A New Kind of Loan: In Reverse

A "reverse" mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. The cash you get from a reverse mortgage can be paid to you in several ways:
 all at once, in a single lump sum of cash;
 as a regular monthly cash advance;
 as a "creditline" account that lets you decide when and how much of your available cash is paid to you; or
 as a combination of these payment methods.
 
No matter how this loan is paid out to you, you typically don't have to pay anything back until you die, sell your home, or permanently move out of your home. To be eligible for most reverse mortgages, you must own your home and be 62 years of age or older.

Other Home Loans

To qualify for most home loans, the lender checks your income to see how much you can afford to pay back each month. But with a reverse mortgage, you don't have to make monthly repayments. So you don't need a minimum amount of income to qualify for a reverse mortgage. You could have no income and still be able to get a reverse mortgage.

With most home loans, you could lose your home if you don't make your monthly payments. But with a reverse mortgage, there aren't any monthly repayments to make. So you can't lose your home by not making them. Most reverse mortgages require no repayment for as long as youor any co-owner(s)live in the home. So they differ from other home loans in these important ways:
 you don't need an income to qualify for a reverse mortgage; and
 you don't have to make monthly repayments on a reverse mortgage.

"Forward" Mortgages

You can see how a reverse mortgage works by comparing it to a "forward" mortgage the kind you use to buy a home. Both types of mortgages create debt against your home. And both affect how much equity or ownership value you have in your home. But they do so in opposite ways.
"Debt" is the amount of money you owe a lender. It includes cash advances made to you or for your benefit, plus interest. "Home equity" means the value of your home (what it would sell for) minus any debt against it. For example, if your home is worth $150,000 and you still owe $30,000 on your mortgage, your home equity is $120,000.

Falling Debt, Rising Equity

When you purchased your home, you probably made a small down payment and borrowed the rest of the money you needed to buy it. Then you paid back your traditional "forward" mortgage loan every month over many years. During that time:
 your debt decreased; and
 your home equity increased.

As you made each repayment, the amount you owed (your debt or "loan balance") grew smaller. But your ownership value (your "equity") grew larger. If you eventually made a final mortgage payment, you then owed nothing, and your home equity equaled the value of your home. In short, your forward mortgage was a "falling debt, rising equity" type of deal.

Rising Debt, Falling Equity

Reverse mortgages have a different purpose than forward mortgages do. With a forward mortgage, you use your income to repay debt, and this builds up equity in your home. But with a reverse mortgage, you are taking the equity out in cash. So with a reverse mortgage:
 your debt increases; and
 your home equity decreases.

It's just the opposite, or reverse, of a forward mortgage. With a reverse mortgage, the lender sends you cash, and you make no repayments. So the amount you owe (your debt) gets larger as you get more and more cash and more interest is added to your loan balance. As your debt grows, your equity shrinks, unless your home's value is growing at a high rate.

When a reverse mortgage becomes due and payable, you may owe a lot of money and your equity may be very small. If you have the loan for a long time, or if your home's value decreases, there may not be any equity left at the end of the loan.

In short, a reverse mortgage is a "rising debt, falling equity" type of deal. But that is exactly what informed reverse mortgage borrowers want: to "spend down" their home equity while they live in their homes, without having to make monthly loan repayments. There's more about this important concept in an article called "A 'Rising Debt' Loan" in the Basics section of this site.

Exception

Reverse mortgages don't always have rising debt and falling equity. For example, if a home's value grows rapidly, your equity could increase over time. But most home values don't grow at consistently high rates, so the majority of reverse mortgages end up being "rising debt, falling equity" loans.

Source: AARP Foundation Reverse Mortgage Education Project | November 2008

$8,000 First Time Homebuyer Tax Credit

Great news! If you are a potential first-time homebuyer, the stimulus package that was recently passed contains a tax credit up to $8,000 for first-time homebuyers.
 
Why should you get excited? Well, there was a $7,500 tax credit that was approved in July 2008, but it required repayment, so it was basically an interest-free 15-year loan.

