Category Archives: Mortgage Spotlight

Right-Sizing with the Right Financing

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If you are 62 years old or older, and thinking about moving, then you might want also to be thinking about a HECM for Purchase Mortgage. A HECM for Purchase Mortgage is a Reverse Mortgage that can be used to buy a new home regardless of whether you currently own your home.

Using a HECM for Purchase? How does it work?

A reverse mortgage, or HECM (Home Equity Conversion Mortgage), is a way to turn the equity in your home into tax-free cash without having to make any monthly mortgage payments. Instead of monthly payments, the loan is repaid in one lump sum when the last borrower leaves the home. As part of the loan, the borrower is required to continue paying property taxes and insurance and maintain the home. Already used by about 1 million households across the United States, a HECM Reverse Mortgage is a Federal Housing Administration (FHA) government insured loan that enables seniors to gain financial independence from their ever increasing living expenses.

The HECM for Purchase Loan allows borrowers 62 years or older to use cash, or the equity from the sale of a previous home to purchase their next primary residence without required monthly mortgage payments, except for taxes, insurance, and general maintenance. Regardless of how long you live in the home or what happens to your home’s value, you only make one, initial investment (down payment) towards the purchase.

When does it make sense to use a HECM for Purchase?

A Home Equity Conversion Mortgage makes sense for seniors looking to use the equity in their current home to purchase a new home of greater value, or to purchase a home of lesser value and use the remaining cash in whatever way they wish. The following are three examples of how a HECM For Purchase works:

Cindy, who is 62, and living in Georgia, is selling her home that is free and clear for $157,000 and wants to buy a new home close to her daughter in Massachusetts. The realtor showed her three properties priced at $157,000 close to her daughter, but they were all too small and old. The next day she drove around her daughter’s neighborhood and saw an open house sign of what could be her dream home. Cindy absolutely loved it but couldn’t afford the $300,000 price tag. The Realtor told her that with a Reverse Mortgage, she may be able to make her dream come true.

Cindy was able to buy a $300,000 home with no monthly payments with $157,000.

Fred and Bernice, who are both 75, are both avid golfers and want to purchase a house on a golf course for $700,000. They currently live in a $650,000 house that has a $50,000 mortgage. But they are nervous about taking money out of their retirement nest egg, and also of tying up all of their equity in a new home.

They met with a Realtor friend who recommended they sell their current house and use only a portion of that money, along with a HECM For Purchase to buy the property on the Golf Course they wanted, while having funds left over to increase their retirement funds.

Fred and Bernice sold their home and were able to pay off the mortgage, buy a $700,000 golf course home with $340,000. with no monthly mortgage payments, and deposit $260,000 into their retirement account.

Norm, who is 75, was sitting at the coffee shop with some of his investment buddies. He wants to downsize his $400,000 property and, with the remaining money, set up an annuity to help his grandchildren pay for college.

Norm bought a $300,000 house with $174,000 down with a HECM loan that has no monthly principal and interest payments, (he still pays taxes, insurance, and maintenance). He put the remaining $226,000 into an annuity to pay for his grand kids college.

Need more information about how a HECM for purchase might help you achieve your financial goals? Email or call Bonny Gilbert, Esq., Reverse Mortgage Specialist, Fairway Independent Mortgage Inc., 617-645-8907; bonnyg@fairwaymc.com.

Mortgage Spotlight: Mortgage Rates Drop – What Does This Mean for Buyers & Sellers?

Lowest mortgage rates since June 2013!

As of October 15th, if you were a well qualified borrower shopping for a mortgage you would have heard quotes under 4.00% on a 30 year fixed mortgage rate (Mortgage News Daily). Mortgage lenders began 2014 with an average rate of 4.625% and the general consensus of experts was that rates would rise by the end of the year. In fact, many industry professionals predicted that the average 30 year fixed rate would hit 5.00% by year end. So…why didn’t things go as expected and what does it mean for home Buyers and Sellers?

Why were rates expected to go up this year?

The answer, if we boil it down to simple terms, is that the Federal Reserve has been slowly ending its debt and bond buying program. Put in place in September 2012 with the intent to keep long term interest rates low, the Fed began buying debt and bonds backed by home loans. The goal – keep mortgage rates low in order to boost home sales and property values. As the US economy showed glimpses of recovery, the Fed started easing off the purchase program. The general consensus was that as the influx of money from the Fed tapered off, mortgage rates would rise.

If the tapering happened as expected, why did rates go down, not up?

We can go back to the basics of supply and demand economics. There have been enough signs of weakness in housing and global markets to make investors nervous. When investors are nervous, they pull money from riskier investments (i.e. stocks), and move to safer investments – bonds and mortgage backed securities. As demand for these safer investments goes up mortgage rates go down.

Back to what really matters — What do lower rates mean for buyers and sellers?

If you are a buyer, lower rates turn into increased purchase power – you can buy a more expensive home and have the same or lower monthly payment. Let’s use an example of a buyer pre-approved early in the year for a purchase price of $450,000 with 20% down and loan amount of $360,000. At a rate of 4.625% on a 30 year fixed rate mortgage the principal and interest payment on this loan would be $1,851. Now, at a rate of 4.00%, the same borrower could be approved for a loan of $390,000 with a payment of $1,838. Assuming the same down payment of $90,000 this buyer could purchase a home of $475,000 — $25,000 more than earlier this year with a lower monthly payment.

If you are selling a home, lower rates mean there are more qualified buyers to pick from. This situation allows sellers to have more control in negotiations over the terms of the transaction. Additionally, if you have been reluctant to sell due to fear that you may not find the right home to move to, you are now qualified to buy at a higher price…you may be able to afford a home now that you could not afford earlier in the year.

Bottom line – it is a great time for home buyers and sellers!

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This is a guest blog post from Mortgage Loan Advisor, Nancy Abbott of Fairway
Independent Mortgage.

Nancy can be reached at 857.300.6791 and nancya@fairwaymc.com

MORTGAGE SPOTLIGHT: Can Fellowship Income Be Used to Qualify for a Mortgage?

Many home buyers in the Boston area receive fellowship income as part of their student experience at local colleges and universities.

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In general, most mortgage companies and banks will NOT allow the use of fellowship income when qualifying a buyer for a mortgage.

To determine whether your income is allowable for qualification, a buyer will be asked to provide paystubs, W2s, tax returns, and a job offer letter or verification of employment.

Confusing?

The use of fellowship income gets confusing when a buyer has a job title such as “Clinical Fellow.” These buyers may receive regular income that is taxable and not connected to being a student, but their income is dependent on a grant.

In this case, a mortgage company will want to review the documents listed above to determine if the income they receive is considered fellowship income, and if the income is expected to continue for a minimum of 3 years.

Even if a 3 year continuance can be determined, some companies will not accept this type of income as the buyer’s job appears to be dependent on a grant. There is a certain level of risk associated with the grant ending or not being renewed, which would theoretically threaten the employment status of the buyer.

Options?

If you do have fellowship income that cannot be used to qualify for a mortgage, adding a co-borrower or co-signer, like a parent, to the loan for their income can help you buy without any of your own income used for qualification.

If you’d like to find out what you qualify for, start a no-obligation 2-Step Pre-Approval today!

This is a guest blog post from Mortgage Loan Advisor, Jarred Alexandrov from Fairway Mortgage. He can be reached at 857.300.6783 and jarreda@fairwaymc.com