Monday, December 31, 2012

Alternatives to a Reverse Mortgage



Alternatives to a Reverse Mortgage


By: Barbara Eisner BayerArticle From HouseLogic.com



Before you succumb to the temptation to tap into your home equity with a reverse mortgage, consider some of the Alternatives to a Reverse Mortgage available to seniors.

Rex Agreements

A REX Agreement can, in some cases, be a reasonable alternative to a reverse mortgage. You can convert up to 50% of your single-family home's value into cash (maximum $300,000) by giving EquityRock, which administers the real estate investment agreements, an option to take a cut of the profit when you sell your house.

Unlike a reverse mortgage, it's only available in 14 states—California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Virginia, and Washington—and age is no barrier. You must have a minimum 25% home equity and a good credit history to qualify.

Because a REX Agreement isn't a loan, there are no monthly payments or interest charges. And while the comparison isn't apples to apples, it costs much less to close on a REX than a reverse mortgage. If your home is worth $250,000, for example, you'd pay third-party closing costs for both a reverse mortgage and a REX of about $3,000.

For a reverse mortgage, you'd also pay a $5,000 origination fee and a $5,000 upfront fee for mortgage insurance. (Keep in mind, however, that reverse mortgage expenses are rolled into the loan rather than coming out of pocket.) When you sell your home, EquityRock will be entitled to a chunk of the proceeds.
The more profits you're willing to give up in the future, the more money a REX will land you now. Let's say you're 75 and own a home valued at $250,000. If you opt for a REX with a 50-50 profit split, you'd receive $31,250. In a typical scenario, the same 75-year-old could take $67,742 from a reverse mortgage, about half of what he'd qualify for, according to AARP.

If you sell in 12 years for $500,000, you'll owe $203,771 on your reverse mortgage, which would leave you with $296,229. With a REX, you'd walk away with $375,000 (minus transaction costs and your original $31,250 advance). But if you sold your home for $750,000, a reverse mortgage would net you $546,229, while a REX would earn you less: $500,000 minus costs and the advance.

A REX really pays off if you sell your home at a loss after five years, when the agreement's penalty period expires. In this scenario you'd keep the cash fronted to you and all of the sale proceeds. Remember, EquityRock is only entitled to a cut of profits. With a reverse mortgage you'd still need to pay back the loan.
Since EquityRock isn't in the charity business, expect the company to offer less cash, or even turn down applications, in areas where there's perceived risk that home prices won't appreciate at an attractive pace. 

Also watch for low-ball appraisals, which can come back to haunt you when you sell and split the profits. Another area of concern is taxes. With a REX agreement, the money you receive is tax-deferred—you'll need to pay Uncle Sam eventually. Consult a tax advisor.

Home equity line of credit (HELOC)

A HELOC seems like a sensible reverse-mortgage alternative. You gain access to a line of credit, the money can be tapped when you need it for anything you want, rates are typically lower than those on credit cards, and you may even be able to write off the interest come tax time. The closing fees tend to be low too.

The first-blush advantages retreat as you probe further, however. With a typical HELOC, you make interest-only payments during the first 10 years. This is known as the draw period. After that, you're required to make monthly principal and interest payments that are usually based on an adjustable rate.

If you take out a HELOC, you will not have to pay off your traditional first mortgage. When you take out a reverse mortgage, you must pay off any balance remaining on your first mortgage.

Fall far enough behind and the bank can take your home. Lenders can also terminate HELOCs or reduce the amount available for borrowing. Another reason that a HELOC isn't ideal for retirees is that qualifying means producing proof of income.

Lifestyle changes

Even though you love your home, if it becomes a financial burden, you may need to consider options other than borrowing. You could sell the house and rent a smaller one or an apartment. Some rents even include utilities. Or consider moving in with a family member. Don't assume you'll be a burden—you may actually take the burden off your loved one by pitching in with babysitting or cooking.

With the cash that you'd be pocketing from the sale, and your reduced living expenses, you could fund your retirement without taking on any additional debt. If you absolutely must keep your home, a part-time job will increase cash flow. Or consider getting a roommate. You'll lose some privacy, but you'll gain peace of mind.

