53.5. The employment index at 51.7 frm 50.48, new orders 55.8 frm 53.5. A solid report ahead of employment on Friday. Normally the ISM data would trump April reads but along with the 10:00 ISM report that was good, April construction spending was much stronger than estimates; expected up 0.7%, spending jumped 2.2% frm March and March was revised to +0.5% frm -0.6% originally released; yr/yr construction spending +4.8%.

This week’s Calendar;

Today,
– 8:30 am April personal income as reported +0.4% better than 0.3% expected, March income revised from +0.4% to +0.5%; spending unchanged against estimates of +0.3%
– 10:00 am May ISM manufacturing index (expected
– – April construction spending (expected +0.7% after -0.6% in March, as reported
Tuesday,
– 10:00 April factory orders (0.0% frm +2.1% in March)
– No –time May auto sales (17.0 mil frm 16.5 mil in April)
Wednesday,
– 7:00 am MBA mortgage applications
– 8:15 am May ADP private jobs (+200K frm +169K in April)
– 8:30 am April trade deficit (-$44.0B)
– 10:00 am May ISM services sector index (57.2 frm 57.8 in April)
– 2:00 pm Fed Beige Book
Thursday,
– 8:30 am weekly jobless claims (276K down 6K)
– – Q1 productivity (-2.9% frm -1.9% originally reported; Q1 unit labor costs +6.0% frm +5.0% originally reported)
Friday,
– 8:30 am May employment report (unemployed 5.4%, non-farm payrolls +220K, non-farm private jobs +215K frm 213K in April, avg. hourly earnings +02%, labor participation rate 62.7% frm 62.8% in April)
– 3:00 pm April consumer credit (+$16.8B frm $20.5B in March)

The 10:00 am data this morning dented the bond and MBS markets. The ISM better, April construction spending a major surprise with the improvement. With the data this week interest rate markets likely won’t be able to improve much ahead of employment, in the meantime attention to the weekly calendar above. Last week’s rally in treasuries and MBSs setting up for this week and adjustments for quarter end; technicals looking better but this morning’s data caps any chance of improvements today. Through this week expect choppy conditions; by the time we see May employment data we don’t expect much change in rates from what we have today.

PRICES @ 10:30 AM

10 yr note: -6/32 (18 bp) 2.15% +3 bp

5 yr note: -4/32 (12 bp) 1.51% +2 bp

2 Yr note: -1/32 (3 bp) 0.63% +1 bp

30 yr bond: -22/32 (69 bp) 2.92% +3 bp

Libor Rates: 1 mo 0.184%; 3 mo 0.283%; 6 mo 0.424%; 1 yr 0.749%

30 yr FNMA 3.5 June: @9:30 104.42 +1 bp (-1 bp frm 9:30 Friday)

15 yr FNMA 3.0 June: @9:30 104.36 -5 bp (-11 bp frm 9:30 Friday)

30 yr GNMA 3.5 June: @9:30 104.75 -1 bp (-3 bp frm 9:30 Friday)

Dollar/Yen: 124.36 +0.21 yen

Dollar/Euro: $1.0916 -$0.0070

Gold: $1202.90 +$13.10

Crude Oil: $60.35 +$0.05

DJIA: 18,005.97 -4.71

NASDAQ: 5052.91 -17.12

S&P 500: 2105.10 -2.29