Mortgage News

Cohen Financial News

Government helps homeowners refinance

By Marcie Geffner • Bankrate.com

If you're looking for a way to refinance your
mortgage, you might want to consider a loan
that's backed by the Federal Housing
Administration or, if you're a U.S. military
veteran, the U.S. Department of Veterans
Affairs. Loans backed by these two federal government agencies are
especially attractive today because the loan amount limits have been raised,
and some loan programs are open to homeowners who have little to no
equity or imperfect credit.

Given those benefits, it's no surprise that government-backed loans have
accounted for a much larger share of total loan applications. In the second
half of last year, government-backed loans accounted for as much as 30
percent of the total loan applications submitted to lenders, according to the
Mortgage Bankers Association in Washington, D.C., which has tracked that
figure since January 1990. Compare that one-third share to the lowest
share of government-backed loans on record -- 5.8 percent in August 2005
-- and it's clear that homebuyers and homeowners have taken a renewed
interest in these loans.

More information about government-backed mortgages
Federal Housing Administration
Veterans Affairs Home Loan Guarantee Service
USDA Rural Development

Yet not all lenders and mortgage brokers are able to offer Federal Housing
Administration or Veterans Affairs loans, also known as FHA and VA loans,
according to Greg Gwizdz, national sales manager at Wells Fargo Home
Mortgage in Des Moines, Iowa. That means if you believe this type of loan
might be appropriate for you, you should be sure to ask upfront whether
your lender or broker offers these types of loans.

"If the lender you choose doesn't offer FHA, you might not be getting the
right loan," Gwizdz warns.

FHA allows more leeway

Homeowners have flocked to FHA-insured loans for a few reasons in
particular.

Benefits of FHA loans
Interest rates are competitive versus conventional loans.
Qualification guidelines are easier.
The credit standards may be more flexible.
Closing costs may be lower.
The loan-to-value ratio may be as high as 97 percent.

The catch is that all FHA-insured loans require mortgage insurance for at
least five years. Mortgage insurance protects the lender if the borrower
defaults on the loan. It is paid for by the homeowner in the form of an
upfront fee and monthly premiums that are added to the mortgage payment.
The FHA usually allows the upfront fee to be financed as part of the loan
amount, but either way, mortgage insurance still adds to the cost of an FHA-
insured loan.

Whether a borrower would be better off with an FHA-insured loan or a
conventional mortgage depends in part on the loan-to-value ratio, or LTV
ratio, according to Don Frommeyer, senior vice president at AmTrust
Mortgage in Carmel, Ind.

Next: "Homeowners have two options to refinance into ..."

We are getting closer and closer to seeing the effects of the Obama Mortgage Bailout
Plan, March 4th. Many of you may be asking, “how much will it save me?” Well, that is
determined by how much you make and how much your current mortgage payment is. If
you have a mortgage payment that has been a struggle to make over the last year and
your income has not increased, it is likely that the Mortgage Bailout Plan will save you a
significant amount of money.

With the new Obama Mortgage Bailout Plan your mortgage payment will only be 31% of
your income. To put that into numbers, here is an example. If your mortgage payment is
currenly $1700 a month and your monthly income is $4300 before taxes, you will only be
expected to pay 31% of $4300 which is $1333 a month. You will save $367 a month and
$4404 a year! To calculate how much your new mortgage payment will be just multiply
your monthly income by .31. This is a rough estimate, but should be very close to your
new mortgage payment.

If your mortgage payment is less than 31% of your current income, you will not see an
immediate savings. You will have the oppotunity to save in the long run by refinancing.
Mortgage rates are at historical lows and many borrowers do not have access to these
rates because lenders are being so strict in their lending practices. The Obama
Mortgage Bailout Plan is giving lenders incentives to be more lenient with their lending
practices so more Americans will have the opportunity to refinance at lower rates.

So, if you have done well financially and stayed ahead with your mortgage payments,
apply to refinance and see what offers you get. You could get as much as a whole
percentage point dropped from your current mortgage rate. This would save you MUCH
more than the $4404 a year that the previous example illustrated.

Overall, the Obama Mortgage Bailout Plan should save most Americans some money in
one way or another. If you do not own a home, this is the time to buy as the government
is urging you to make your first home purchase by giving you an $8,000 tax credit and
many incentives to move into that first home. For more information on saving money on
your mortgage stay tuned to the Church of Cowherd.