Barbara Eisner Bayer has written about mortgages and personal finance for the past 15 years for Motley Fool, Daily Plan-It, and Nurse Village, and is the former Managing Editor of Mortgageloan.com and Credit-land.com. She splits time between a beachfront condo and a mountain retreat, which leaves her with double the pleasure and double the headaches of home ownership. 

Do you have a Reverse Mortgage?  What are your Alternatives to a Reverse Mortgage?


"Visit HouseLogic.com for more articles like this.  Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS." 

Related Articles:   http://bonniehicksrealtor.wordpress.com/2012/12/19/reverse-mortgage-loans-pros-and-cons/







Wednesday, December 19, 2012

Should You Go Forward With a Reverse Mortgage?



Should You Go Forward With a Reverse Mortgage? 


By: Dona DeZube    Article From HouseLogic.com

Big lenders in the reverse mortgage business — Wells Fargo this month and Bank of America earlier this year — have pulled out of the market and won’t issue any new reverse mortgages. But MetLife and several smaller companies plan to stay in the market, so you won’t have issues finding a reverse mortgage if you want one.

But should you go forward with a reverse mortgage? Only get one if you:
  • Have equity in your home and no way of paying the bills other than selling your home and living on the proceeds (because reverse mortgages have steep upfront fees).
  • Can pay the property taxes and home owners insurance bills from now until you die with or without the money you’re getting from the reverse mortgage. More on that later.
With a reverse mortgage, if you’re 62 or older, you get to cash out your equity (the bank keeps some as an insurance policy on the “loan”) and keep the house. The bank pays you the value of your house either in a lump sum, in fixed monthly payments, or gives you a line of equity, all of which are based on formulas taking into account your home’s appraised value, current interest rates, and the youngest applicant’s age. 

Because you don’t pay back a reverse mortgage, you don’t have to prove you have a future income the way you do with a regular mortgage — the reverse mortgage is your future income.

If you opt for the lump sum and spend it all, the bank can’t force you to move out. You get to stay until you die, or until you’re out of the house for a year, presumably in a rest home.

The catch: If you don’t pay your property taxes, the bank would have to pay them for you or foreclose before the tax man can sell your home to cover the taxes you owe.
If you don’t pay your insurance premiums, the bank can put an insurance policy on your house and then ask you to pay for it. But if you can’t pay the bill, the bank has to get permission from the U.S. Department of Housing and Urban Development, which backs reverse mortgages, to foreclose on you. And, so far, HUD hasn’t allowed any reverse mortgage foreclosures.
By the way, Wells Fargo has implied it’s leaving the market because HUD isn’t moving fast enough to come up with a financial assessment that would allow banks to turn down reverse mortgage borrowers who aren’t qualified and also solve the tax and insurance issues.

Are you a fit for a reverse mortgage?

Before you sign up for a reverse mortgage, do some budget projections to make sure you’ll be able to continue to pay your property taxes and insurance bills in the future.

If you know how much your home owners insurance and property taxes have risen in your town each year over the past 10 years, you can calculate how much they’ll be in 30 years. If, like me, you just know they always go up, but you’re not sure how much, you can use a general inflation calculator to estimate your costs out to 2070.

A reverse mortgage can be a blessing if your retirement income just isn’t going as far as your retirement costs. Getting to cash out your equity and not having to move truly is having your birthday cake and eating it, too, as long as you have enough cash to make sure you don’t outlive the party.

Would you take out a reverse mortgage to pay for home costs during your retirement?

"Visit HouseLogic.com for more articles like this.  Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS." 


Additional Resources:   http://wp.me/p2j7Xv-cr

Monday, December 10, 2012

Market Update Birmingham MLS for November, 2012

What a great time to buy!!  Check out the market conditions for November, 2012, from the Birmingham Area MLS system. 
Which area are you interested in?  They are all here for your review.

Market Update Birmingham MLS for November, 2012


Tuesday, December 4, 2012

Storage Solutions for Kids

Is finding ample space for your kid's room a problem?  Take a look at these helpful hints on kid storage space solutions.

Kids' Rooms:  Storage Solutions for Every Age!

Thursday, November 8, 2012

Condition of the Market October 2012 Birmingham Area



Thinking about moving to the Birmingham Area?  Click the link to review the Market Update for the month of October, 2012, per data from the Birmingham Area MLS.