This new tax credit is a true credit that does not have to be paid back (unless you sell the house in 3 years).  Plus, it is a credit against your tax liability, meaning you could actually pocket money.  Let's say you owe $3,000 in taxes and qualified for the $8,000 tax credit, you could get $5,000 back in the form of a refund!
 
How does it work? Purchase a home between January 1, 2009 and November 30, 2009 and you are on your way to eligibility.  Income restrictions do apply and start at $75,000 for single-filers and $150,000 for joint filers.  Please consult a tax advisor regarding your own eligibility and the application of the tax credit.

Who is a first-time homebuyer? It is someone that has not owned a primary residence that they lived in over the past 3 years.  Let's say you have been renting for the past 4 years, but did own a home prior to that but sold it.  You would qualify as a first-time homebuyer since you have not owned a primary residence in the past 3 years!

Finally - mortgage rates are still historically low and the affordability factor for housing in the markets we serve all add up to a perfect opportunity to consider that step up to owning your first home

Source: Arvest Blog Monday, March 09

   Why you should choose Tina Compton to help you buy or sell a home?


Not all real estate practitioners are REALTORS®. The term REALTOR® is a registered trademark that identifies a real estate professional who is a member of the NATIONAL ASSOCIATION of REALTORS® and subscribes to its strict Code of Ethics. Here are five reasons why it pays to work with a REALTOR®.

1. You will have an expert to guide you through the process. Buying or selling a home usually requires disclosure forms, inspection reports, mortgage documents, insurance policies, deeds, and multi-page settlement statements. A knowledgeable expert will help you prepare the best deal, and avoid delays or costly mistakes.

2. Get objective information and opinions. REALTORS® can provide local community information on utilities, zoning, schools, and more. They will also be able to provide objective information about each property. A professional will be able to help you answer these two important questions: Will the property provide the environment I want for a home or investment? Second, will the property have resale value when I am ready to sell?

3. Find the best property out there. Sometimes the property you are seeking is available but not actively advertised in the market, and it will take some investigation by your REALTOR® to find all available properties.

4. Benefit from their negotiating experience. There are many negotiating factors, including but not limited to price, financing, terms, date of possession, and inclusion or exclusion of repairs, furnishings, or equipment. In addition, the purchase agreement should provide a period of time for you to complete appropriate inspections and investigations of the property before you are bound to complete the purchase. Your agent can advise you as to which investigations and inspections are recommended or required.

5. Property marketing power. Real estate does not sell due to advertising alone. In fact, a large share of real estate sales comes as the result of a practitioners contacts through previous clients, referrals, friends, and family. When a property is marketed with the help of a REALTOR®, you do not have to allow strangers into your home. Your REALTOR® will generally prescreen and accompany qualified prospects through your property.

6. Real estate has its own language. If you do not know a CMA from a PUD, you can understand why it is important to work with a professional who is immersed in the industry and knows the real estate language.

7. REALTORS® have done it before. Most people buy and sell only a few homes in a lifetime, usually with quite a few years in between each purchase. And even if you have done it before, laws and regulations change. REALTORS®, on the other hand, handle hundreds of real estate transactions over the course of their career. Having an expert on your side is critical.

8. Buying and selling is emotional. A home often symbolizes family, rest, and security it is not just four walls and a roof. Because of this, home buying and selling can be an emotional undertaking. And for most people, a home is the biggest purchase they will ever make. Having a concerned, but objective, third party helps you stay focused on both the emotional and financial issues most important to you.

9. Ethical treatment. Every member of the NATIONAL ASSOCIATION of REALTORS® makes a commitment to adhere to a strict Code of Ethics, which is based on professionalism and protection of the public. As a customer of a REALTOR®, you can expect honest and ethical treatment in all transaction-related matters. It is mandatory for REALTORS® to take the Code of Ethics orientation and they are also required to complete a refresher course every four years.

Reprinted from REALTOR® magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Copyright 2008. All rights reserved.