5 Questions To Ask Before Considering a Reverse Mortgage

1.Do you really need a reverse mortgage? Why are you interested in these loans? What would you do with the money you would get from one? Are the needs you intend to meet really worth the high total cost of these loans? If you want to take a dream vacation, a reverse mortgage is a very expensive way to pay for it. Investing the money from these loans is an especially bad idea, because the loan is highly likely to cost more than you could safely earn. If anyone is trying to sell you something and recommending you use a reverse mortgage to pay for it, that’s generally a good sign that you don’t need it and shouldn’t be buying it.

2. Can you afford a reverse mortgage? These loans are very expensive, and the amount you owe grows larger every month. The younger you are when you take out a reverse mortgage the more the compound interest will grow, and the more you will owe. On the other hand, due to high up-front costs, these loans can be especially costly if you sell and move just a few years after taking one out.

3.Can you afford to start using up your home equity now? The more you use now, the less you will have later when you may need it more, for example, to pay for future emergencies, health care needs, or everyday living expenses. This is especially so if your needs suddenly grow or your income does not keep pace with inflation. You may also need your equity to pay for future home repairs or a move to assisted living. If you are not facing a financial emergency now, then consider postponing a reverse mortgage. Homeowners who decide to wait have “a reasonable expectation of securing a better product at a lower cost in the not-too-distant future,” according to a report by the Fidelity Research Institute.

4. Do you have less costly options? Do you have other financial resources that you could use instead of taking out a loan? If you don’t, and if you could easily make the monthly repayments on a home equity loan or home equity line-of-credit, these alternatives are much less costly than a reverse mortgage. Many state and local governments offer very low-cost loans for paying your property taxes or making home repairs. Have you seriously looked into the costs and benefits of selling your home and moving to a less expensive one?

5. Do you fully understand how these loans work? Reverse mortgages are quite different from any other loans, and the risks to borrowers are unique. Before considering one, you need to do your homework carefully and thoroughly.

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FHA Raises Net Worth Requirements, Eliminates Correspondent Approval

The Federal Housing Administration (FHA) announced it will issue a final rule in the next few days to reduce and manage counterparty risks to its insurance funds as it continues to play a critical role in today’s housing market. The new regulations will increase net worth requirements of FHA-approved lenders (including reverse mortgage lenders), strengthen lender approval criteria, and make lenders liable for the oversight of mortgage brokers.
“These changes support quality mortgage lenders while excluding organizations that are ill-equipped to handle the risk associated with market variations,” said FHA Commissioner David H. Stevens. “That is particularly important now when a robust, competitive mortgage finance market is a crucial element in rebuilding the American economy. Lenders bear the overall risk of FHA-endorsed loans, therefore it makes sense for them to approve their counterparties and have sufficient capital to operate.”
The final rule permits FHA to more effectively focus its resources on lenders that pose the greatest potential threat to its insurance funds and to ensure that lenders possess the resources appropriate for the financial services they deliver. FHA solicited public comments and on this new regulation and considered those comments in the development of the final rule said the agency.
According to FHA, the final rule will raise net worth requirements of FHA approved lenders from $250,000 to a minimum of $ 1 million. FHA said it will provide current lenders one year following the enactment to increase net worth. Effective three years after the enactment of the provision:
• Approved lenders and applicants to FHA single-family programs must have a net worth of $1 million plus 1% of total loan volume in excess of $25 million.

• Approved lenders and applicants to FHA multifamily programs must have a minimum net worth of $1 million.

• Multifamily lenders that also engage in mortgage servicing must have an additional 1% of total volume in excess of $25 million.
• Multifamily lenders that do not perform mortgage servicing must have an additional 0.5% of total loan volume in excess of $25 million.
In addition, FHA is eliminating the approval of reverse mortgage correspondents as of January 1, 2011.
According to FHA, “these changes align FHA with Fannie Mae and Freddie Mac and have potential to increase the number of mortgage brokers eligible to originate FHA-insured loans while providing for more effective oversight of brokers by FHA-approved lenders. “
Mortgage brokers or other third-party originators, already approved by FHA, will be authorized to continue to originate FHA-insured loans through the end of the calendar year without sponsorship of an FHA-approved lender.
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One Way To Avoid Becoming Delinquent on Mortgage

About 14% of U.S. homeowners were delinquent on mortgages at the end of the fourth quarter of 2009, according to a report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision. There was a 21.1% rise in mortgage loans that were 90 or more days behind on mortgage payments. Also prime borrowers increasingly fell behind, with almost 17% of them seriously delinquent.
So what steps can you take to avoid delinquency or turn things around if you are already behind on mortgage payments? You could investigate the government’s mortgage loan modification program or consider getting a reverse mortgage loan.

Reverse Mortgage FAQ

If you are delinquent on a mortgage you can’t afford to waste time doing nothing. Check out a variety of options, but if you think a reverse mortgage might help consider the following reverse mortgage FAQ:

• Can I apply for a reverse loan if I am still paying on my mortgage? Yes, you can. But the amount of money you might be able to borrow depends upon how much equity you have in your home, as well as your age.

• When do I have to pay back a reverse home mortgage? You won’t have to repay a reverse mortgage until you move or die. If you are concerned about how your estate may be impacted by a reverse loan, talk with an estate planner and a reverse mortgage counselor.

• Can I get a reverse mortgage even though I don’t have the best credit? Yes, you can. Reverse mortgage lenders do not require credit checks. However, if you are having trouble managing your finances, consider getting help from a credit counselor even if you choose not to get a reverse mortgage.

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