On Saturday, July 26, 2008 the Senate passed a $300 billion housing rescue bill aimed at helping troubled homeowners avoid foreclosure and supporting mortgage giants Fannie Mae and Freddie Mac.
After the law kicks in on Oct. 1, thousands of at-risk borrowers will be able to refinance their unaffordable old mortgages into new low-cost fixed-rate loans insured by the Federal Housing Administration (FHA).
The Congressional Budget Office estimates that 400,000 borrowers with $68 billion in loans may benefit from the program - but the bill allows for as many as 1 million or 2 million borrowers to participate in the program.
Here's what homeowners need to know.
Who's eligible?
Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 31% of their gross monthly income on mortgage debt to be eligible for the program.
They can be up to date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage - and attest that they are not deliberately defaulting just to obtain lower payments.
Before homeowners can get FHA-backed mortgages, they must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home.
To get a new home equity loan, borrowers will need approval from the FHA, and total debt cannot exceed 95% of the home's appraised value at the time.
How can I apply?
Borrowers can contact their current mortgage servicer or go directly to an FHA-approved lender for help. These lenders can be found on the Web site of the Department of Housing and Urban Development.
How does the refinancing process work?
This is a voluntary program, so lenders holding the original mortgage have to agree to rework a given loan before things can get started. The bill requires lenders to make major concessions, writing down the value of the loan to 90% of the home's current value. In areas where prices have plummeted by as much as 20%, that will mean a substantial loss for the lender.
But lenders won't sign off on a workout unless they think that they'll lose less money on that than they would by allowing a home to go through the costly foreclosure process.
Each loan will have to be underwritten by an FHA lender on a case-by-case basis. That means the banks will do a new appraisal to determine the home's current value, as well as examine and verify income statements, bank accounts, job histories and credit scores.
Based on that new appraised home value, the FHA lender must determine how much the original lender has to reduce the original mortgage, so that it will reflect 90% of the home's market value.
If the original lender agrees to the writedown, the new lender buys the old loan and takes over the reworked mortgage.
As part of the deal, the old lender writes off any fees and penalties on the original mortgage, including prepayment penalties, and accepts the proceeds from the new loan on a paid-in-full basis. Additionally, it pays the FHA an up-front premium equal to 3% of the mortgage principal.
What does it cost?
There should be little up-front costs for borrowers to bear. Loan origination fees will vary by lender, but these can usually be paid by the borrower over the life of the loan in the form of a slightly higher interest rate.
However, the refinanced loans do come with many strings. For one thing, borrowers are responsible for paying an insurance premium to the FHA guaranteeing the loan, which will be 1.5% of the principal annually.
Borrowers also agree to share any profits from future home-price appreciation with the FHA. To do that, they'll pay a "3% exit fee" of the mortgage principal to the FHA when they resell or refinance.
Plus, they'll agree to pay the FHA 100% of any profits they realize from higher home prices if they sell or refinance within a year. So if the original loan principal is $200,000 and the home sells for $250,000, the borrower will owe the FHA $50,000, minus costs.
After a year, borrowers will share 90% of the profits with the FHA. The percentage keeps dropping in 10% increments to 50% after the fifth year, where it stays.
What will I save?
Savings depend on what borrowers are paying for their present loan and where they live, but for most people it will be substantial, even after factoring in the FHA fees.
In areas that have sustained huge price drops, such as
Additionally, the FHA loans carry reasonable interest rates, which are fixed for the life of the loan, as opposed to a subprime adjustable-rate mortgage that can jump higher every six months
Denise J. Beard is a Real Estate Broker with Crye-Leike, Realtors in Nashville, serving the Middle
This home is located off Music Row and within walking distance of The Gulch. This home features: 3 bedrooms, 1 bathroom, 1000 sq. ft. and 4-sides brick. Mature trees shade the quarter acre lot. It won't last long at the price of $214,500. If you would like to view more pictures of this home or for more information, please visit www.denisejbeard.com.
There's a useful mortgage product that is available to many homeowners, over the age of 62, who need to get some cash out of their primary residence to use for investing in other properties or any other financial needs they have. It is called a reverse mortgage.
A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence.
Here are the most commonly asked questions and answers about reverse mortgages.
When is a reverse mortgage paid?
A reverse mortgage is a loan against your home that you are not required to pay back as long as you live there. The loan is repaid from the borrower's estate or the eventual sale of the home when the last surviving borrower no longer lives in the home. Money can be received in a lump sum, monthly payments, or through a line of credit.
How do you qualify for a reverse mortgage?