Reverse Mortgages: Get the Facts Before Cashing In
On Your Home’s Equity
by John Cohen

Whether seeking money to finance a home improvement, pay off a current mortgage,
supplement their retirement income, or pay for healthcare expenses, many older
Americans are turning to “reverse” mortgages. They allow older homeowners to convert
part of the equity in their homes into cash without having to sell their homes or take on
additional monthly bills.

In a “regular” mortgage, you make monthly payments to the lender. But in a “reverse”
mortgage, you receive money from the lender and generally don’t have to pay it back for
as long as you live in your home. Instead, the loan must be repaid when you die, sell
your home, or no longer live there as your principal residence. Reverse mortgages can
help homeowners who are house-rich but cash-poor stay in their homes and still meet
their financial obligations.

To qualify for most reverse mortgages, you must be at least 62 and live in your home.
The proceeds of a reverse mortgage (without other features, like an annuity) are
generally tax-free, and many reverse mortgages have no income restrictions.

Three Types of Reverse Mortgages
The three basic types of reverse mortgage are: single-purpose reverse mortgages,
which are offered by some state and local government agencies and nonprofit
organizations; federally-insured reverse mortgages, which are known as Home Equity
Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing
and Urban Development (HUD); and proprietary reverse mortgages, which are private
loans that are backed by the companies that develop them.

Single-purpose reverse mortgages generally have very low costs. But they are not
available everywhere, and they only can be used for one purpose specified by the
government or nonprofit lender, for example, to pay for home repairs, improvements, or
property taxes. In most cases, you can qualify for these loans only if your income is low
or moderate.

HECMs and proprietary reverse mortgages tend to be more costly than other home
loans. The up-front costs can be high, so they are generally most expensive if you stay in
your home for just a short time. They are widely available, have no income or medical
requirements, and can be used for any purpose.

Before applying for a HECM, you must meet with a counselor from an independent
government-approved housing counseling agency. The counselor must explain the loan’
s costs, financial implications, and alternatives. For example, counselors should tell you
about government or nonprofit programs for which you may qualify, and any single-
purpose or proprietary reverse mortgages available in your area.

The amount of money you can borrow with a HECM or proprietary reverse mortgage
depends on several factors, including your age, the type of reverse mortgage you select,
the appraised value of your home, current interest rates, and where you live. In general,
the older you are, the more valuable your home, and the less you owe on it, the more
money you can get.

The HECM gives you choices in how the loan is paid to you. You can select fixed monthly
cash advances for a specific period or for as long as you live in your home. Or you can
opt for a line of credit, which allows you to draw on the loan proceeds at any time in
amounts that you choose.You also can get a combination of monthly payments plus a
line of credit.

HECMs generally provide larger loan advances at a lower total cost compared with
proprietary loans. But owners of higher-valued homes may get bigger loan advances
from a proprietary reverse mortgage. That is, if you have a higher appraised value
without a large mortgage, then you may likely qualify for greater funds. Location (for
example, your neighborhood) is only one part of the determination of appraised value.

Loan Features
Reverse mortgage loan advances are not taxable, and generally do not affect Social
Security or Medicare benefits. You retain the title to your home and do not have to make
monthly repayments. The loan must be repaid when the last surviving borrower dies,
sells the home, or no longer lives in the home as a principal residence. In the HECM
program, a borrower can live in a nursing home or other medical facility for up to 12
months before the loan becomes due and payable.
As you consider a reverse mortgage, be aware that:

Lenders generally charge origination fees and other closing costs for a reverse
mortgage. Lenders also may charge servicing fees during the term of the mortgage. The
lender generally sets these fees and costs.
The amount you owe on a reverse mortgage generally grows over time. Interest is
charged on the outstanding balance and added to the amount you owe each month.
That means your total debt increases over time as loan funds are advanced to you and
interest accrues on the loan.
Reverse mortgages may have fixed or variable rates. Most have variable rates that are
tied to a financial index and will likely change according to market conditions.
Reverse mortgages can use up all or some of the equity in your home, leaving fewer
assets for you and your heirs. A “nonrecourse” clause, found in most reverse
mortgages, prevents either you or your estate from owing more than the value of your
home when the loan is repaid.
Because you retain title to your home, you remain responsible for property taxes,
insurance, utilities, fuel, maintenance, and other expenses. So, for example, if you don’t
pay property taxes or maintain homeowner’s insurance, you risk the loan becoming due
and payable.
Interest on reverse mortgages is not deductible on income tax returns until the loan is
paid off in part or whole.

Call 1-800-928-6154

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