You must be 62 years or older to qualify and there are no income or credit requirements for a reverse mortgage. The amount you can borrow in a reverse mortgage is determined by your age, your home's value and interest rates. The older you are, the more you can borrow.
Will I lose my home?
The bank never takes over the deed unless there is a default. Defaults can occur if the taxes and insurance are not paid current or the homeowner doesn't live in the home for a one-year period.
How you can benefit from a reverse mortgage?
Reverse mortgages can be used to eliminate larger payments, free-up cash in order to invest, travel, pay for college educations, and many other expenses.
Can I qualify for a HUD reverse mortgage?
To be eligible for a HUD reverse mortgage, HUD's Federal Housing Administration requires that the borrower is a homeowner, 62 years of age or older; own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home. You are also required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan.
What types of homes are eligible?
Your home must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved.
Can the lender take my home away if I outlive the loan?
No! You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value.
How much money can I get from my home?
The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.
A reverse mortgage may be the answer for you, but first make sure you meet with an expert who handles these types of loans. Be sure that the expert fully understands your specific needs and can identify if this is the best approach for you.
Denise J. Beard is a Real Estate Broker with Crye-Leike, Realtors in Nashville, serving the Middle
Beautiful all brick home with 4As summer turns some people’s thoughts to second homes, encouraging statistics about this market have been muffled under some of the negative news about the current housing market. According to National Association of Realtors 2007 Investment and Vacation Home Buyers Survey, second-home sales accounted for one-third of all existing and new-home sales in 2007. A large portion of those purchases were vacation homes. Why do families buy these “home away from homes?” The survey found that several factors go into the decision to buy a second home. Eighty-four percent of buyers wanted to use the home as a family retreat; 30 percent plan to use the home as a future primary residence; 26 percent want to diversify investments and 25 percent plan to rent to others.
When deciding to purchase an investment property it is best to contact a mortgage banker first, that why you know exactly how much your monthly investment will be. After contacting a mortgage banker and being pre-approved for a second home, locate a Realtor®, who can help you locate prospective investment properties and who will help you define the rental rates for the area that you are looking. You want to make sure that you will be able to obtain the right amount of cash flow for the property you will purchase.
If you are purchasing a second home out for state for a vacation residence or investment, make you sure you call an agent you know and trust in Nashville first, your agent should be able to help you locate a real estate professional in any part of the world to help facilitate the transaction while you are out of the state.
Denise J. Beard is a Real Estate Broker with Crye-Leike, Realtors in Nashville, serving the Middle
Clairmont Place
Each year thousands of Nashvillians embark on a journey to become a homeowner.
By avoiding these five common mistakes, you will be sure to make an excellent real estate investment.
1) – Not Being Pre-Qualified For Financing Before Looking
When beginning to look for a home, it is important that you know how much you can comfortably spend on a home. Getting pre-qualified for financing will help you develop your price range and help prevent you from being turned down after falling in love with a home. It will also save you the strain of having to find a lender within a few days of conditionally buying a home. In times of fluctuating interest rates it would benefit you to lock in a lower rate. This could save you thousands of dollars if the rate increases while you are in the process of buying a home.
2) - Failing To Seek Out The Services Of An Experienced Realtorรข
Many home buyers are unaware of the fact that in almost every case they are not responsible for paying the agent’s fees; the agent is being paid a commission from the seller. It is always best to seek out an experienced real estate agent that can use their information regarding recently listed and sold properties to get you the lowest price possible. Buying a home without a Realtor is like court without a lawyer. It is imperative that you have someone working in your best interest.
3) - Failing to Research the Market before Making Your Offer
Have your agent prepare all the area sales and comparables in your area and get a copy to look over before you make your offer. This will help ensure that you do not overpay what the home is really worth. In most cases, this is the same type of information that the seller saw when setting the price of their home.
4) – Not Understanding the Common Negotiating Methods Used At Offer Time
Some buyers have been told that the best way to get a good price is to low-ball the seller from the start in hopes that the seller will drop their price down fast in their counter offer. In reality this often does nothing more than upset the seller and will probably end up ruining the chance at an acceptable offer to both of the parties involved. Have good communication with your agent, and they will be able to inform you on the many proper ways to negotiate a deal and still get you the lowest price.
5) - Failing To Complete a Home Inspection
Buying a home often times is the most important investment and financial transaction that you will ever make. A home inspection can save you hundreds or even thousands of dollars. In addition to the inspection, it is often a good idea to request some type of Home Warranty to cover the electrical appliances that come with the home.
Denise J. Beard is a Real Estate Broker with Crye-Leike, Realtors in Nashville, serving the Middle
